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Causes of Inefficient Site Cost Management Systems in Arabian Gulf

Construction Companies

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 Journal of Construction Engineering, Technology and Management
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)
Volume 4, Issue 3
www.stmjournals.com

Causes of Inefficient Site Cost Management Systems in

Arabian Gulf Construction Companies
Orabi Al-Rawi1, Raji Al-Ani2*, Zaher A. Yousef3
1
Civil Engineering Dept., Isra University, Hyderabad, Sindh, Pakistan
2
Civil Engineering Department, Isra University, Jordan
3
Department of Construction Engineering, Senior Engineer in Joannou & Paraskevaides (J&P)
Overseas Contracting Company, Saudi Arabia

Abstract
The cost of construction projects has a long history of exceeding the planned cost. At the
project level, this is termed as “Project Cost over Run”. This research reviews the main
causes of the inefficiency in the existed cost management systems applied by the Arabian
Gulf Contracting Companies at the construction stage. The requirements of having an
efficient cost management system (recording, monitoring and controlling functions) have
been collected from previous researches to be used in a field survey on the construction
companies in the Arabian Gulf to highlight the main causes behind inefficient
management functions (monitoring and controlling of site costs in the construction
projects in the region. This research is the first part of a M.Sc. research work which has
been taken place on Saudi Arabian and Bahraini contracting companies to identify the
efficiency of existed cost monitoring and control methods applied by these companies in
their projects. The highlighted causes will assist project management of the construction
companies in the Arabian Gulf region, as well as the other contracting companies, in
evaluating and improving their monitoring and controlling their site cost at the
construction stage.

Keywords: project management, construction management, cost management, site

management

*Author for Correspondence E-mail: raji.alani@iu.edu.jo

INTRODUCTION such problem?” This paper is discussing the

The Construction industry is among the
world’s most growing sectors. In the Gulf
Cooperation Council Countries (GCC);
construction has been booming for long time,
with the total value of projects in these
countries planned or underway on 20 July,
2009 totaling 2,677 billion USD [1], and
obviously, the project cost growth in this
sector will be deeply influential. With this
rapid increase in the projects’ costs and
complexity, the construction industry in these
countries is still suffering from a deficiency in
the applied site controlling systems. This
deficiency has caused excessive increases in
the project completion costs. No previous
researches have tried to answer the question of
“why are the GCC construction projects
suffering from increases in their completion
costs, and how it will be possible to eliminate
reasons behind this deficiency, and how can
the project management overcome these
deficiencies on site. The research work in the
paper has been divided into two parts. The first
part is discussing the evaluation of the existed
site cost control methods, in order to identify
the deficiency features. The second part of the
paper is discussing how these features were
then implemented in a proposed site control
management system for project managers in
the GCC construction industry to assist them
to overcome any expected cost overrun on the
site. The proposed site cost control system is
promised to fulfill the needs of the GCC
construction industry for having an efficient
site cost control system by using Earned Value
Technique which has the ability to track site
construction cost and performance status, and
give expectations of forwarded completion

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Causes of Inefficient Site Cost Management Systems Al-Rawi et al.

costs and performance according to the up-to-
date project costs and work progress.
COST CONTROL METHODS
Generally, a few researches have been
conducted on the construction cost control,
however, studies on cost control systems are
very rare. For simplification, the paper has
classified the cost control systems into two
main types: a separate cost-schedule methods
and the integrated cost-schedule control
methods, as shown in Table 1.
EARNED VALUE TECHNIQUE EVT
The concept of earned value has been around
for many years; however, 30 years have
passed since it was part of what so-called:
cost/schedule control system criteria
(C/SCSC). Though, Earned Value has gained
several names such as: performance
measurement tool, the Planned Value of Work
Accomplished (PVWA), the Cost/Schedule
Planning Control Specification (C/SPCS) [2].
US federal agencies implemented Earned
Value Method. More organizations seem to be
more inclined to use EV Technique as the
market is becoming more competitive [3]. The
concept of earned value was illustrated by one
of researcher “The measurements of physical
performance against the planned, thus, predict
the final cost and the schedule results.”
However, as a control tool, earned value is
considered an integrated cost/schedule control
system [4].

Table 1: Cost Control Methods.

Cost Control Cost Control
Description of the Method
Classifications Method
- Based on the interim valuation
Cost Value
- Total value is compared with the actual cost
Reconciliation
- Adjustment has to be made in order to compare like-for-like
(C.V.R.)
figures,
- Work is divided into major headings
- The unit costs can be compared with the values of work which is
Unit Costing
paid by the client to identify the loss and profit per unit of
measurement.
Separate Cost / Schedule - Suitable for the projects which consist of typical portions
Control Methods - Budget estimated either by cost, work hours or quantities each
work package
Contract Variance
- The cumulative of both actual total cost and percent of completion
will be compared with the planned budget to define the cost
overrun

- Selected losing part of work is spotted to be controlled

Spot Cost Control - Unit cost control method is chosen to identify the reasons of the
losses.

