“Factors of Escalation and its Effects on Cost of Construction

Projects in Pakistan”

Thesis Submitted to Superior University, Lahore

in Partial Fulfillment of the Requirement for the Degree of

Master of Science in Project Management

By: Muhammad Zain Naqi

Roll No: MSPM-S21-004
Session: 2021-2023

DEPARTEMET OF BUSINESS AND MANAGEMENT SCIENCES

SUPERIOR UNIVERSITY, LAHORE
 Author’s Declaration

I Muhammad Zain Naqi hereby state that my MS/M.Phil. thesis titled “Factors of Escalation and
its Effects on Cost of Construction Projects in Pakistan” is my own work and has not been
submitted previously by me for taking any degree from this University.

Superior University, Lahore

Or anywhere else in the country/world.

At any time if my statement is found to be incorrect even after my Graduate the university

has the right to withdraw my MSPM degree.

Name of Student: Muhammad Zain Naqi

Date: 28-04-2023

i
 Plagiarism Undertaking

I solemnly declare that research work presented in the thesis titled “Factors of Escalation and its
Effects on Cost of Construction Projects in Pakistan” is solely my research work with no significant
contribution from any other person. Small contribution/help wherever taken has been duly acknowledged
and that complete thesis has been written by me.

I understand the zero-tolerance policy of the HEC and University

Superior University, Lahore

Towards plagiarism.

Therefore, I, as the author of the above-titled thesis, declare that no portion of my thesis has

been plagiarized and any material used as reference is properly referred to or cited. I

undertake that if I am found guilty of any formal plagiarism in the above-titled thesis, even

after being awarded an MS/M.Phil. degree, the University reserves the right to

withdraw/revoke my MS/M.Phil. degree and that HEC and the University have the right to

publish my name on the HEC/University Website on which names of students who submitted

plagiarized thesis are placed.

Student/Author Signature:

Name: Muhammad Zain Naqi

ii
 Certificate of Approval

This is to certify that the research work presented in this thesis, entitled “Factors of
Escalation and its Effects on Cost of Construction Projects in Pakistan” was conducted by
Muhammad Zain Naqi Under the supervision of “Dr. Shahid Naveed.”

No Part of this thesis has been submitted anywhere else for any other degree. This thesis is
submitted to the Faculty of Business and Management Sciences, Superior University,
Lahore in partial fulfilment of the requirements for the degree of Master of Science in field
of Project Management in Faculty of Business and Management Sciences at Superior
University, Lahore.

Student Name: Muhammad Zain Naqi Signature:

Examination Committee:

a) External Examiner 1:
Dr. Signature:

b) Supervisor Name:
Dr. Shahid Naveed Signature:

c) In-Charge MS/M.Phil. Program

Dr. Shahan Cheema Signature:

d) Additional Controller Examination Signature:

Mr. Muhammad Haris

iii
 DECLARATION OF FINAL VIVA

I, Muhammad Zain Naqi hereby solemnly declared that Final Viva of my

research has been conducted in The Superior College Lahore on 15 April 2023

at 2:00pm and it is duly cleared by the internal and external supervisors. This is

the submitted copy of the research thesis incorporated after the comments of the

external supervisor

1. Name Muhammad Zain Naqi

2. Father Name Syed Naqi Mehdi Naqvi
3. Registration No. MSPM-S21-004
4. Thesis Title Factors of Escalation and its Effects on Cost of
Construction Projects in Pakistan

5. Student Signature

_________________________ ________________________
Prof. Prof. Dr. Shahid Naveed
External Examiner Internal Examiner

iv
 Thesis Submitted to

The Superior College, Lahore

DECLARATION TO BE FILLED BY THE STUDENT AT THE TIME OF

SUBMISSION OF THESIS TO THE SUPERVISOR AND/OR FOR
EXTERNAL EVALUATION

Section 1: Particular of the Student

1.1 Full Name Muhammad Zain Naqi
1.2 Father’s Name Syed Naqi Mehdi Naqvi
1.3 Registration No MSPM-S21-004
1.4 Program Master of Science in Project Management

Section 2: Particular of the Thesis

2.1 Title Factors of Escalation and its Effects on Cost of
Construction Projects in Pakistan

2.2 Supervisor’s Name Prof. Dr. Shahid Naveed

2.3 Co-Supervisor Name
2.4 Date of Completion 20-06-2022

v
 The Superior College, Lahore
SUPERVISOR’S CERTIFICATE ON
THESIS SUBMITTED BY A STUDENT
Section 1A: Particulars of the Supervisor
1.1 Full Name Prof. Dr. Shahid Naveed
1.2 Address The Superior College, Lahore, 17-km, Raiwind Road, Lahore

