the influence of uncertainty variables on project cost estimation anita rauzana universiti sains ...

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THE INFLUENCE OF UNCERTAINTY VARIABLES ON
PROJECT COST ESTIMATION

ANITA RAUZANA

UNIVERSITI SAINS MALAYSIA
2015
THE INFLUENCE OF UNCERTAINTY VARIABLES ON PROJECT
COST ESTIMATION

by

ANITA RAUZANA

Thesis Submitted in fulfillment of requirements
for the degree of
Doctor of Philosophy

January 2015

ACKNOWLEDGEMENTS

First and foremost, I would like to thank Allah SWT for the mercy to
complete this research and because of his protection throughout the whole duration
of my study.
This thesis would not have been completed without the contributions,
guidance, support and sacrifices of several individuals. First, I would like to thank
my main supervisor Professor Abu Hassan Bin Abu Bakar. He is the source of
motivation behind the success of this research. His vast and long experience in
project management, especially in quantitative studies has helped me a lot in
pursuing my higher studies and in broadening my knowledge. His encouraging
words motivated me to go further in my study confidently. Second, my gratitude also
goes to Dr. Mohd Hanizun Hanafi, my co-supervisor. His ideas and suggestions
helped me a lot while I was facing some difficulties in conducting my study. Third,
my gratitude also goes to the lectures in School of Housing Building and Planning,
University Sains Malaysia (USM).
Last but not least, my deepest gratitude goes to my parents who have always
supported me. They have given me their greatest support, not only during my study,
but also in my daily life. I would like to thank my husband, Wira Dharma for his
dedication, support and understanding throughout my study in USM. Not forgetting
my children, Muhammad Hafidz Akbar, Najwa Ranita Lovena, and Mecca Dhanita
Lovena, for not loving me less despite my constant absence from their lives during
this study.

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TABLE OF CONTENTS

Acknowledgements ii

Table of Contents iii

List of Tables viii

List of Figures ix

List of Abbreviations xi

Abstrak xii

Abstract xiv
CHAPTER 1: INTRODUCTION

1.1 Background of the Study 1

1.2 Research Problem 4

1.3 Research Gap 5

1.4 Research Questions (RQs) 7

1.5 Research Objectives (ROs) 8

1.6 Significance of the Research 8

1.7 Scope of the Research 10
1.8 Definition of Key Terms 11

1.9 Organisation of the Thesis 13
CHAPTER 2: LITERATURE REVIEW

2.1 Introduction 15

2.2 Estimated Costs 15

2.2.1 Direct Costs 19

2.2.2 Indirect Costs 21

2.2.2.1 Overhead Costs 21

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2.2.2.2 Contingencies 22

2.2.2.3 Profitability (Profit) 24

2.3 Uncertainty Variables in Construction Projects 24

2.3.1 External Uncertainty Factors 25

2.3.1.1 Economic Variables 25

2.3.1.2 Social or Cultural Variables 32

2.3.1.3 Geography Variables 36

2.3.1.4 Government Variables 41

2.3.2 Factors of Internal Uncertainty 46

2.3.2.1 Construction of the Project Complexity Variables 46

2.3.2.2 Project Management Handling Variables 53

2.4 Research Framework 61

2.5 Summary 63
CHAPTER 3: RESEARCH METHODOLOGY

3.1 Introduction 64

3.2 Identification of Uncertainty Variables on Construction Projects 64

3.3 Data Collection 66

3.4 Questionnaire Design 67

3.5 Sampling 67

3.5.1 Study Location 71

3.5.2 General Economics of Indonesia 71

3.5.3 General Construction Sector 74

3.5.4
  Study
 Location
 in
 Medan
  77

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3.6 Data Analysis and Interpretation of Questionnaire Results 82
3.6.1 Pilot Survey 82

3.6.2 Validity Test 83

3.6.3 Validation of the Qestionnaire 84

3.6.4 Reliability Test 88

3.6.5 Descriptive Statistics 91
3.6.6 Regression Analysis 92

3.6.7 Ordinal Regression Analysis 93

3.7 Hypothesis Test 97
3.8 Confirmation Interview 98

3.9 Summary 101
CHAPTER 4: ANALYSIS AND FINDINGS

4.1 Introduction 102

4.2 The First Objective of the Research 102

4.3 The Second Objective of the Research 103

4.3.1 Economic Variables 103

4.3.2 Social or Cultural Variables 106

4.3.3 Geographic Variables 108

4.3.4 Government Variables 111

4.3.5 Complexity of Project Variables 114

4.3.6 Project Management Handling 117

4.3.7 Contingency Cost Percentage Variable 120

4.4 The Third Objective of the Research 121

4.4.1 Ordinal Regression Analysis 121
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4.4.2 Analysis
 Results
  125

4.5 Summary 129

CHAPTER 5: FINDINGS AND DISCUSSION

5.1 Introductiom 130

5.2 The First Objective of the Research 130

5.3 The Second Objectives of the Research 130

5.3.1 Economic Variables 131

5.3.2 Social or Cultural Variables 136

5.3.3 Geography Variables 141

5.3.4 Government Variables 145

5.3.5 Complexity of Project Variables 151

5.3.6 Project Management Handling 159

5.3.7 Contingency Cost 165
5.4 The Third Objective of the Research 166

5.5 Interpretation of Data Analysis 180
CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS
6.1 Introductiom 182

6.2 Conclusions of the Research 182

6.2.1 The First Objective of Research 182
6.2.2 The Second Objective of Research 183

6.2.3 The Third Objective of Research 183
6.3 Contributions to Knowledge 185

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6.4 Contribution to Practice 186
6.5 Limitations of the study 187
6.6 Recommendations for Future Research 187

REFERENCES 189

APPENDICES

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LIST OF TABLES
Page
Table 1.1 Qualification of Construction Services Business 11
Table 1.2 Definitions of The Terms 11

Table 2.1 The Uncertainties Variable That Influence Project Cost
Estimate Based on Other Studies 59

Table 3.1 Variables of Uncertainty in Estimating the Cost of
Construction Project Offers 65
Table 3.2 Information of Respondents 67

Table 3.3 Growth Rate of Gross Domestic Product by Industrial
Origin (Percent) 75
Table 3.4 The New Uncertainty Variables 86

Table 3.5 Uncertainty Variables Based on References 86

Table 3.6 Variables Uncertainty in Estimating the Cost of Construction
Project Offers 87

Table 3.7 Cronbach Alpha Coefficients 89

Table 3.8 Cronbach Alpha Coefficients for Uncertainty Variables 90

Table 4.1 Descriptive Statistics: Economic Variables 103

Table 4.2 Descriptive Statistics: Social or Cultural Variables 106

Table 4.3 Descriptive Statistics: Geography Variables 109

Table 4.4 Descriptive Statistics: Government Variables 111

Table 4.5 Descriptive Statistics: Complexity of Project 114

Table 4.6 Descriptive Statistics: Project Management Handling 118

Tablle 4.7 Descriptive Statistics: Contingency Cost 120

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