BUILDING ECONOMICS (QSV 542)

LECTURE 1 by Mohd Reza Esa

BUILDING ECONOMICS (QSV 542)

LECTURE OUTLINE
Overview of Malaysian construction industry - Definition
Role Value chain Importance Characteristics Gross Domestic Product

Productivity in the construction industry - Challenges

- Quality enhancement - Productivity enhancement

.:Definition and Roles:.

DEFINITION of Construction Industry

"The act or method of building. It means ______ ___________________________________________. Installation of any machinery or equipment which is built-in at the time of original construction is included, as well as installation of machinery and equipment after original construction but which requires structural alteration in order to be installed.
Oxford Dictionary

"Construction works also can be defined as the construction, extension, installation, repair maintenance, renewal, removal, alteration, dismantling, or demolition of:a)Any building, erection, edifice, structure, wall, fence or chimney, whether constructed wholly or partly above or below ground level; b)Any road, harbour works, railway, cableway, canal or aerodrome; c)Any drainage, irrigation or river control works; d)Any electrical, mechanical, water, gas, petrochemical or telecommunication works; or e)Any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation works, and includes any works which form an integral part of, or preparatory to or temporary for the works described in paragraphs (a) to (e), including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping.
Malaysian Construction Law, (Act 520)

Embraces a wide range of ___________ ___________________________________ ___________________________________ ___________________________________ __

Construction Industry Broadly Defined by Activity

The key actors include: Building material suppliers that provide basic materials Machinery manufacturers that provide heavy plant equipment, such as cranes and bulldozers Building product component manufacturers Site operatives who bring together components and materials Project managers and surveyors who co-ordinate the overall assembly Developers who initiate new projects and co-ordinate activity Facility managers who manage and maintain property Providers of complementary goods and services such as demolition, disposal and clean-up

____________________________ ____________________________ ____________________________ ____________________________ ____________________________ CONSTRUCTION INDUSTRY

ACTIVITIES

PRODUCTS

Buildings Airports, Harbours Electrical, telecommunication & gas works Roads, bridges, railways, tunnels Reclamation, sewers, dams, pipelines

ROLE of Construction Industry

Generate and improve the quality of life for Malaysians through the ______________ ___________________________________ ___________________________________ ___________________________________ ___

.:Value Chains and Importance:.

VALUE CHAIN of Construction Industry

Primary

Inception

Design

Tender

Construct

Manage Facilities

Building and Construction Materials Tooling, Heavy Equipment and Machinery Finance and Insurance C L I E N T S

Suppor t

Utilities and Transportation Human Resources Information, Communication and Technology Regulation and Enforcement Research and Development

IMPORTANCE of Construction Industry

_______________________ _______________________ _______________________ ___
Enables the growth of other industries through its role as fundamental building block Essential elements of a healthy and functioning economy such as educational institution, government offices, tourist attractors, etc need to be built and maintained by the construction industry Generate tremendous opportunities spill-over

_______________________ _______________________ _______________________ ___

Contributes to the growth of other industries in its role as a large user of manufactured goods (building and construction materials, iron and steel, etc), specialized tooling and heavy machinery (cranes) and financial services

Enabler of Governments Socio-Economic Policies

.:Characteristics:.

CHARACTERISTICS of Construction Industry

_________________________________ The influence of ___________________ The ____________ of construction items ___________ of construction work ___________ of construction technology ___________ of the construction process The ___________ involved in construction The __________ of the construction industry

.:Gross Domestic Product (GDP):.

DEFINITION of GDP
The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports

What is the current GDP rate (%) in Malaysia? What is the contribution rate (%) of construction industry to the total GDP in Malaysia?

Construction industry is one of the smallest contribution sector to the total GDP in our country.

__________________________________________________________ __________________________________________________________

construction activities ___________________________ (more than 1,000,000) and further creates __________________ to other industries such as manufacturing, financial services etc By creating the multiplier effect, it will _______________________ to contribute to the economic growth and although it gave the smallest contribution to the economy, it had a big impact towards influencing to the Malaysian economic growth

.:Introduction:.

WHERE WE ARE NOW?

Work in the construction industry stigmatized with 3D Issues of Quality, Professionalism Workmanship, is often

Defects,

Dependency on unskilled foreign labour Low productivity and also low contribution to the total GDP Export of construction Personnel Construction system inherited from the old and irrelevant system Poor market recognition and image of the construction and project development personnel

.:Productivity and Quality in Construction Industry:.

 A comparison between output achieved from a process or system and the inputs required to produce it
E.g. output buildings or infrastructure input resources consumed by the process to generate these outputs

Output delivers the __________ while input incur ___________

 Should focus on continuously improving quality one of the ___________ ________________ differentiators Increasing consumer demand in the global environment for higher quality construction Quality certification: ISO9001 Certification Malaysian Standard (MS) ____________ of the clients and customers, in term of quality, __________ _____________ the importance of quality and life cycle costing in assessing projects (e.g. energy saving, materials used, etc) Currently, cost is the main concern, whereby the construction industry normally offering the lowest possible cost, which put the quality to a secondary factor A shift of mindset towards the longer term benefits of higher quality (lower operating and maintenance costs, higher resale value, etc) needs to be initiated

 Holistic approach in reviewing the factors impacting the construction industry value chain Improved the construction industry value chain for lasting transformation to occur To build a sustainable local construction industry that is poised to compete with global players

_____________________ _____________________

.:Productivity and Quality Enhancement:.

