Contingency Management in Indian Construction Projects

Abstract

The successful completion of Indian construction projects possesses an inherent uncertainty due to the nature of the construction industry along with prevailing tepid recovery of the Indian economy, which has made it difficult for construction companies to achieve required operational and financial performance. This necessitates having accurate project cost estimation and efficient contingency management to shield unknown project risk and address cost overrun problems. Therefore, this study aims to assess the current state, the issues faced in contingency management and evaluating the effectiveness of contingency in overcoming cost overrun problems in Indian construction companies. The study preferred a quantitative approach in capturing the required data by using structured questionnaires collected from 100 Indian construction companies (of contractors, vendors/suppliers, customers, and consultants) out of 335 companies with a response rate of 29.85%. This, along with archival data analysis of 50 Indian construction projects completed between Calendar Year (CY) 2014 to 2019. The captured data were analysed using simple statistical tools like Relative Importance Index (RII), mean score, standard deviation and ranking methods to ensure relevant results aligned with research objectives. The result findings of the study revealed that 60% of Indian construction companies preferred the traditional percentage method for contingency sum percentage addition to estimated project cost (a subjective approach based on the historical project performance) which may not be adequate in overcoming cost overrun problems. Archival data analysis found that contingency consideration was effective in accommodating cost overrun problems in 9 (18%) projects out of 50 projects. The study further found that contingency was utilised in an unplanned mode and having unclear contingency forecasting strategies. Based on result findings and observations, this study concludes that contingency should be estimated based on the scientific approach in place of a subjective approach to address project risks adequately, this along contingency consideration should be an integral part of the project risk assessment and should be effectively utilised during the execution stage.

Keywords: Contingency, Cost Overruns, Indian Construction Projects, Operational and Financial Performance, Project Risk.