Section 1B: Particulars of the Co-Supervisor

1.1 Full Name Dr.
1.2 Address The Superior College, Lahore, 17-km, Raiwind Road, Lahore

Section 2: Particulars of the Student

2.1 Full Name Muhammad Zain Naqi
2.2 Father’s Name Syed Naqi Mehdi Naqvi
2.3 Registration Number MSPM-S21-004
2.4 Program Master of Science in Project Management

Section 3: Particulars of the Thesis

3.1 Title Factors of Escalation and its Effects on Cost of Construction
Projects in Pakistan
3.2 Date of Completion 15 April 2023

I certify that:
a. The above-named student has completed the cited thesis under my guidance and supervision.
b. I am satisfied with quality of the student’s research work, and
c. I consider it worthy of submission for external evaluation.

4.1 Supervisor’s Full Signature

4.2 Date

vi
 PROJECT MODULE SUPERVISOR CONTACT SHEET
Student Details:

Roll No: MSPM-S21-004 Name: Muhammad Zain Naqi

Course: Master of Science in Project Management Session: 2021 - 2023

Email Address: [email protected] Cell No: 0092-3346963764

Supervisor’s
Date Purpose of Meeting and Agreed Actions Signatures
5-Jan-22 Discussion about various topics
22-Jan-17 Selection of topic & Proposal Submission
15-Feb-22 Proposal Review, Corrections & Literature
26-Feb-22 Proposal Finalization
Discussion on Introduction, Literature (Baseline Papers)
14-Mar-22
& Questionnaire
Discussion on Introduction, Literature & Questionnaire
4-Apr-22
Revision
Discussion & Finalization of Introduction, Literature &
11-Apr-22
Questionnaire
Discussion on Methodology & Result & Discussion
5-May-22
Chapters
27-May-22 Finalization of Methodology & Review of Results
Finalization of Results, Discussion, Conclusion &
18-Jun-22
Recommendations
21-June-22 Thesis Submission for Review for Final Viva
25-Jun-22 Thesis Approval for Final Viva
Title of Project: Factors of Escalation and its Effects on Cost of Construction Projects in

Pakistan

Supervisor Details:
Name: Prof. Dr. Shahid Naveed
Email: [email protected]
Cell No.: 0342-5005005

Prof. Dr. M. U. K. Afridi

Program Director
vii
 Declaration of Originality

I, Muhammad Zain Naqi hereby solemnly declare that this project:

a) Is my original work, except where otherwise acknowledged in the text.

b) Has not been published earlier and.

c) Shall not be submitted by me in future for obtaining any degree from this or other

university or institution.

d) Has been incorporated HEC Plagiarism Policy.

e) In case of violation of HEC Plagiarism Policy, I shall be liable to punishable action

under the plagiarism rules of HEC.

3.1 Student’s Full Signature

30.04.2023
3.2 Date

viii
 DEDICATION

This work is dedicated to my family, friends, PIRT Management, who

encouraged me to face any challenge.

I especially dedicate this thesis to my Supervisor Dr. Shahid Naveed.

I also dedicate this thesis for our “Shuhada” of Pak Army, Police and other law
enforcement agencies as their sacrifices are countless for Pakistan.

ix
 ACKNOWLEDGEMENT

All thanks and praises to ALMIGHTY ALLAH who gave the

opportunity and enabled me to complete my MS Degree. I am extremely
grateful to my family for their sincere prayers and to my friends for their
support during the entire length of my course and research work.

I am also thankful with sincere gratitude to my thesis supervisor Dr. Shahid

Naveed for his fathomless guidance, continuous persuasion, valuable time and
encouragement during my research work. I am also extremely grateful to the
members of my thesis committee for their sincere guidance. I am also thankful
to Prof. Dr. MUK Afrid and the whole PIRT Management for their help and
guidance for the completion of this thesis.

