Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia

Yehulum Belay; Deekshith Jain

doi:doi:10.11648/j.ajmse.20230802.13

| Peer-Reviewed

Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia

Yehulum Belay, Deekshith Jain

Published in American Journal of Management Science and Engineering (Volume 8, Issue 2)

Received: 3 February 2023 Accepted: 12 April 2023 Published: 23 April 2023

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

In the Ethiopian construction sector, one key issue is that contemporary building projects demonstrate price escalation. The Management of Cost escalation requires more understanding of its driving forces. Hence, this research aimed to assess the price escalation factors and their effects on building construction projects in Adama, Ethiopia. Through an in-depth literature review and project archives, thirteen (13) possible price escalation-causing attributes and five (5) its effects were identified for this research. Forty-eight (48) self-administered questionnaire survey has been sent to clients, consultants, and contractors that actively participated in Adama city construction projects and forty-three (43) responded. The relative importance index (RII) had computed to rank the price escalation-causing factors and their effects on building projects. The five most significant factors these causing price escalation on building projects were fluctuation in foreign currency exchange rates, an increase in material cost and unstable market conditions, unbalanced demand and supply of construction materials, limitation of construction material producer's capacity, and project schedule changes. While in this study, delayed project progress, cash flow (financing) problems, higher construction projects cost, and increasing disputes between contracting parties were among the utmost significant impact of rising prices happening on building construction in Adama, Ethiopia. To evaluate the respondents' observed level of agreement on the ranking of price escalation factors and their effects, the Spearman rank correlation coefficient with the aid of SPSS version 26 was used. The outcomes were 0.914 among client and consultant, 0.815 with the client and contractor, as well as 0.856 for consultant and contractor on ranking price increase factors, whereas, 0.921 among client and consultant 0.821 with the client and contractor, and 0.975 for consultant and contractor on ranking price increase effects. Therefore, the result implies a positive relationship among respondents towards factors causing price escalation and their effects on building construction projects in Adama city.

Published in	American Journal of Management Science and Engineering (Volume 8, Issue 2)
DOI	10.11648/j.ajmse.20230802.13
Page(s)	56-62
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2023. Published by Science Publishing Group

Keywords

Building Construction, Price Escalation Effects, Price Escalation Factors, Relative Importance Index (RII)