- Highly depends on the project schedule network

- Conclusion can be drawn whether the work is carried out at a cost
PERT/Cost Method
higher or less than the estimated by comparing the values of the
items

- It considers the cost of activities at its earliest start and latest start
- Latest cost curve represents the minimum cost to the contractor
- The earliest cost curve represents the maximum cost
Integrated Cost/Schedule - The space between the two curves depends on the floats of the
Methods activities
- Cost-to date curve expresses the actual cost of the work completed
Cost Envelope - Value-to-date represents the value of work that is carried out in
accordance to the original estimate
- Critical activities must be sped up or slowed down according to
the difference
- The vertical intercept between the ends of value-to-date and cost-
to-date curves will determine whether the work is carried out
more or less than the estimated cost

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Journal of Construction Engineering, Technology and Management
Volume 4, Issue 3
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)
EVT was proven by U. S. federal agencies to
be an effective tool. Yet, Fleming and
Koppelman concluded that Earned Value was
not universally employed due to the belief of
the concept opponents that applying this
technique is not justified with the expected
outcome. Whilst, Potts (2008) added that there
is a disinclination to adopt EVT [5]. However,
Fleming and Koppelman attributed the
reluctance to use EVT to the complicated and
bureaucratic process in earned value
implementation since it was mandated as part
of C/SCSC criteria in its inflexible and formal
model.
In his study titled “implementation of EVT”,
one researcher suggested a new model of EVT
inspired by his major findings in
implementation these techniques which are
summarized in the following issues [6]:
(i) EVT methodology is in a continuous
change, but the existing literature is not
consistent with the actual development of
EVT.
(ii) No changes found in applying EVT in
different sizes of construction projects.
(iii) A suggested new model of EVT would
contribute positively to the wide
acceptance of this technique.
Table 2: Grades of Construction Companies.
Item
Saudi Construction Companies–Eastern Province
Bahraini Construction Companies
Table 3: Classification of Saudi Arabia Construction Companies.
Grades I II
Maximum Project Value Million ( SAR ) More Than 280
In addition to the projects volume criteria,
Saudi Companies classification takes into
consideration technical and financial factors as
per Saudi Arabian classification of
contractor’s agency updated on 21/09/2011 by
The Ministry of Rural and Municipality Affair
as shown in Table 4. Appendix C provides a
list of the contractors obtained from
contractors’ classification agency of Saudi
Arabia. Ministry of Works classifies the
construction companies based on the
maximum project value as shown in Table 5.
However, Bahraini contractors’ classification
JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved
FIELD SURVEY OF OVER RUN
PROJECTS
The practical terms of this research include the
principal survey methods used to achieve the
objectives of the research. These methods
include data collection techniques, sampling
principles, data tabulation and statistical
analysis and discussing the results.
Data Collection
The research is aimed at identifying the most
critical causes of project cost overrun as the
research objectives. Therefore, the directions
of collecting data will serve the specific
purpose of the research in terms of meeting the
objectives and answer the research question.
Sampling and Population
The considered sampling frame has included
Bahraini and Saudi Building Companies
according to the national contractor’s
classification as shown in Table 2. The
comprehensive sampling frame involves the
companies that deal with projects values of
more than 70 million Saudi Riyals (SAR)
according to the official classification system
for contractors, which takes in consideration
the financial capacity as the volume of projects
that were undertaken as shown in Table 3.
Classification Grades Specialization
Grade 1, 2, 3,4,5 Building
Grade AA, A, B, C, D Building
III IV V
280 70 21 7
is based on other criteria Table 6 which is
developed from Ministry of Works’
classification criteria. All the items listed in
the sampling frame are related to the research
topic after excluding the irrelevant cases, so
that the building contractors were chosen as
representative of construction companies in
general due to the fact that the contractors
classification does not classify companies as a
general construction type, rather, the current
classification considers the contractor
specialization in more detailed activities.
Page 33
Causes of Inefficient Site Cost Management Systems Al-Rawi et al.

Table 4: Saudi Criteria of Classification.

Category Headings Budget
Assets
Budget
Capital
Total revenue
Profit and loses Working capital
Net profit
Financial Assessment
Rate of profit
Monetary ratios Cash rate
Debt ratio
Administration system
Head office auditing
Financial system
Directors
Staff Engineers
Technicians
Equipment
Projects cost
Technical Assessment
Financial maximum load
Projects
Average yearly load
Projects of high cost
Site assessment
Owner opinion

Table 5: Classification of Bahrain Companies.

Project Value (BD)
More than 6 million 6 million 1000000 500000 200000 100000
( x 6.5 USD)

Table 6: Bahraini Classification Criteria Developed from Ministry of Works.