Muhammad Zain Naqi

MSPM-S21-004
MS Project Management

x
 Table of Contents
Chapter 1: Introduction 1

1.1 Background 1

1.2 Problem Statement 2

1.3 Research Gap 3

1.4 Research objective 4

1.5 Scope of Work 4

Chapter 2: Literature Review 5

2.1 Explanation with historical data 5

2.2 Factors of Escalation 8

2.3 Effects of Escalation in different regions of world 9

2.4 Material and Labor cost change in Pakistan 11

Chapter 3: Methodology 14

3.1 Description 14

3.2 Stages of Methodology Approach 14

3.3 Survey Form 16

3.4 Project Case Study 18

Chapter 4: Results & Discussion 20

4.1 Survey Form Result 20

4.2 Project Case Study Result 22

4.3 Cost Index 23

Chapter 5: Conclusion 33

Recommendations 33

References 34

xi
 List of Tables & Figures

Sr # Description Page #

1 Table # 1: Effects of Escalation in Different Regions of World 10

2 Table # 2: Materials Cost Change in Pakistan 11

3 Table # 3: Labor Cost Change in Pakistan 13

4 Table # 4: Domains of Response for Survey Form 20

5 Table # 5: Data Received from Survey Form 20

6 Table # 6: Cost Index Factor 32

7 Figure- 4.1- Bill of Material Comparison 22

8 Figure- 4.2- Rate Analysis of 1:2:4 Concrete as per MRS January-2022 24

9 Figure- 4.3- Rate Analysis of 1:2:4 Concrete as per MRS January-2019 25

10 Figure- 4.4- Rate Analysis of Plaster as per MRS January-2022 26

11 Figure- 4.5- Rate Analysis of Plaster as per MRS January-2019 27

12 Figure- 4.6- Rate Analysis of Brick Work as per MRS January-2022 28

13 Figure- 4.7- Rate Analysis of Brick Work as per MRS January-2019 29

14 Figure- 4.8- Rate Analysis of 1:4:8 Concrete as per MRS January-2022 30

15 Figure- 4.9- Rate Analysis of 1:4:8 Concrete as per MRS January-2019 31

xii
 Abstract
Construction is one of the main business domains in developing countries like Pakistan, etc.
as it provides employment, business opportunities and infrastructure development.
Construction of a mega project is a complex thing to tackle. Many problems and challenges
are linked with it, among one of them is cost which is a backbone for any project. Costing of
a project is done at very initial stage and its accuracy level increases with the phases of
construction from initiation to execution and completion phase. Price escalation or inflation
hampers the progress and timely completion of construction projects. In this research, basic
aim is focused on the factors which through light on the root causes of inflation and what are
the aftereffects of escalation, how construction industry of Pakistan is affected due to
inflation. Escalation refers to the increase in time, cost, or scope of a project beyond the
originally planned level. It is a common problem in the construction industry and can have a
significant impact on project outcomes. It will be analyzed with help of questionnaire and
historical data analysis. It adopts a mixed-methods research approach, which involves
collecting both quantitative and qualitative data. Quantitative data refers to numerical data
that can be analysed statistically, such as project cost and duration. Qualitative data refers to
non-numerical data that can provide insights into project management practices, such as
taking data with project stakeholders through survey forms. The study finds that several factors
contribute to project escalation in the construction industry in Pakistan. These include inflation,
fluctuation in material prices and design errors. Inflation refers to general increase in prices over a
given period due to demand pull, cost push, increased money supply, devaluation, unstable political
situation, monetary and fiscal policies, or any other unexpected events. Design errors refer to
mistakes or oversights in the project design, such as incorrect calculations or inadequate
specifications. The consequences of escalation include project delays, cost overruns, quality
issues, and strained relationships between project stakeholders. Project delays refer to the
extension of the project timeline beyond the planned duration. Cost overruns refer to the
increase in project cost beyond the budgeted amount. Quality issues refer to problems with
the project's final product or service, such as defects or functional issues. Furthermore, cost
index factor while considering some items also calculated with the help of Market Rate
System of Government of Punjab, Finance Department of Pakistan. Results are concluded at
the end which highlights the critical factors causing time and cost overrun with some
suggestions for further research work.
xiii
CHAPTER - 1 Introduction

1.1 Background

Construction sector is linked with a wide range of activities which is related to all types of
structures i.e., buildings, dams, power plants, etc., and it further ensures the planning,
execution, repair and maintenance domains also [Sweis, G., Sweis, R., Hammad, A. A., &
Shboul, 2008]. Construction is a vital point which shows progress and development in social,
economic & financial domains of developing countries. It provides millions of jobs, linked
many business sectors, betterment of infrastructure and business growth [Anaman, K.A. and
Osei-Amponsah, C, 2007]. Construction project is an idea which is defined by owner/client,
expand on paper/ designed by designer, executed by contractor which is handed over to client
in the end [Gould, F. E., & Joyce, N, 2009].

There are three most important domains within a construction project i.e., Cost, Scope and
Time. They are also commonly known as triple constraints of a project. Time is required to
complete a specific activity or also applicable for completion of project till handing over
phase from contractor to client/owner. Time management is about understanding and
knowing the type, nature, criticality, and intensities of activities which are linked within a
whole project life cycle and thus defines the whole timeline for a project [Low Sui Pheng,
2018]. Cost is the budget allocated to complete a project mutually accepted by all
stakeholders of project. Cost management or cost control is linked with engineering
estimates, rate analysis, billing, and budgeting so the project can be completed in allocated
budget [Eda Buchner, 2015]. Scope of any project is defined as finalizing the work details,
activities. Project milestones and deliverables or it can be defined to find answers to these
questions which is accepted by all parties involved within a project.

