TC70020E MSC CONSTRUCTION PROJECT MANAGEMENT SAMPLE

Introduction

Procurement process is an essential part of developing a construction project without hampering initial budget and costs. A paediatric hospital has been developed in Dublin which is used as a Research innovation centre with some advanced facilities for children who are suffering from rare and complicated diseases. This report is evaluating procurement method of this project to its client “National Paediatric Hospital Development Board”. Pre and post-cost factors impact project costs so this report is focusing in identifying some factors that might affect spiralling costs of this Children’s Hospital project. Various cost control methods such as budget planning, time management are going to be evaluated in this report that might reduce total cost of this project. However, in developing any project conflict resolution can create difficulties in project development that can increase cost of that project. This report is going to highlight conflict resolution methods that might arise in this project development which can impact the client of this project. This report is conducting financial analysis to ensure investment return of clients of this project.

Identification of pre and post-contract factors impacting spiralling cost of children’s hospital project

Pre-contract factors that might affect spiralling cost

Pre-contract planning is a crucial part of development of a construction project in order to pre-estimate project budget and structure procurement process. In case of this construction project for developing a children’s hospital a main factor that can impact spiralling costs is the construction tender price (Thejournal.ie, 2021). Core and pre-estimated tender price of this project was increased during the development process and escalated budget of this project to nearly 1.433 billion Euros (Thejournal.ie, 2021). This pre-contract factor increased spiralling cost of this project and made some difficulties regarding project development for contractors. However, according to David Cullinane, this cost for project completion might touch the bar of 2 billion Euros (Thejournal.ie, 2021). In this scenario, the role of the CEO of “National Paediatric Hospital Development Board (NPHDB)” is important but officials have refused to disclose updated project costs. In preparing contracts identification of project characteristics is crucial that can ensure project success.

Figure 1: Increased cost of hospital project

(Source: Merrionstreet.ie, 2019)

In this case of a hospital project affecting factors for spiralling cost depends on Client and project characteristics. In opinion of Shooshtarian et al. (2020), location of ongoing project is a factor that might influence cost of project by increasing cost of delivery of raw materials. The increasing cost of delivery might increase resource costs and impact on procurement process. On another view, Chileshe et al. (2020) commented, local governmental policies might influence characteristics of projects and impact tender conditions. NPHDB followed to receive potential benefits of stable political condition of Ireland in development of this hospitality project (Brexitlegal.ie, 2021). Market conditions and external factors like inflation are other pre-contract factors that influence development of budget. As per view of Saeidi et al. (2019), Level of competition impacts cost of an ongoing project and controls efficiency of that project. Market competition impacts labour costs and material costs required to be used in the project as a part of an effective procurement process. However, on another hand, Farooq et al. (2021), stated that inflation and interest rate in the country is a crucial factor behind project cost acceleration. Construction of National children’s hospital faces issues due to rising inflation rate. David Gunning, CEO of NPHDB stated that due to inflation payment of contractors has increased to 21.16 million Euros from 17.89 million Euros due to rising inflation (Dublinlive.ie, 2022). However David also added that average tender price inflation applied in 2021 is around 10.24% which impacted spiralling cost of this project (Dublinlive.ie, 2022). In addition to this, inaccurate cost estimation of the project due to a lack of efficiency in budget planning is also a pre-contract factor that might impact spiralling cost of this project.

Post-contract factors that might affect spiralling cost

Period of post-contract includes the evaluation of all aspects of obligations of contractors at final stage of project development. Different post-contact factors might affect project budget and project success. The Hospital project in Dublin might face difficulties regarding contract administration which is a post-contact factor. As opined by Górecki et al. (2019), cyclic verification of contracts a different style of project development is an effective process to tally estimated development and present condition. However, a regular check-in contract agreement provides an opportunity to maintain a level of cost at every stage of this ongoing project. Lack of effectiveness in managing contracts might cost excess capital in maintaining contract value with clients. On contrary, Hussein, (2021), commented renewal and expiration tracking of signed contracts might help in developing quality management of client and project associates and ensure project success. However, maintaining contract clauses is an essential part of project development that can aid to prevent escalation of spiralling cost of this hospital project and maintain an effective procurement process.