Projects Maximum Value of Contracts Sought
General manager
Contractors manager
Senior engineers
Quantity surveyors
Total number of employees
Site engineers
Staff Safety officer
General foreman
Skilled laborer
Supervisory staff
Site staff on current projects Skilled labor
Unskilled labor
Specialist Services e.g., precast factory, asphalt plant.
Capacity
Plant and Equipment
Ownership
Total value of work completed over 3 years.
Principle contracts completed over last 3 years
Contract period
Experience and References
Consultant
Work in progress
Value
% Completion

JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved Page 34
Journal of Construction Engineering, Technology and Management
Volume 4, Issue 3
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)

Table 7: Saudi and Bahrain Contractors Activity Classification.

Saudi Arabian Classification Bahraini Classification
Building Building
Roads Mechanical Works for Building
Sanitary Electrical Works for Building
Marine Works Roads
Dams Road Traffic Signals
Landscaping Asphalt Category
Bridges & Highways
Rehabilitation
Sanitary
Sewage

Table 7 shows the classification of Saudi and
Bahraini contractors into different construction
segments. The research is concerned with
building contractors in Bahrain and Saudi
Arabia (Eastern provinces and Riyadh).
Precisely, the research is also limited to
contractors classified as grades AA and A in
Bahrain and grade one and two in Saudi
Arabia where applying a cost control system
seem to be feasible.
By using stratified sampling, (2 strata), two
samples have to be draw from the population,
as shown in Table 8.

Table 8: Research Population.

Contractors Grade No.
Grade AA 22
Bahrain Companies
Grade A 16
Sample Frame(1) Total 38
Saudi Arabia Grade (1) 61
(Riyadh + Eastern provinces) Grade (2) 49
Sample Frame (2) Total 110
Total Population 148

By using the proportionate allocation to strata as per the ratio given bellow:
Fn n 62
R= = = =0.42
Nn N 148 (1)
Where Fn is the sampling fraction for stratum h, the calculation is shown in Table 9 below.

Table 9: Sampling Fraction for Stratum.

Nn Companies on Wn Proportion of Nn = Stratum Fn Stratum
Stratum
Frame Population Sample Size Sampling Fraction
Bahrain companies grade AA, A 38 0.25 0.42 16
Saudi Companies grade 1,2
110 0.75 0.42 46
(Riyadh, eastern Provinces)
Total 148 1 0.42 62

Questionnaire Design Three types of questions are developed in the

Due to thorough literature review conducted in questionnaire as follows:
this research, the close-ended questions are (i) List questions where more than one option
appropriate to achieve the research objectives. is offered as to achieve descriptive
questions.

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Causes of Inefficient Site Cost Management Systems Al-Rawi et al.

(ii) Category questions.
(iii) Scale or rating questions: Express the
respondent opinion in ranking order.
In order to ensure that the designed questions
meet the objectives of the research, the
following steps have been followed:
(i) Break down each research question into
more detailed investigative questions.
(ii) Identify the question types and the
variables which are needed to be
measured.
(iii) Design the scale of measurement.
The above information has been compiled in a
data requirement table as shown in Table 10.

Table 10: Data Requirement Table, Concept: Saunders (2003).

Data Requirement Table
Research question /objectives: 1-identify the cost overrun causes 1-identify the cost methods 2-Evaluate these method in
term of effectiveness 3-suggest earned value technique to avoid weaknesses in the current system 4-identify the required
modification in the current system to suit the earned value application.
Type of Research: Descriptive-Deductive: Testing Hypothesis
Variables Question Question Section
S/No Investigation question Sub-question
(s) type (NO) (NO)
1 Frequency of cost reports behavior category 1 C

General description of the

2 behavior list 2 C
method

3 Cost control base behavior list 3 C

What are the cost
4 control method Work break down structure behavior category 4,5 C
components?
5 Cost codes behavior List 6 C
How the comparison between
6 target cost and actual cost is behavior list 7 C
being measured
7 Manpower report behavior list 8-a C
8 Materials report behavior list 8-b C
9 What are the cost Equipment reports behavior list 8-c C
control method
10 components? Calculation of actual cost behavior list 9,10 C
Transferring man- hours to
11 behavior list 10. 2 C
monetary term
12 variances behavior list 12 C

13 Corrective action behavior List 14 C

Identify the
14 effectiveness of cost Effectiveness ranking opinion rating C
control system
Possibility of Earned value
15 opinion rating 2 E
Earned value method employment
evaluation Effectiveness of earned value
16 opinion rating 3 E
method

Characteristics of the Research Sample
The research is applied to the building
companies according to the official
classification of the contractors. Table 11
shows the construction type for each company
in the sample (Saudi Arabia) with its
associated average project value.
It is clear that 74.4% of the sample has
projects value above 50 million US dollars,
and the majority of them (51.2%) are building
contractors, however, 67.4% of total sample
are building companies carrying out projects
of different values.

JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved Page 36
Journal of Construction Engineering, Technology and Management
Volume 4, Issue 3
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)

Table 11: Construction Type * Projects Value Average Cross Tabulation (Saudi Arabia).
Project Value Average
Construction Type 1–10 20–30 30–40 40–50 Above 50 Total
Million Million Million Million Million
Count 2 1 1 3 22 29
Building
% of Total 4.7% 2.3% 2.3% 7.0% 51.2% 67.4%
Count 0 0 1 0 1 2
Industrial
% of Total .0% .0% 2.3% .0% 2.3% 4.7%
Count 0 0 0 1 1 2
Transportation
% of Total .0% .0% .0% 2.3% 2.3% 4.7%

General Count 0 1 0 1 7 9
construction % of Total .0% 2.3% .0% 2.3% 16.3% 20.9%
Count 0 0 0 0 1 1
Infrastructure
% of Total .0% .0% .0% .0% 2.3% 2.3%
Count 2 2 2 5 32 43
Total
% of Total 4.7% 4.7% 4.7% 11.6% 74.4% 100.0%

Table 12: Construction Type against Projects Value Average Cross Tabulation (Bahrain).
Project Value Average
Construction Type 1–10 10–20 20–30 30–40 Above 50 Total
Million Million Million Million Million
Count 2 3 1 2 5 13
Building
% of Total 12.5% 18.8% 6.3% 12.5% 31.3% 81.3%
Count 0 0 0 0 1 1
Industrial
% of Total .0% .0% .0% .0% 6.3% 6.3%

General Count 0 0 1 0 1 2
construction % of Total .0% .0% 6.3% .0% 6.3% 12.5%
Count 2 3 2 2 7 16
Total
% of Total 12.5% 18.8% 12.5% 12.5% 43.8% 100.0%

The majority of Bahraini construction For Saudi Arabia Construction Companies

companies in the sample are classified as (1) The analysis of the Saudi Arabia
building contractors, precisely (81.3%) of the construction companies’ responses has
sample are carrying out building construction, shown that 62.8% of the Saudi
while (12.5%) of contractors are a General Companies using Monthly Cost
Construction Firms. Forty three point eight Statement with 58% of them using
percent of the contractors have project value Tender Cost Estimates, and 37.2% of
that exceeds 50 million USD as shown in them using Work Break Down structure
Table 12. in itemizing the BoQ, and finally 46.5%
using Budgeted Cost versus Actual Cost
Data Analysis and Evaluation of work done as a cost variance
Having collected the questionnaire forms and calculation methods.
data analyzed to be evaluated according to the (2) The cost estimate is used as a control
responses of the participants, the analysis and base by 58.1% of contractors. Only 4.7%
evaluation has come out with the following depend on the cost standards developed
remarks: in their companies based on