● How to do?
● What to do?
● Where to do? and
● What time it requires to complete?

Furthermore, project scope management is the process in which all deliverables, milestones
are shifted into reality started from paperwork. In this complete procedure, many stake-
holders like project manager and his team, investor, customer, third party investigation teams,

1
etc. are involved and a well-defined scope of work is defined and then tracked for
implementation [Yana Derenskaya, 2018].

There are many risks which are involved in a project which can create problems, issues and
challenges within whole project timeline. A construction project may be successful or not. A
successful project is defined as the project which ensures its timely completion within
specified approved budget and as per required standards and quality parameters [Olawale, Y.,
& Sun, M, 2012]. It can also be explained as if it accomplishes all the objectives as per
approved initial scope, budget, and required quality milestones in accordance with
environmental conditions as per location, workers safety [Frimpong, Y.; Oluwoye, J.;
Crawford, L, 2003]. Cost is of highest priority factor which is important for client, and it also
defines the success and performance of project, thus indicates the project delivery is
successful or not [Dey, P. K.; Tabucanon, M. T.; Ogunlana, S. O, 1996].

Cost escalation is the increase in amount as compared to be initially approved budgeted

amount to complete the project [Majid, M. Z. A., Zakaria, W. Z., Lamit, H., Keyvanfar, A.,
Shafaghat, A., and Bakti, E, 2012]. Mega construction projects are of usually complex in
nature and completed in timeline of years which increase the risk factors, uncertainties and
variations. From planning phase to handing over phase, these uncertainties result in financial
loss and turns the economics and operations of project at negative side [Gajewska, E., &
Ropel, M, 2011]. These projects vary in terms of duration, site conditions, complexity,
financial problems, milestone deadlines and many other factors [Keung, C. C., & Shen, L. Y,
2012]. Among all of these and other factors, cost is most significant.

1.2 Problem Statement

As cost is one of most important factors so the price escalation or inflation is the root cause
attached to cost which increase the budgeted cost. Cost overrun is a common problem which
is observed in developed and developing countries also while Developing countries like
Pakistan, Nigeria, Indonesia, etc. had faced this serious problem in past years, tendency is
more dangerous and it is increasing with time which overall results in economic and financial
loss for a country as sometimes more than 100% of cost increase is recorded as compare to
initial cost estimate in some cases. [Azhar, N.; Farooqui, R. U.; and Ahmed, S. M.; 2008].
Escalation is among the major cause which has negative impacts on construction industry and

2
results in increased price of labor, material and machinery, so there is no option for the
investors to delay the project or involve more money to complete it [Alinaitwe H, Apolot R,
Tindiwensi D. 2013]. As an instance, in case of Indonesia, a research work highlights that
47% of the construction projects were finished within its approved schedule, only 15% of
construction project were ahead of timeline and remaining 38% were behind the approved
timeline [Trigunarsyah, B. 2004].

At global level, same problem is observed, and it had been recorded that 9 out of 10 projects
had faced cost overrun problem [Flyvbjerg, B.; Skamris Holm, M. K.; and Buhl, S. L. 2003].
An international survey was done in 2017 and it was recorded that Globally Construction cost
inflation was 3.7% in 2016 as compared to Global construction cost inflation for 2015 was
2.9% and for year of 2017, it was recorded as 3.5% [International construction market survey,
2017]. Research revealed that up to 70% projects in Kingdom of Saudi Arabia face delays in
completion [Al-Khalil M.I. and M.A. Al-Ghafly, 1999], in Qatar, up to 80% of total
infrastructure development projects face delays and additional 25% time were recorded in
general for their completion [Emam, H., P. Farrell and M. Abdelaal, 2015]. Further, a
research study done in Brazil highlights 82% increase in costing domain for 238 projects
[França A. and A.N. Haddad, 2018]. As mentioned earlier, construction industry is one of
main industry in Pakistan, but it is facing very critical problem of both time and cost overrun.
For example, projects initiated by Water and Power Development Authority (WAPDA) has
been recorded increase in time domain for more than 200% while more than 25% of cost
overrun is recorded also [Hussain S., F. Zhu, Z. Ali, H. Aslam and A. Hussain, 2018].