References

[1]	Y. A. Olawale and M. Sun, “Cost and time control of construction projects: Inhibiting factors and mitigating measures in practice,” Constr. Manag. Econ., vol. 28, no. 5, pp. 509–526, 2010, doi: 10.1080/01446191003674519.
[2]	T. Z. and Getachew, “Causes of Contractor Cost Overrun in Construction Projects: The Case of Ethiopian Construction Sector,” Int. J. Bus. Econ. Res., vol. 4, no. 4, pp. 180–191, 2015, doi: 10.11648/j.ijber.20150404.11.
[3]	G. D. Creedy, M. Skitmore, and J. K. W. Wong, “Evaluation of Risk Factors Leading to Cost Overrun in Delivery of Highway Construction Projects,” J. Constr. Eng. Manag., vol. 136, no. 5, pp. 528–537, 2010, doi: 10.1061/(asce)co.1943-7862.0000160.
[4]	A. Shiferaw Belachew, “Causes of Cost Overrun in Federal Road Projects of Ethiopia in Case of Southern District,” Am. J. Civ. Eng., vol. 5, no. 1, p. 27, 2017, doi: 10.11648/j.ajce.20170501.15.
[5]	G. A. O. (GAO), “Cost and Oversight of Major Highway and Bridge Projects – Issues and Options.,” 2003.
[6]	A. Warsame, Supplier structure and Housing construction costs. 2006.
[7]	J. S. Shane, K. R. Molenaar, S. Anderson, and C. Schexnayder, “Construction Project Cost Escalation Factors,” J. Manag. Eng., vol. 25, no. 4, pp. 221–229, 2009, doi: 10.1061/(asce)0742-597x(2009)25:4(221).
[8]	H. Doloi, “Cost Overruns and Failure in Project Management: Understanding the Roles of Key Stakeholders in Construction Projects,” J. Constr. Eng. Manag., vol. 139, no. 3, pp. 267–279, 2013, doi: 10.1061/(asce)co.1943-7862.0000621.
[9]	A. Jadhav and A. Chavan, “Study of Price Escalation in Building Construction Industry on Basis of Basic Rate,” Int. J. Res. Technol. Stud., vol. 5, no. 10, pp. 10–12, 2018, [Online]. Available: www.ijrts.com
[10]	J. Z. & U. S. G. A. O. Hecker, “Federal-aid highways cost and oversight of major highway and bridge projects: issues and options,” Washington, D. C, 2003.
[11]	A. S.-T. Chang, “Reasons for Cost and Schedule Increase for Engineering Design Projects,” J. Manag. Eng., vol. 18, no. 1, pp. 29–36, 2002, doi: 10.1061/(asce)0742-597x(2002)18:1(29).
[12]	I. Damnjanovic, S. Anderson, A. Wimsatt, F. Kenneth, and D. Pandit, “Evaluation of Ways and Procedures to Reduce Construction Cost and Increase Competition,” Texas Transp. Insititute Rep., vol. 06-6011–1, no. 2, 2009, [Online]. Available: http://tti.tamu.edu/documents/0-6011-1.pdf
[13]	PPPAA, “User’s Guide for Standard Bidding Document for the procurement of works,” no. August 2011. Public Procurement Agency, MoFED, Addis Ababa, 2011.
[14]	F. Oladipo and O. Oni, “Review of Selected Macroeconomic Factors Impacting Building Material Prices in Developing Countries – A Case Of Nigeria,” Ethiop. J. Environ. Stud. Manag., vol. 5, no. 2, pp. 131–137, 2012, doi: 10.4314/ejesm.v5i2.3.
[15]	L. Baloyi and M. Bekker, “Causes of construction cost and time overruns: the 2010 FIFA World Cup stadia in South Africa,” Acta Structilia, no. February, pp. 51–67, 2011.
[16]	M. Sambasivan and Y. W. Soon, “Causes and effects of delays in Malaysian construction industry,” Int. J. Proj. Manag., vol. 25, no. 5, pp. 517–526, 2007, doi: 10.1016/j.ijproman.2006.11.007.
[17]	A. M. Kuhil and N. Seifu, “Causes of Delay in Public Building Construction Projects: A Case of Addis Abeba Administration, Ethiopia,” Asian J. Manag. Sci., vol. 8, no. 2, pp. 4–9, 2019, doi: 10.51983/ajms-2019.8.2.1560.
[18]	F. Riggs and J. Gallagher, “Material Price Escalation: Allocating The Risks, Construction Briefings,” no. December, pp. 1–3, 2006.
[19]	Mohammed Gashaw, “Assessement of Price Escalation and Adjustment Problems on Federal Road Construction Projects,” 2013.

Cite This Article

Plain Text BibTeX RIS

APA Style

Yehulum Belay, Deekshith Jain. (2023). Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia. American Journal of Management Science and Engineering, 8(2), 56-62. https://doi.org/10.11648/j.ajmse.20230802.13

Copy | Download

ACS Style

Yehulum Belay; Deekshith Jain. Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia. Am. J. Manag. Sci. Eng. 2023, 8(2), 56-62. doi: 10.11648/j.ajmse.20230802.13

Copy | Download

AMA Style

Yehulum Belay, Deekshith Jain. Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia. Am J Manag Sci Eng. 2023;8(2):56-62. doi: 10.11648/j.ajmse.20230802.13