Figure 2: Budget and cost of children’s hospital project

(Source: Merrionstreet.ie, 2019)

A detailed contract audit is also a part of maintaining a successful contract to avoid any chances of penalties and other unnecessary costs regarding contract complications. Hence, lack of a detailed audit after contract completion might increase difficulties regarding maintaining budget of this project. However, a sudden breach of the contract is another factor that can affect procurement process and impact spiralling cost of this project. As per view of Lugard, (2020), contract breach or expiration increases chances of penalty for accused party in projects that might affect overall project budget in this process. Changing situations of project environment regarding client-contractor dispute affects acceleration of projects and increase potential cost of operation. This paediatric hospital construction project might face issues regarding client satisfaction and other defects of this projects that might trigger excess spiralling costs for this project. Resolution of disputes is also an effective factor of post-contract that might increase speed of project development and reduce excess cost of operation (Raji et al. 2019). However, these post-contract factors could increase costs of this ongoing project and create issues for project development. Hence, resolving these issues is crucial for both client and project authority in order to avoid escalation of spiralling costs.

Comparison of effectiveness of cost control methods

Table 1: Comparison of cost control method

(Source: Created by author)

Analysis:

 Controlling cost of construction projects is an essential part as incorporation of an effective cost-controlling method ensures project success. A structured design of project budget is an effective method to reduce any excess cost from project development. However, a structured budget provides an opportunity to evaluate project success in each step of development. It also enables managers to compare pre-estimated cost and required cost to identify any changes in the method (Elghaish et al. 2020). Identification of excess budget in preliminary times aids project managers in preparing ways to reduce further costs in future. On other hand, time management is an effective way to maintain speed of project development. It aids to prevent any chances of cost escalation due to excess time. In this project, meeting deadlines is a crucial factor to enhance quality of project and reduce excessive costs that it faces due to time extension. However, in project comepletation understanding nature of ongoing environment is essential to modify development plan according to it (Chan et al. 2019). It aids to reduce chances of spending extra costs due to sudden changes.

Evaluation of effectiveness of cost control methods in reducing project cost

Cost control methods aids in preventing any excess cost in project development that reduces the final budget of projects. Reducing required time of projects is also an effective measure to control labour and material costs that aids to reduce overall cost for this project. Increased demand of society forces clients to maintain efficiency of project during development phase (Potts and Ankrah, 2014). However, failure in meeting timeline of a project according to estimated one increases overall cost of project. Developing a budget plan according to available resources, labours, and essential equipment enables project managers to design different sectors and allocate budget according to available resources. Looking for cheaper resources without compromising quality of materials is an effective way to reduce costs. Budget plan includes a framework for resourcing materials, utilising them and completing projects in a provided time. This project of hospital faces a rise in estimated cost. The budget of this project has been raised by 450 million Euros which is an additional cost in this project (Dublinlive.ie, 2022). Estimated cost of this project in 2014 was 800 million Euros which has been raised to 1.43 billion Euros in August 2021 (Dublinlive.ie, 2022). In this scenario of Children’s Hospital managing cost of project is essential to decrease sudden hikes in the estimated cost of this project. Controlling these costs requires a strong management plan that can specify further steps regarding this project.

Figure 3: Increase in project cost of Hospital project

(Source: Eolasmagazine.ie, 2019)

Excess cost of this project might be nullified through revising source channels, reducing use of heavy equipment for which management needs to pay high rent and organising a development strategy to utilise available resources in this development process. Managing the time for this project is a crucial factor which could aid project managers in completing this project within required time to reduce excess costs of this project. Increasing workforce in this project will aid to reduce project completion time so the cost regarding space occupation, equipment rate can be mitigated (Researchonline.ljmu.ac.uk, 2021).  Managing the time enables contractors to meet deadlines of project tasks that aid to avoid the chances of penalties. As opined by Tang et al. (2020), a late fine is a hidden cost of project completion that increases budget for project development. However, reducing this hidden cost from project is one of the effectiveness of time management that can aid this hospital project to enhance project quality and ensure project success. In addition to this, incorporating a changed control system in project development aids to adopt any changes during project development to avoid excess costs in tackling difficult situations. These changes may be environmental or political or other factors. Effectiveness of change management system aids to create a resilient structure to tackle natural disasters during construction of Hospital.

Critical evaluation of conflict resolution method

Conflict between clients and project managers or contractors is a common issue for project development. Effective identification of type of conflict is a crucial part that can aid to adopt a suitable conflict resolution strategy in order to get maximised results. Five types of conflict resolution methods Collaborating Style, Competing Style, Avoiding Style, Accommodating Style and Compromising Style are available that can aid to reduce internal conflict in any project effectively (Ribeiro et al. 2019). In this hospital project collaborating style, compromising style and accommodating style will aid in resolving conflict without a major impact on both parties.