Due to increase in labor charges, material cost, equipment rental charges, taxes, etc., it results
in increasing the overall initial engineering estimates for any construction project. As prices
are volatile and continuously increasing, it hampers the economic growth but also the labor
market and consumer price index is also badly affected [Islam R, Ghani ABA, Mahyudin E,
Manickam N, 2017 & Johnson RM, Babu RII. 2018]. Escalation in construction industry is
different in various sectors and changes from market to market and material to material
[Zarenski E. 2019].

1.3 Research Gap

There are following research gaps for problem of escalation on construction projects:

3
- |What kind and type of factors involve which causes escalation on construction projects in
Pakistan as there are many articles and research available, but we need to explain it more
effectively through case study of real time project?

- Effects of escalation on projects that how it disturbs the successful completion of project?

- There is how much escalation observed in form of cost index in recent years in Pakistan?

1.4 Research objective

The basic purpose of this research work is as follows:

1. To find main factors which are causing escalation.

2. To find effects of escalation on construction projects in Pakistan.
3. To find out some ratio by which the escalation is changing with course of time in
Pakistan.

1.5 Scope of Work

1. Main factors of escalation shall be found out with the help of

detailed literature review & getting the results in form of a
questionnaire or survey form from the field experts with special
focus on escalation.
2. Effects of escalation shall be found out from the Case study of
a Building Project.
3. To generate a cost index of building construction projects in
Pakistan, how it changes with course of time.

4
CHAPTER – 2: Literature Review

2.1 Explanation with historical data

From beginning to this modern era, shelter is one of necessity of human. Human has made
progress in every aspect of his life and community after thousands of years to this modern
period so same is the case with building. Living from cave to skyscrapers is one of the
biggest achievements which human has attained. As the population increases in last century,
concept of high-rise buildings was developed and one of the most prominent and famous
building was Empire State Building in New York City in 1930’s. The progress in this phase
is continuing in developing and developed countries both. Population of Pakistan has
increased from 130.5 million in 1998 to 213.2 million in 2017 so the demand of housing is
increased exponentially as it is directly proportional to population growth
[https://www.pbs.gov.pk/content/final-results-census-2017]. As per vision of Prime Minister
Imran Khan, government of Pakistan from 2018 is encouraging the construction of multi-
story buildings in metropolitan cities of Pakistan i.e., Karachi, Lahore, etc. to encounter the
problem of shelter for every day increasing population. By-laws are also changed, updated
and some relaxations are given to developers, clients in order to oblige this vision as LDA
has allowed construction height up to 35’ for 10 Marla plots as compared to 25’ earlier and
likewise relaxation in other limitations are allowed in revised version of building by-laws.

There is a long range of factors which are causing the escalation like natural disasters, design
flaws, change orders, financial condition of stakeholders, etc. In case of UK, a study
highlighted the poor project scheduling and management, lack of information between
stakeholders, design flaws, less accuracy in initial engineering estimation and time limitation
as main factors for escalation [Simon Jackson, 2002]. Research done in 2010 highlights the
inaccurate engineering estimate as the most common factor for cost overrun problem in
construction projects [A.S. Ali*, S.N. Kamaruzzaman, 2010]. Design changes, latent
condition, as per site design changes due to weather and local population needs, removal and
replacement of unsuitable material are designated as major factors for cost overrun in
highway projects of Australia [Garry D.Creedy, 2005].

In Zambia, research declared the bad weather conditions like flood, etc., change in scope,
political pressure, labor strikes, schedule delays and design changes as the main factors for

5
cost overrun problem [Kaliba, C.; Muya, M.; and Mumba, K. 2009]. For public sector
projects of Jordan, material shortage, fuel price increase, unskilled labor, in-accurate
estimation, less awareness of local by-laws and limitations for construction and unsuitable
weather conditions are indicated as major points for this problem [Sweis, J. G., Sweis, R.,
Rumman. A., Hussein, A. R., and Dahiyat, E. S., 2013].

For residential construction projects in Turkey, research highlights more than 40 factors of
cost increase. Among them some factors are wrong estimation, poor project planning, inflated
price of construction materials, high cost of land, less skill of work force and high cost of
rental machinery which cause it [Serdar Durdyev *, Syuhaida Ismail and Nooh Abu Bakar,
2012].

In case of construction projects in Nigeria, researcher highlighted 35 factors and with the help
of survey, economic stability, design changes and flaws, high interest rate by banks, less
skilled labor financing mode, currency exchange rate and inadequacy of a contractor to
execute the assigned job are revealed as main points to be considered for cost increase
[Ameh, O.J., A.A. Soyingbe and K.T. Odusami, 2010]. Some factors like long delays in land
acquisition approval for government authorities, scope change, law and order situation, late
procurement of both material and equipment, unskilled contractor and delayed payment from
relevant government organizations are indicated as root cause for cost overrun problem in
India [Salunkhe, A. A. and Patil, S. R., 2014].