Copy | Download

@article{10.11648/j.ajmse.20230802.13,
  author = {Yehulum Belay and Deekshith Jain},
  title = {Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia},
  journal = {American Journal of Management Science and Engineering},
  volume = {8},
  number = {2},
  pages = {56-62},
  doi = {10.11648/j.ajmse.20230802.13},
  url = {https://doi.org/10.11648/j.ajmse.20230802.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajmse.20230802.13},
  abstract = {In the Ethiopian construction sector, one key issue is that contemporary building projects demonstrate price escalation. The Management of Cost escalation requires more understanding of its driving forces. Hence, this research aimed to assess the price escalation factors and their effects on building construction projects in Adama, Ethiopia. Through an in-depth literature review and project archives, thirteen (13) possible price escalation-causing attributes and five (5) its effects were identified for this research. Forty-eight (48) self-administered questionnaire survey has been sent to clients, consultants, and contractors that actively participated in Adama city construction projects and forty-three (43) responded. The relative importance index (RII) had computed to rank the price escalation-causing factors and their effects on building projects. The five most significant factors these causing price escalation on building projects were fluctuation in foreign currency exchange rates, an increase in material cost and unstable market conditions, unbalanced demand and supply of construction materials, limitation of construction material producer's capacity, and project schedule changes. While in this study, delayed project progress, cash flow (financing) problems, higher construction projects cost, and increasing disputes between contracting parties were among the utmost significant impact of rising prices happening on building construction in Adama, Ethiopia. To evaluate the respondents' observed level of agreement on the ranking of price escalation factors and their effects, the Spearman rank correlation coefficient with the aid of SPSS version 26 was used. The outcomes were 0.914 among client and consultant, 0.815 with the client and contractor, as well as 0.856 for consultant and contractor on ranking price increase factors, whereas, 0.921 among client and consultant 0.821 with the client and contractor, and 0.975 for consultant and contractor on ranking price increase effects. Therefore, the result implies a positive relationship among respondents towards factors causing price escalation and their effects on building construction projects in Adama city.},
 year = {2023}
}

Copy | Download

TY  - JOUR
T1  - Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia
AU  - Yehulum Belay
AU  - Deekshith Jain
Y1  - 2023/04/23
PY  - 2023
N1  - https://doi.org/10.11648/j.ajmse.20230802.13
DO  - 10.11648/j.ajmse.20230802.13
T2  - American Journal of Management Science and Engineering
JF  - American Journal of Management Science and Engineering
JO  - American Journal of Management Science and Engineering
SP  - 56
EP  - 62
PB  - Science Publishing Group
SN  - 2575-1379
UR  - https://doi.org/10.11648/j.ajmse.20230802.13
AB  - In the Ethiopian construction sector, one key issue is that contemporary building projects demonstrate price escalation. The Management of Cost escalation requires more understanding of its driving forces. Hence, this research aimed to assess the price escalation factors and their effects on building construction projects in Adama, Ethiopia. Through an in-depth literature review and project archives, thirteen (13) possible price escalation-causing attributes and five (5) its effects were identified for this research. Forty-eight (48) self-administered questionnaire survey has been sent to clients, consultants, and contractors that actively participated in Adama city construction projects and forty-three (43) responded. The relative importance index (RII) had computed to rank the price escalation-causing factors and their effects on building projects. The five most significant factors these causing price escalation on building projects were fluctuation in foreign currency exchange rates, an increase in material cost and unstable market conditions, unbalanced demand and supply of construction materials, limitation of construction material producer's capacity, and project schedule changes. While in this study, delayed project progress, cash flow (financing) problems, higher construction projects cost, and increasing disputes between contracting parties were among the utmost significant impact of rising prices happening on building construction in Adama, Ethiopia. To evaluate the respondents' observed level of agreement on the ranking of price escalation factors and their effects, the Spearman rank correlation coefficient with the aid of SPSS version 26 was used. The outcomes were 0.914 among client and consultant, 0.815 with the client and contractor, as well as 0.856 for consultant and contractor on ranking price increase factors, whereas, 0.921 among client and consultant 0.821 with the client and contractor, and 0.975 for consultant and contractor on ranking price increase effects. Therefore, the result implies a positive relationship among respondents towards factors causing price escalation and their effects on building construction projects in Adama city.
VL  - 8
IS  - 2
ER  -

Copy | Download

Author Information

Yehulum Belay

Department of Construction Technology and Management, Bule Hora University, Bule Hora, Ethiopia
Deekshith Jain

Department of Construction Technology and Management, Bule Hora University, Bule Hora, Ethiopia

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Yehulum Belay, Deekshith Jain. (2023). Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia. American Journal of Management Science and Engineering, 8(2), 56-62. https://doi.org/10.11648/j.ajmse.20230802.13

Copy | Download

ACS Style

Yehulum Belay; Deekshith Jain. Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia. Am. J. Manag. Sci. Eng. 2023, 8(2), 56-62. doi: 10.11648/j.ajmse.20230802.13

Copy | Download

AMA Style

Yehulum Belay, Deekshith Jain. Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia. Am J Manag Sci Eng. 2023;8(2):56-62. doi: 10.11648/j.ajmse.20230802.13