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Causes of Inefficient Site Cost Management Systems
performance, while 16.3% ignore the
cost estimate in favor of work value
resulted from the periodical valuation.
Additionally, 2.2% of contractors do not
have any kind of cost baseline.
(3) In breaking down the project into cost
elements, 37.2% of the Saudi contractors
use WBS. However, the bill of quantities
given by the client during bidding stage
are being used in cost control by 34.9%
which further is broken down into its
constituents of material, manpower and
plant. Eleven point six percent of the
contractors are observed to depend on
breaking down the item into material,
manpower and plants during planning,
however 7% of contractors do not
address detailed cost elements.
(4) There are two methods of preparation
cost breakdown structure, the pre-
defined item by the company or
international standards. This method is
used by the majority of the contractors
(32.6%), while 30.2% use the method of
developing WBS for each project.
(5) Sixty two point eight percent of the
contractors produce the cost monitoring
reports on monthly basis, 16.3% produce
a cost summary at project close out,
4.7% of contracts produce both weekly
and monthly cost reports, while the
remaining 4.6% of contractors are
divided equally over yearly and quarterly
cost reports.
(6) Thirty nine point five percent of the
contractors rely on a standard cost codes,
another 39.5% of contractors adopt
project cost codes developed specifically
for a project. The rest of 20.9% remain
without setting any cost codes system.
(7) The contractors observe different
methods in this comparison. The most
common method (46.5%) is that the
budget is what do you mean? achieved
quantity at the time of study is
calculated, and then the comparison is
carried out between the actual costs and
the budgeted cost of quantity achieved to
date.
(8) Sixteen point three percent of the
contractors adopt the unit cost as a way
of comparison. This method ignores the
actual performance against scheduled.
JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved
Al-Rawi et al.
(9) Although the profit/losses valuation (not
considered as a real cost control method)
is still used by18.6% of the contractors.
Similarly, the cash flow method is used
by 2.3% of the contractors.
(10) Earned value method, which involves the
comparison between actual costs of work
performed (ACWP), and budgeted cost
of work scheduled (BCWS) and budget
cost of work performed (BCWP) is used
by only 9.3%.
(11) In addition to the main cost reports. The
research survey shows the following cost
reports that are in use by the construction
companies;
a) Thirty four point nine percent of the
contractors produce manpower reports
showing budgeted man-hours against
actual man hours. Yet, 16.3% of
contractors use the comparison of actual
direct and indirect cost of labor force
with the budgeted direct and indirect
cost. Eleven point six percent of the
contractors use the unit rate of labor
force cost comparing with the standard
unit cost or norms, while 20.9% of the
contractors do not have any manpower
cost reports.
b) Not very often, the contractors produce
material cost report: 39.5% of
contractors who utilize material report
cost of purchased item against actual
cost of delivered item. 23.3% of
contractors produce cost report taking
into consideration the actual unit cost
versus budgeted unit cost measurement.
On the other hand, 37.2% of contractors
don’t produce any material cost reports.
c) Thirty two point six percent of the
contractors don’t have any equipment
reports, however, 46.5% of the
contractors record the total expenditures
of equipment and compare it with the
planned expenditures. The remaining
20.9% deal with the unit cost and
compare it against the planned unit cost
of a specific plant.
(12) The results of the research field survey
of the actual used methods to calculate
actual costs have shown the following
indications:
a) Forty four point two percent of the
contractors use time sheets to allocate
man-hours to specific cost codes, but
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Journal of Construction Engineering, Technology and Management
Volume 4, Issue 3
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)
23.3% utilize time sheets to allocate the
man-hours to work item. However,
18.7% allocate cost inaccurately by
charging work hours cost to the whole
project either by an amount agreed by
planning department or by
approximation. Eleven point six percent
of the companies ignore charging
manpower cost all together. When
transferring man-hours into monetary
terms, 62.8% of contractors calculate
basic wages based on the payroll, and
then adding the indirect cost like
travelling expenses and medical
treatment cost. However, 18.6% of
contractors have different methods
including multiplying the total man-
hours charge by the general hourly rate
defined during estimation. The
remaining 4.7% of contract ignore this
item.
b) Forty eight point eight percent of the
contractors utilize time sheet for
allocating equipment hours to a specific
cost center. In case the equipment’s are
leased, the contractor charges monthly
hours to the project on basis of lease
records. This method accounts for 27.9%
of contractors. When transferring the
plants hours into monetary terms, 39.5%
of the companies charge the actual
payment incurred by equipment usage,
only 20.9% consider the ownership and
depreciation, while 4.7% allocate fixed
amount decided by their planning
department.
c) In order to obtain the actual cost of
material used in construction, 62.8% of
the construction firms utilize
approximate methods by using the
purchase orders and invoice values.
Field quantity report or material usage
against purchased value is another
method seems used by 25.6%.
(13) Despite of that 81.4% of contractors
stated that they can define the cost
problems, or the operation causing cost
overrun, but in most cases there is no
any systematic way in defining cost
overrun area. They are depending on the
experience. The other 18.6% of the
companies reiterated that they could not
JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved
define which part of work contributes to
cost overrun [7–11].
For Bahraini Construction Companies
(1) The field survey of cost control methods
in Bahraini contractors is summarized as
follows:
a) Sixty two point five percent of the
Bahraini companies produce cost reports
on weekly, monthly basis, and yearly
reports are less likely to be produced
12.5% of contractors produce weekly
reports, 6.3% yearly reports. Some
companies produce reports at two time
intervals either weekly or monthly (6.3%)
or monthly and yearly (12.5%).
b) Eighty one point three percent of the
respondents are depending on their cost
control systems on tender cost estimate.
However, only 12.5% of them are
depending on cost standards which are
developed from past records, while 6.3%
of them use cost indices in their
comparison process through their cost
control systems
c) Break down structure (WBS) is a common
way to break down the project works into
the managerial elements in the estimation
stage. The researcher found that 37.5% of
the contractors are still depending on bill
of quantities as cost control elements.
Some contractors had adopted work
package and use them as elements of cost
control. In addition to estimation and
procurement, 12.5% of the participants
concentrate on breaking down the project
items into equipment, materials and
manpower for preparing the breakdown
structure. Thirty seven point five percent
of them are depending on pre-defined
standard item whilst 62.5% develop each
project breakdown structure tailored for a
specific project.
d) By a comparison between target cost and
actual cost, we found out that 56.3% of the
contractors use the dominant method
which is comparing budgeted cost against
actual cost of work performed. For those
companies that prefer unit costing, the
comparison between BOQ unit cost versus
actual unit cost is carried out when there is
no real cost control system. The only
financial control system they use which is
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Causes of Inefficient Site Cost Management Systems
comparing cumulative valuation to date
against cumulative actual cost. Six point
three percent of the contractors compare
actual to budgeted cost through the work
package. Table 18 shows the
characteristics of cost control system in
use method by the Bahrain Construction
Contractors.
(2) The analysis of the participants’ answers
on the questionnaire has shown the
followings remarks:
a) Fifty percent of the contractors use time
sheets in allocating working hours to a
specific cost control code. Similarly,
43.8% use time sheet to allocate man-
hours to a specific item as well. Only 6.3%
of the contractors don’t use any method of
allocating man-hours accurately instead,
but they use approximation.
b) When transferring the man-hours into cash
for comparison purpose, 87.5% of
contractors calculate the hour cost from
sum of basic wages and adding the indirect
cost. Only 12.5% use pre-defined hour-
rate to be multiplied later with the
registered man-hours.
c) When pieced equipment is leased 68.8%
of the contractor uses the lease record to
estimate working hours. Generally 31.3%
of the contractors who own equipment use
the time sheets to allocate the working
hours to a specific cost account. The
working hours of owned equipment need
to be transferred into monetary terms, 50%
of contractors use the actual payment as
operating cost of the equipment. However,
25% of them using rather a simplified
method consisting of multiplying the
actual hours with the hourly budgeted rate.
The remaining 25% of the contractors use
accurate estimation of the actual cost by
considering ownership cost and
depreciation.
d) Ninety three point eight percent of the
contractors use purchasing orders and
invoices to obtain the material costs used
in construction. Yet, 6.3% of them use
field quantity report to define the value of
materials as a proportion of the total
construction costs.
(3) In addition to the main cost control
reports, the Bahraini contractors are
producing the following reports:
JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved
Al-Rawi et al.
a) Manpower Reports: These reports show
different management styles. Forty three
point eight percent of the contractors use
these reports to show the budget man-
hours against actual man-hours. Eighteen
point eight percent use the reports to show
the budgeted direct and indirect against the
actual cost. Eighteen point eight percent of
the contractors use less accurate reports to
compare the hour rate with the standard
rate. Finally 12.5% use the combination of
above two methods in their reports.
b) Material Reports: 68.8% of contractors use
material reports to compare the budgeted
cost of material against actual cost.
However, 31.3% of the contractors use
unit measurement cost of materials for the
comparison reports for material.
c) Equipment Report: 68.8% of the
contractors utilize the method of
cumulative plant expenditure against
actual plant expenditure in the equipment
report. Six point three percent adopt the
production rate against the actual one in
the reports, while and the 6.3% utilize
more than one method. Notably, 18.8%
never produce any equipment report.
(4) The purpose of obtainment variances is
to identify the status of the project in
terms of cost and schedule. Sixty two
point five percent of Bahraini contractors
obtain cost variance, while 37.5% of the
contractors obtain both cost and schedule
variances. Eighty seven point five percent
of the respondents stated that the cost
control employed can detect the area of
cost overrun; the other 12.5% have not
been able to define this area. In the event
of undesired cost variance, the corrective
action differs. Fifty percent use site
investigation through meeting the site
people. Thirty one point three percent of
the contractors are investigating the
resources cost. While 12.5% use work
study to improve the construction method
in order to be more efficient [12–14].
The Efficiency of the Existed Cost
Management Systems
The participants were asked to evaluate the
cost control system that is used by their firms.
To simplify the analysis, the evaluation has
been designed based on five criteria. The
ranking scale of 5 grades was used to evaluate
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Journal of Construction Engineering, Technology and Management
Volume 4, Issue 3
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)