To enhance the level of productivity and quality, the following key areas should be concerned:- _________________________ methods and Area 1
practices; Area 2 workforce; Inability to ______________________ local

Area 3 Inability to ________________________________; and Area 4 Difficulty in securing ________________________ financing.

 Contractors _______________________; _______________________ practices; ________________________; _________ submission approval process; _________________. and ______________

______________________; and

Contractors Registration Scheme

TWO MAJOR REGISTRATION CENTRES

CIDB G1-G7 three main criteria; tendering capacity, financial capacity and availability of human resources

PKK Under Ministry of Entrepreneur & Cooperative Development, requirement from Ministry of Finance & Public Works Department to tender for public projects

RESULTED
Unnecessary duplication of human and financial resources

Low barriers to entry into the industry have swollen the ranks of contractors with many small scale companies

SOLUTION
___________________________________________ WITH OBJECTIVE OF RAISING THE STANDARD AND PROFESSIONALISM introduce accreditation for those who participate in overseas projects

Comparison between CIDB and PKKs Contractors Registration Scheme

Procure-to-pay (P2P) Practices

Traditionally, clients appointed contractors through competitive tender primarily the selection made based on the lowest price extended throughout the supply chain by outsourcing the job to subcontractors and material suppliers Priced work unrealistically low and RESULTED then sought to recoup their profit margins through contract cost WEAKNESS Lack supervisory and monitoring mechanism; Does not provide feedback; and Reasons for non-selection _____________________________________ _________________________ SOLUTION

Contracting Approach
Quality Failures

1) 50% design faults 2) 40% construction faults 3) 10% material faults Causes Reduce the inefficiencies thus increased costs and delays in delivery

Besides contractor, engineers and architects should also be involved to solve the problems

Solution _______________________ _______________________ _______________________ ___________________

Improved the communication skills and concept of partnering (fragmentation)

Planning Process

Submission

and

Building

Plan

Approval

Before this, dealing with 144 Local Authorities and Technical Agencies and normally it takes over 18 months to obtain the approval resulting in the delay of submission and approval process ______________________________________________ was introduced to solve the problem through standardization and integration of administrative practices

Construction Methods
The implementation of new technologies that use modern and expensive technology were affected by the availability of cheap foreign labour labour-intensive construction methods (conventional) Cost and budget constraints also influenced the construction players to favour the conventional methods resulting difficulties to increase the level of productivity and quality in the long run

IBS
Low adoption of IBS because of lack of integration at the design stage and poor knowledge of IBS Over the past few years, IBS usage show an upward trend, if continue, would help to reduce the dependency on foreign labour and also increase the level of productivity and quality

MC
Enforcement of MC through UBBL would encourage standardization and directly influence the usage of IBS components Demand for standardization still low although it will improve the quality of materials and productivity through simplified design and construction

Lack of R&D
Most companies usually purchase the technology rather than conduct their own R&D R&D commonly done by the academic institution but do not covered the industry needs

e.g. Provided feedback that the R&D should focus on systems (how to manage the construction process) and on the use of IT in construction

Proposed to develop closer working ties with academia to link the research to shortcomings in current practices

CONSTRUCTION INDUSTRY RESEARCH INSITUTE OF MALAYSIA (CREAM) _______________________________________________ _______________________________________________ ____________________________________________

Construction sector employs approximately 9% (or 900,000) of the total workforce in Malaysia According to official statistics, around 250,000 of approximately 800,000 construction personnel are foreigners Reasons:- ____________________________________ - ____________________________________ Effects on productivity:- less effort to adopt more productive and modern methods of construction - reduces the attractiveness of the industry to employ more highly skilled or local labour

Employment by Sectors, 2001 - 2005

Source: Economic Planning Unit and Ministry of Human Resources

Accidents and Fatality Rate by Sector, 2003

Source: Social Security Organization, Economic Report 2003/2004, Ministry of Finance

Financing Problems Encountered in the Various Stages of Construction (Local or Foreign Projects)

.:Importance:.

IMPORTANCE of enhancing productivity

The importance of enhancing productivity is paramount for a number of reasons: Higher productivity can ___________________ and also increase the revenues of the building firm Improvement in productivity can __________________________ of firms against both domestic and foreign rivals Improvement in productivity also help to ____________________________ and such savings can be passed on to the client in the form of reasonably priced building High productivity in the construction industry is __________ for high productivity in other areas of the economy

.:Conclusion:.

For the conclusion, the following points can be made: Due to economic pressures changes in the method and type of construction are only likely to occur if such actions enhance the profitability of building firms There is increasing social pressure from the general public, who form the construction industrys client base, and in particular form groups such as the environmentalist movement, to construct new buildings in a traditional manner and design, and to conserve existing buildings to a greater extent. However, the use of such traditional techniques could prevent the incorporation of productivity enhancing techniques in the construction industry

 Construction Industry Development Board Malaysia (CIDB) 2005. Construction Industry Master Plan (2005-2015). Kuala Lumpur: CIDB Publications. Y.H. Chiang, Anson, M. & Raftery, J. (2004). The Construction Sector in Asian Economies. London: Spon Press.

Tel. No. : 03-5521 1507 Mobile No. : 012-351 7577 Email : mohdreza@salam.uitm.edu.my