Copy | Download

@article{10.11648/j.ajmse.20230802.13,
  author = {Yehulum Belay and Deekshith Jain},
  title = {Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia},
  journal = {American Journal of Management Science and Engineering},
  volume = {8},
  number = {2},
  pages = {56-62},
  doi = {10.11648/j.ajmse.20230802.13},
  url = {https://doi.org/10.11648/j.ajmse.20230802.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajmse.20230802.13},
  abstract = {In the Ethiopian construction sector, one key issue is that contemporary building projects demonstrate price escalation. The Management of Cost escalation requires more understanding of its driving forces. Hence, this research aimed to assess the price escalation factors and their effects on building construction projects in Adama, Ethiopia. Through an in-depth literature review and project archives, thirteen (13) possible price escalation-causing attributes and five (5) its effects were identified for this research. Forty-eight (48) self-administered questionnaire survey has been sent to clients, consultants, and contractors that actively participated in Adama city construction projects and forty-three (43) responded. The relative importance index (RII) had computed to rank the price escalation-causing factors and their effects on building projects. The five most significant factors these causing price escalation on building projects were fluctuation in foreign currency exchange rates, an increase in material cost and unstable market conditions, unbalanced demand and supply of construction materials, limitation of construction material producer's capacity, and project schedule changes. While in this study, delayed project progress, cash flow (financing) problems, higher construction projects cost, and increasing disputes between contracting parties were among the utmost significant impact of rising prices happening on building construction in Adama, Ethiopia. To evaluate the respondents' observed level of agreement on the ranking of price escalation factors and their effects, the Spearman rank correlation coefficient with the aid of SPSS version 26 was used. The outcomes were 0.914 among client and consultant, 0.815 with the client and contractor, as well as 0.856 for consultant and contractor on ranking price increase factors, whereas, 0.921 among client and consultant 0.821 with the client and contractor, and 0.975 for consultant and contractor on ranking price increase effects. Therefore, the result implies a positive relationship among respondents towards factors causing price escalation and their effects on building construction projects in Adama city.},
 year = {2023}
}

Copy | Download

TY  - JOUR
T1  - Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia
AU  - Yehulum Belay
AU  - Deekshith Jain
Y1  - 2023/04/23
PY  - 2023
N1  - https://doi.org/10.11648/j.ajmse.20230802.13
DO  - 10.11648/j.ajmse.20230802.13
T2  - American Journal of Management Science and Engineering
JF  - American Journal of Management Science and Engineering
JO  - American Journal of Management Science and Engineering
SP  - 56
EP  - 62
PB  - Science Publishing Group
SN  - 2575-1379
UR  - https://doi.org/10.11648/j.ajmse.20230802.13
AB  - In the Ethiopian construction sector, one key issue is that contemporary building projects demonstrate price escalation. The Management of Cost escalation requires more understanding of its driving forces. Hence, this research aimed to assess the price escalation factors and their effects on building construction projects in Adama, Ethiopia. Through an in-depth literature review and project archives, thirteen (13) possible price escalation-causing attributes and five (5) its effects were identified for this research. Forty-eight (48) self-administered questionnaire survey has been sent to clients, consultants, and contractors that actively participated in Adama city construction projects and forty-three (43) responded. The relative importance index (RII) had computed to rank the price escalation-causing factors and their effects on building projects. The five most significant factors these causing price escalation on building projects were fluctuation in foreign currency exchange rates, an increase in material cost and unstable market conditions, unbalanced demand and supply of construction materials, limitation of construction material producer's capacity, and project schedule changes. While in this study, delayed project progress, cash flow (financing) problems, higher construction projects cost, and increasing disputes between contracting parties were among the utmost significant impact of rising prices happening on building construction in Adama, Ethiopia. To evaluate the respondents' observed level of agreement on the ranking of price escalation factors and their effects, the Spearman rank correlation coefficient with the aid of SPSS version 26 was used. The outcomes were 0.914 among client and consultant, 0.815 with the client and contractor, as well as 0.856 for consultant and contractor on ranking price increase factors, whereas, 0.921 among client and consultant 0.821 with the client and contractor, and 0.975 for consultant and contractor on ranking price increase effects. Therefore, the result implies a positive relationship among respondents towards factors causing price escalation and their effects on building construction projects in Adama city.
VL  - 8
IS  - 2
ER  -

Copy | Download