each criterion. Tables 13 and 14 summarize standard deviation and variance. Similarly,
the five criteria, and the descriptive statistics Tables 15 and 16 show the same details for
of the respondents rating score for Saudi Bahrain Construction Companies.
construction companies. They show the mean,

Table 13: Saudi Companies Descriptive Statistics for Efficiency of Cost Control Methods.
Criteria N Minimum Maximum Mean Std. Deviation Variance
The cost control system should be able to
41 2.00 5.00 3.8250 .90263 .815
monitor the current cost level
Variance between actual cost, budgeted cost
41 2.00 5.00 3.6750 .91672 .840
and expected cost
The cost control system must be reliable 41 2.00 5.00 3.7073 .95509 .912
The ability to make spotting on the area of
41 1.00 5.00 3.8750 1.01748 1.035
cost overrun
The cost statement can be read in the light of
41 2.00 5.00 3.7250 1.03744 1.076
the project schedule

Table 14: Saudi Companies Severity Index of Effectiveness.

Criteria Ranking Frequency Percent Severity Index
Very poor 0 0
Poor 4 9.3
The cost control system should be able to monitor the
Fair 8 18.6 71.16
current cost level
Effective 19 44.2
Very effective 9 20.9
Very poor 0 0
Poor 5 11.6
Variance between actual cost, budgeted cost and expected
Fair 10 23.3 68.37
Cost
Effective 18 41.9
Very effective 7 16.3
Very poor 0 0
Poor 5 11.6
The cost control system must be reliable Fair 11 25.6 70.70
Effective 16 37.2
Very effective 9 20.9
Very poor 1 2.3
Poor 2 4.7
The ability to make spotting on the area of cost overrun Fair 11 25.6 72.09
Effective 13 30.2
Very effective 13 30.2
Very poor 0 0
Poor 6 14.0
The cost statement can be read in the light of the project
Fair 10 23.3 69.30
schedule
Effective 13 30.2
Very effective 11 25.6

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Causes of Inefficient Site Cost Management Systems Al-Rawi et al.

Table 15: Bahraini Companies Descriptive Statistics.