Figure 4: Methods of conflict management

(Source: Clarityleadership.co.uk, 2019)

• Collaborating style- Collaborating style is an effective conflict resolution technique in which both parties receive a positive solution and enjoys a win-win situation. Collaborative style of conflict management offers a combination of being cooperative and assertive in managing conflict (gov, 2019). In project development following collaborating style enables clients and contractors to satisfy each other’s needs without major compromisation. As per view of Ellemers et al. (2020), collaborating conflict resolution offers an opportunity to work mutually and receive a mutually beneficial result. Contractors and project managers of this hospital project will be enabling to develop effective internal communication that can aid to increase understanding and trust in overall project development process. However, it also aids to conduct frequent meetings with clients to understand their points of view in order to plan next strategy for this project. On other hand. Collaborating style of conflict resolution is a time-consuming process that hampers normal pace of project and increases potential costs (Digital.gov, 2019). Active listening skill is required to conduct this style of conflict resolution which enables both parties related to project to understand the requirement and develop a creative plan according to it.
• Accommodating style- Accommodating style is an effective style of conflict resolution that aids in prioritising relationships in managing major issues (Crowe-associates.co.uk, 2019). Maintaining a good relationship with clients and other components of a project is an essential part of project success. It is an effective style of conflict management for long term where client needs to work with contractors and project managers for a long time. In this hospital project following an accommodating style will aid to increase communication and prioritise internal relations in order to mitigate any conflict. Accommodating style aids in minimising loss in process of conflict resolution (Tabassi et al. 2019). Accommodating style prefers to keep peace while organising any project to enhance project outcome. On contrary, following this style might increase chances of power imbalances (gov, 2019). In this hospital project, managing relationships with contractors or project managers will force clients to remain silent in some matters that can provide excessive power to the contractor. In conducting this project, excess power to contractor could create issues regarding meeting deadlines and managing project costs.
• Compromising style- In compromising style aids in resolving conflicts by following mutual compromisation of both parties. However, this style also aids in developing mutual benefits for both parties in the conflict management process. It can be considered a win-win outcome for client and contractor in this construction project of children’s hospital. Following the compromising style of conflict resolution is more effective and rapid than other styles of conflict management which can be considered as the potential advantage of this style (gov, 2019). Client can organise meetings with the associates involved in this project in order to evaluate and balance importance of compromisation of each factor in resolving the conflict. Following this conflict-resolving method enables project managers to respond quickly to these issues and prevent excessive time consumption. Consuming less time in resolving conflicts aids to reduce potential cost of completing this project. However, following this style of conflict management increases changes of dissatisfaction that can cause another conflict in future (Noermijati et al. 2019). It also limits the usage of creativity in resolving any conflict and promotes sacrifice which is a disadvantage of this method.

Assessment of financial analysis method

NPV (Net Present Value) is an effective factor for capitalising budget of this project and ensuring financial stability. NPV is a workout example of financial analysis that reflects the difference between the present cash flow value and the future value of the cash flow in the project (Ionos.co.uk, 2021). If the present value of all the future cash flows tends to be positive during NPV calculation, the project could be accepted. This project is estimated to complete in 2018 but the date of completing this project has been delayed to 2024 (Dublinlive.ie, 2022). During this time, the value of cash inflow will be increased due to rising inflation which might also affect the cost structure of this project and reduce overall effectiveness of budget.

Payback method is another option that reflects the timeline to recover the invested capital in the project. It includes calculation of real values and future costs of this ongoing project in order to evaluate required timelines (Designingbuildings.co.uk, 2021). It includes overall investment on this project including capital invested in heavy equipment that made this project feasible. However, in this project management invested capital already exceeds the estimated value. In this case an overall period of payback will depend on some factors that might return excess investment as lucrative capital for investors.

Using sustainable materials in building development aids in increasing lifetime of the structure and increases whole life cycle cost. Whole life cycle costing is an effective tool that can be used to identify possible lowest-cost options for the commercial life of any construction (Willmottdixon.co.uk, 2021). Better whole-life costing reduces chances of unplanned repairs and excess maintenance costs. In case of this hospital development project maintaining an extended lifetime is an essential option for clients as it follows to serve advanced service to children with complicated diseases. Repetitive cases of maintenance will impact the service of this hospital in future. Hence, this project requires maintaining the whole life cost of this project for reducing major financial issues in future.

Conclusion

It can be concluded from this report that an effective cost-reduction method is essential for ensuring project success. In Dublin, a children’s hospital and research-innovation centre is developed and targeted to provide world-class facilities. The pre-contract factors such as tender price and market condition might impact spiralling cost of this project. An increasing rate of inflation impacts contract conditions and increases budget. A comparison of the cost control methods such as budget planning and time management has been conducted and evaluated. Understanding conflict resolution methods is a crucial part of accelerating project speed and reducing potential costs. Collaborating and accommodating style of conflict management is suitable for clients of this project. In addition to this, evaluating financial analysis is an effective part of project success. NPV, Payback method and whole life cycle costing are analysed in this report to review the financial stability and condition of the children’s hospital project.

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