Lack of suitable planning as per requirements, absence of proper procurement plans, political
instability, less supportive documentation as per laws, higher interest rates for loans and
delayed payments are figured as major factors for construction projects in Iran [Vafaiee, M.;
Saleh Owlia, M.; Vahdat, M. A, 2010]. After research work from all stakeholders of typical
building construction project i.e., Client, Consultant & Contractor, inaccurate estimation,
delay in execution unavailability of funds, using low quality material, corruption, poor
planning and poor site management are the basic causes for extra budgeting in order to
complete the project in Gaza strip was recorded [Enshassi, A.; Al-Najjar, J.; and
Kumaraswamy, M. 2009].

Main factors for time and cost overrun in construction projects of Kingdom of Saudi Arabia
are poor planning and scheduling, poor site management, lack of communication or
communication gap between main contractor and sub-contractors has been observed [Alhajri
A. and A. Alshibani, 2018]. Another research nominates unjustified cash flows on site, poor

6
planning and scheduling, less experience in analyzing and monitoring the contractors
between various parties and poor estimation as main factors for cost overrun problem in KSA
[Abdulaziz A Bubshait; Yaser A AL-Juwariah, 2002].

Extreme weather conditions or force majeure i.e., floods, high speed, winds, etc. also enhance
the cost of construction material. For its instance, research done in USA after Hurricane
Katrina, 2005 reveals that hurricane had damaged the public properties three times more than
in a typical year, so the demand of construction material is increased for rehabilitation. As
demand is high, so the cost goes up also in accordance with it [Peter Morris and William F.
Willson, 2006].

As per results of a research-based case study in Afghanistan in 2017, financial issues of

client, corruption, and delayed payment to contractors are the key points for cost overrun
problem in construction industry [Niazi G.A. and N. Painting, 2017]. A research results
nominates 5 factors for problem of escalation in construction industry of Vietnam which are
design variations, financial capability of client, poor site management, poor supervision and
financial problem of contractors [Long Le-Hoai, Young Dai Lee, and Jun Yong Lee, 2008].

For a case study of a construction project in India, poor material procurement, less skill level
of labor, labor strikes, machinery problems and weak financial condition of contractor are
recorded as main factor of cost increase [Sanjeet Kumar and Surabattuni Murali, 2021].

A research work in 2008 was done in Pakistan and it highlighted the 44 factors which are
causing the escalation, further divided in three categories of macroeconomic factors,
management factors and business and regulatory related factors [Azhar, N.; Farooqui, R. U.;
and Ahmed, S. M.; 2008]. Some of them are less production of labor, inaccurate planning,
poor site management and financial problems of client are highlighted. Furthermore, in
another research paper, less HSE practices on site, funding issues, inadequate planning,
expensive machinery, old and outdated government policies, less accuracy in engineering
estimates, unskilled labor, poor project management, less tools and equipment as per site
schedule and requirements, delayed approvals from government bodies and political
instability are most significant reasons for cost increase of construction projects in Pakistan
[Nasir, A. R.; Gabriel, H. F.; and Choudhry, R. M. 2012].

A study done in Gilgit-Baltistan region of Pakistan highlights allocation of land for certain
usage, progress delays and payment delay as main factors for cost and time increase in
construction projects [Hussain S., F. Zhu, Z. Ali, H. Aslam and A. Hussain, 2018]. For a case

7
study done in Sindh province of Pakistan revealed delayed payments to contractor against
work done, communication gap between stakeholders within a project, increase in price of
raw material, poor site management and financial issue of client as major reasons for cost
overrun problem [Sohu S., A.H. Abdullah, S. Nagapan, N.A. Memon, R. Yunus and M.F.
Hasmori, 2019].

2.2 Factors of Escalation

With reference to two research studies carried out in Pakistan, more than 70 factors are listed
out for escalating the cost of material [Memon A.H., I.A. Rahman and A.A.A. Azis, 2011 &

Sarwar, M.K., M.A. Khan and Z. Iqbal, 2002]. Some of these factors are as follows:

1. Communication gap between stake holders

2. Approval delays from concerned government authorities
3. Poor Cash flows
4. Poor site management
5. Less adaptation of new machinery and equipment
6. Late material delivery
7. Payment delays to contractor
8. Design errors and flaws
9. Improper planning and scheduling
10. Wrong techniques towards execution
11. Change in scope of project or part of project
12. Inaccuracy in engineering estimates
13. Low quality material
14. Corruption problem
15. Laws and regulatory framework
16. Unseen weather conditions
17. Frequent machinery and equipment failure
18. High labor cost
19. Complex design
20. Wastage of material
21. Late design
22. Less productivity of work force
23. Practically unsuitable contract terms and conditions between different parties