Criteria N Minimum Maximum Mean Std. Deviation Variance
The cost control system should be able to
16 3.00 5.00 3.7500 .57735 .333
monitor the current cost level
Variance between actual cost, budgeted cost
16 3.00 5.00 3.8125 .54391 .296
and expected cost
the cost control system must be reliable 16 2.00 5.00 3.6250 .71880 .517
The ability to make spotting on the area of cost
16 3.00 5.00 3.7500 .68313 .467
overrun
The cost statement can be read in the light of
16 3.00 5.00 4.0000 .51640 .267
the project schedule

Table 16: Bahrain Companies Severity Index of Efficiency.

Criteria Ranking Frequency Percent Severity Index
Very poor 0 0
Poor 0 0
The cost control system should be able
Fair 5 31.3 75.00
to monitor the current cost level
Effective 10 62.5
Very effective 1 6.3
Very poor 0 0
Poor 0 0
Variance between actual cost, budgeted
Fair 4 25.0 76.25
cost and expected cost
Effective 11 68.8
Very effective 1 6.3
Very poor 0 0
Poor 1 6.3
The cost control system must be
Fair 5 31.3 72.50
reliable
Effective 9 56.3
Very effective 1 6.3
Very poor 0 0
Poor 0 0
The ability to make spotting on the area
Fair 6 37.5 75.00
of cost overrun
Effective 8 50.0
Very effective 2 12.5
Very poor 0 0
Poor 0 0
The cost statement can be read in the
Fair 2 12.5 80.00
light of the project schedule
Effective 12 75.0
Very effective 2 12.5

CONCLUSIONS inclined to use systematic method despite

The field survey connecting with the that their average volume of work is less
efficiency of the existed cost management than the Saudi Contractors. The last
systems has concluded the following: conclusion is a surprising one as it
(1) The majority of cost control methods contradicts with the fact that the more
followed by the contractors can’t be complex the project is, the more
considered as systematic from an sophisticated the cost control methods
academic view. However, it is noticed are. It should be noted that the project's
that Bahraini contractors are more value handled by Saudi contractors are

