Cost Escalation In Construction

Abstract

The construction industry is an important sector in any economy and significantly contributes to the socio-economic development of a country. Cost escalation is one of the important identified risks faced by the construction industry. This can be accounted for a substantial part of construction cost especially in long term projects where the uncertainty is greater. Hence to overcome this problem there arises a need to access the risk of cost escalation in construction program. Therefore the objective of the study is to propose new and modified theories so that the subject area inclines towards accuracy and perfection under the case study of a building construction project. The study throws light on the existing traditional method such

Introduction

1.1General

In developing country such as in India cost escalation is one of the major phenomenon faced by the construction industry which has led to delay of several other projects associated with it. Thus there is need for more realistic approach towards the management of cost associated with the projects. In general construction projects ranges from several months to several years. Therefore there is probability that the cost of labour and material increases hence increases the cost of project.

Escalation is a risk that can account for a substantial part of construction cost, especially in long term projects where the variability and uncertainty is greater. In multi-project programs, the effect of escalation can be the prime concern. Cost escalation in construction project refers to anticipated increase in cost of constructing a project over a period. Cost increase usually occur as a result of fluctuation of market forces and reflect increases in the cost of material/ labour and higher levels of construction activity.

1.2 Literature

But the correlation among various risks associated with escalation and their interdependency is not yet reported. Therefore, the main objective of this study reflects methods by which participants in construction projects can both track the extent of escalation and work together to minimize the impact of cost escalation on the success of a project.

1.3 Case Study

Academic cum library building for NITIE, Powai, Mumbai was taken as a case study. A tender document, bill of quantities and abstract sheets provides necessary data for project cost and scheduling activities.

2. Traditional Method (WPI)

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 676 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy. WPI is a measure to monitor the movement of general level of prices in the economy. It is widely used by Government, banks, industry and business