8
 24. Land acquisition delay
25. Political instability
26. Lack of proper material procurement plan
27. Poor contract management
28. Social and cultural issues and impacts
29. Rework and frequent dismantling
30. HSE issues
31. Insufficient equipment
32. Incompetency of contractor
33. Low skill level of labor
34. Policy to select a lowest bidder for any work
35. High rental cost of machinery and equipment

Building material consists of about 35-60% cost of total budgeted cost for any construction
project [Bourne LS. The geography of housing / Larry S. Bourne. London: Edward Arnold;
1981]. Escalation is attached with construction projects from old era, but it is heavily
indulged and observed in construction projects due to complex construction projects,
technological advancement, client’s involvement and many other factors to meet the
requirements of a project. Budget for completion for any construction project is directly
attached with inflation so the clients pay for this increase or goes for time delay [Shah RK.,
2016].
A significant relation is present between cost overrun and escalation in both public funded
and privately funded projects [Altaf M, Musarat MA, Khan A, Shoukat Z, Salahuddin U.,
2019 & Diugwu IA, Etuk EH, Baba DL, Mohammed M, Yakubu HA., 2017]. As
Oghenekevwe et al., inflation/escalation is basic purpose of cost overrun [Oghenekevwe O,
Olusola O, Chukwudi US., 2014]. Another research study concludes escalation as the basic
reason for material prices, labor wages, thus results in overall increase of earlier approved
budgeted cost for that project [Tang CF., 2014].

2.3 Effects of Escalation in different regions of world

Effects of inflation/escalation in different regions of world is summarized in a table form

which is as follows:

9
 Table # 1: Effects of Escalation in Different Regions of World

Author Country Methodology Material Manpower Machinery

Cost Cost Charges
Oghenekevwe Nigeria Regression Increase Increase Increase
et al. [57] Analysis

Remarks: inflation/escalation is the main reason for increase in material cost, thus results
in overall increase of initially estimated cost of project.
Tang [58] Malaysia Bounds - Increase -
Testing
Approach
Remarks: There is direct relationship between labor productivity, labor charges and
inflation.
Leavitt et al. USA Cost escalation Increase Increase Increase
[59] of previous
projects
Remarks: Inflation is one of major reason for cost overrun problem in construction
projects in United States of America.
Olawale & UK Relative Increase
Sun [60] Importance
Index
Remarks: One of key factors for cost overrun is escalation.
Le-Hoai et al. Vietnam Spearman’s Increase Increase
[33] Rank
Correlation
test
Remarks: Three major factors i.e., escalation, wrong estimation, increased labor cost are
reasons for cost overrun problem.
Alinaitwe et Uganda Relative Increase Increase
al. [52] Importance

10
 Index
Remarks: Inflation is main reason for increase in cost of equipment and labor in
construction projects.
Kaliba et al. Zambia Average Increase Increase Increase
[61] Weightage
Significance
Index
Remarks: Cost escalation is due to various factors; inflation is one of them. It results in
time delay and cost escalation.

2.4 Material and Labor cost change in Pakistan

A table of cost of different materials used in construction projects in Lahore, Pakistan are as
follows:

Table # 2: Materials Cost Change in Pakistan

SR# Item description 1st Bi-Annual 1st Bi-Annual 15-June 2022 Market
MRS 2019 (63) MRS 2022 Based Rates
(62) (Market Suppliers)
1 OPC Cement (Bag) Rs. 590 Rs. 720 Rs. 1125
2 1st Class Brick 9” x 4.5” Rs. 8.5 Rs. 12.5 Rs. 14.5
x 3” (No.)
3 Brick Tile 9” 4.5” x Rs. 6.5 Rs. 10.5 Rs. 12.3
1.5” (No.)
4 Binding Wire (per Kg) Rs. 93 Rs 150 Rs. 250
5 Brick Ballast 1.5” (Cft) Rs 14.5 Rs. 22 Rs. 36
6 Deformed MS Bars 60 Rs. 98.5 Rs. 193 Rs. 230
Grade (Kg)
7 Kerosene Oil (Ltr) Rs. 83 Rs. 115 Rs. 185
8 Diesel (Ltr) Rs. 107 Rs. 143 Rs. 204
9 Petrol (Ltr) Rs. 91 Rs. 147 Rs. 210
10 Charcoal (Kg) Rs. 13 Rs. 18 Rs. 25
11 Polythene 0.03” or 0.08 Rs. 139 Rs. 280 Rs. 355
mm (Kg)