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Journal of Construction Engineering, Technology and Management
Volume 4, Issue 3
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)
normally higher than the projects handled
by Bahraini contractors of same
classification grade. Although the
contractors showed a high diversity in
using a cost control method to the extent
that, in some cases some, details are
adapted to match the special requirements
of contractors.
(2) Although, the most contractors are
forming the WBS during the estimation
phase. There is much depended on
B.O.Q. which is provided by the clients.
It is evident that no sufficient details in
(WBS) are worked out to exert better
control of the elements of the project.
Work package is also used by small
numbers of contractors as a controlling
element starting from planning stage,
procurement and construction cost
control.
(3) The general method of setting WBS is the
standard one and pre-defined typically for
similar projects. Yet, in Saudi contractors
where projects are expected to be more
complex, the minority is using the
project–tailored break down structure
WBS.
(4) Contractors don’t seem to be wildly
familiar with the concept of cost codes.
This phenomenon can be clearly
highlighted among Saudi contractors.
Generally, using pre-defined standard
cost codes are the common method. This
practice can be validated for simple
building construction, but, for more
complex projects it would suffer from
serious shortcomings.
(5) Less than half of the contractors in Saudi
Arabia use the site time sheet to allocate
work hours to cost codes. They usually
use approximate methods and personal
judgment in recording site hours, for
equipment and material in particular.
More frequent use of accurate method
was found in Bahraini companies.
However, in transferring man-hours into
monetary terms, the direct and indirect
costs are considered.
(6) Comparing with man-hours recording,
book keeping the equipment working
hours is taking less attention by the
contractors. In this case, some contractors
charge the project a fixed amount by the
JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved
head office as a simple method followed
by some companies. Whilst the Bahraini
contractors use a common method of
recording the lease rates and hours for
leasing machines as more frequently
Bahraini contractors rely on hiring. The
important thing that can be seen when the
equipment is owned by the contractor is
that rarely the ownership cost and
depreciations are considered upon
obtaining equipment cost especially by
Saudi contractors. In Bahrain, higher
percentages of contractors consider these
factors.
(7) The majority of contractors use invoices
to allocate materials cost. This method
has drawbacks as the entire purchased
quantities are not necessarily used in
construction. However, very few
contractors use the field quantity report
which expresses the actual quantity of
materials consumed against each item.
(8) In obtaining cost variance the most
dominant method is to use a budgeted
cost versus actual cost of work done. In
“unit costing method,” the comparison is
carried out by the cumulative unit cost;
this method is totally dependent on
quantity achieved without proper linkage
to project schedule.
(9) The cost statements, including cost
variances, are produced in most cases on
a monthly basis. In certain cases, and
according to senior management
requirement, cost statements are produced
weekly or quarterly in addition to the
yearly reports.
(10) There is no evidence that the users of
current cost control methods can deduct
the cost variance integrated with schedule
variance as the majority of Saudi
contractors stated, except for Earned
Value and PERT/cost method. Thus, there
is no adequate explanation of how this
could be achieved in practice. Bahraini
respondents have consistent answers
regarding the inability to integrate cost
and schedule variance when the method
has limited applicability to achieve this
combination.
(11) The main function of a successful cost
control is to highlight the cost overrun
zone. Yet, most contractors expressed that
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Causes of Inefficient Site Cost Management Systems
the cost control system is having the
application to detect cost overrun area
from cost variances obtained. There is no
adequate explanation about how this
could be achieved in reality.
(12) Most of the contractors demonstrated that
unless cost variance is read in
coordination with the schedule status, it
won’t give full sense. The fact is that
most of prevailing cost control methods
do not integrate cost and schedule
variances in a quantitative measure.
Instead contractors rely on visual
observation and approximation methods
to cover this function. Additionally, in
case of a negative cost variance, no
evidence that they use a systematic
analysis in finding causes of undesired
cost variances. No any document to prove
that has been there corrective action.
(13) The lack of a cost management plan that
summarizes how variance should be
handled is a major problem. However,
investigating the causes of cost growth
and making corrective action by most
contractors is made through informal
methods such as, site meetings, without
having to go deeply into the causes of the
problem. The lack of proper connection
between costing department and site
management seems to be evident and
reduces the cost control outcome
expectation.
(14) Hybrid cost control methods including
different methods applied on resource
categories: manpower, equipment and
materials. These methods are more
noticeable among Bahraini contractors
than Saudi contractors. This would imply
that more cost control in Bahraini projects
is being exercised. Noticeably, the
limitation of financial resources in
Bahrain can be the reason beyond
exerting tight cost monitoring and control
over resources.
(15) The objective of this research is to
evaluate the effectiveness of cost control
methods that are in use. One of the
evaluation is by the respondents who are
directly involved in cost control. The
results of the evaluation indicated that, for
all criteria most respondents ranked the
cost control methods used by them as
effective. This result contradicts with the
JoCETM (2014) 31-45 © STM Journals 2014. All Rights Reserved
Al-Rawi et al.
research results in such a way that the
details of the used cost control methods of
the majority of the contracts don’t seem
to comply with the criteria of effective
cost control method such as; integration
of cost and schedule, the possibility of
estimation of the cost at completion, and
in addition to the feedback and corrective
actions. These results can be explained by
the following:
a) Poor level of knowledge of the cost
control tools.
b) Most companies don’t have a specialized
department for project control that can
adopt the most effective methods.
(16) The concept of integrated cost and
schedule control is not widely recognized
by cost control participants in the
research.
(17) One important conclusion is that even the
concept of Earned Value that was
emerged decades ago, yet, it is not widely
recognized among cost control
practitioners in construction companies in
this region. Furthermore, the concept of
earning value is often understood as the
“value of the work” which means “cash
in” as it might be implied by the name
itself. This misunderstanding clearly
appeared through the inconsistency
between the method title and the details
of the method as indicated by some
participants. Even though the interviewer
did try to influence the participants'
answers, the interview questions have
introduced further clarification on the
methods details through the questionnaire
appendixes. Remarkably, nearly half of
the sample declared that they don’t know
any details of the earned value
techniques.
(18) Lack of knowledge in terms of cost
control methods must be highlighted,
especially that the contractors who
participated in the research belong to the
higher grade of classification (Grade I, II)
where the magnitude of potential over-
budgeting can’t be overlooked, and where
the need for more sophisticated methods
is urgent.
(19) The cost control concept is not
sufficiently addressed in construction
companies and usually misinterpreted
with the financial control terms.
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 Journal of Construction Engineering, Technology and Management
Volume 4, Issue 3
ISSN: 2249-4723 (online), ISSN: 2347-7253 (print)
(20) The degree of cost-awareness among
project management team needs to be
upgraded.
(21) Lack of correlation between estimation
standards and used cost control methods
used in reality. The lack of coordination
between estimation and cost control is
affecting the effectiveness of the project
performance.
(22) There is no specialized Cost control
department and to create it is not always a
main part of the construction company. In
some projects, one may take the role of
cost controller reporting to project
manager, and no clear coordination is
established with site project team or with
other projects.
(23) The employed control method is suffering
from lack of a performance measurement
tool that compares between the planned
and the actual performance.
(24) Generally, the applied control methods do
not integrate cost into the schedule in
quantitative measurement. This makes the
cost variance meaningless. The budgeted
cost of work performed to date is the
main tool for comparison.
(25) Calculation of the actual cost is not in all
cases accurate, especially in calculating
material and equipment costs. They
mostly depend on approximate methods.
(26) In most cases the cost variance is not
connected quantitatively to schedule. It
may depend on quantity achieved without
considering the project progress.
(27) Although the lack of knowledge of
Earned Value Technique cannot be
overshadowed, there is a tendency to
apply this technique. Yet, there has been a
lack of the practical steps to be followed
by interviewing construction experts.
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