11
12 Thermopore ½” thick Rs. 3 Rs. 9 Rs. 13
(Sft)
13 Thermopore 3/4” thick Rs. 4 Rs. 10 Rs. 15
(Sft)
14 Thermopore 1” thick Rs. 5 Rs. 12 Rs. 17
(Sft)
15 Sandpaper (Dozen) Rs. 140 Rs. 240 Rs. 340
16 Terpentine Oil (Ltr) Rs. 95 Rs. 200 Rs. 280
17 Spirit (Ltr) Rs. 70 Rs. 150 Rs. 215
18 White Enamel paint Rs. 1050 RS. 2500 Rs.3500
Local (Gallon)
19 Deodar Wood Best Rs. 4000 Rs. 7000 Rs. 8800
Quality (Cft)
20 Deodar Wood 2nd Class Rs. 2800 Rs. 5500 Rs. 7200
(Cft)
21 PVC Insulated Single Rs. 17 Rs. 33 Rs. 40
Core Copper Conductor
Cable 3/0.029” (Metre)
22 PVC Insulated Single Rs. 28 Rs. 65 Rs. 90
Core Copper Conductor
Cable 7/0.029” (Metre)
23 PVC Pipe ½” (Metre) Rs. 20 Rs. 38 Rs. 50
24 PVC Pipe 3/4” (Metre) Rs. 29 Rs. 60 Rs. 82
25 PVC Pipe 1” (Metre) Rs. 36 Rs. 75 Rs. 104
26 Commercial Ply ¾” Rs. 55 Rs. 67 Rs. 85
Thick (Sft)
27 Lasani Board ½” (Sft) Rs. 32 Rs. 40 Rs. 58
Lasani Board ½” Thick Rs. 40 Rs. 60 Rs. 85
(Sft)
28 Chennab Sand (Cft) Rs. 28 Rs. 33.5 Rs. 48
29 Sargodha Crush (Cft) Rs 37.5 Rs. 42.5 Rs. 110

12
Furthermore, rates difference for various types of labor is as follows:

Table # 3: Labor Cost Change in Pakistan

SR# Item description 1st Bi-Annual 1st Bi-Annual 15-June 2022 Market
MRS 2019- Per MRS 2022- Based Rates
Day (64) Per Day (65) (Market Based)
1 Gate Keeper Rs. 593 Rs. 800 Rs. 1000
2 Bahishti Rs. 618 Rs. 850 Rs. 1000
3 Electrician Rs. 675 Rs. 1100 Rs. 1500
4 Carpenter Rs. 675 Rs. 1100 Rs. 1500
5 Mason Rs. 675 Rs. 1100 Rs. 1500
6 Fabricator Rs. 675 Rs. 1100 Rs. 1500
7 Helper Rs. 593 Rs. 800 Rs. 1000
8 Site Engineer (Per Rs. 227 Rs. 303 Rs. 325
Hour)
9 Surveyor (Per Hour) Rs. 82 Rs. 107 Rs. 125
10 Foreman (Per Hour) Rs. 89 Rs. 107 Rs. 325
11 Asphalt/ Concrete Plant Rs. 101 Rs. 132 Rs. 155
Engineer (Per Hour)

Now from the historical data, above factors of escalation are concluded with the help of
which survey form shall be prepared in next chapter of methodology. Effects of escalation in
different regions of world is found out from historical data as per Table # 1 while effects on
cost shall be determined from case study of real time construction project in Pakistan in next
chapter.

Similarly, from the date we got from MRS Pakistan as per Table # 2 & 3, escalation in given
period is determined for material and labor cost which shall help in finding cost index factor.

13
CHAPTER – 3 Methodology

3.1 Description

Research paradigm or research methodology is defined as the way forward to carry out the
research work as per accordance with scientific principles. Importance or significance of any
research work depends on the objective of study should be well defined and how the results
in researched work carried out describes the objectives with relevant facts and proofs
[Saunders, M. N., 2011].

Data collection is the key process in any research-based study which is done by many
resources like interviews, survey forms, brain storming, professional’s reviews, etc. Data
collection necessary to find out the answer about objectives of study and to analyze and
evaluate the basic hypothesis of any research work [N. Z. Muhammad, A. Keyvanfar, M. Z.
A. Majid, A. Shafaghat, A. M. Magana, S. Balubaid, 2015].

3.2 Stages of Methodology Approach

For this research work, the methodology approach selected is divided in four phases which is
as follows:

● At very first stage qualitative research approach is used and more than 30 research
papers, books, cases, articles are reviewed and analyzed which indicates more than 75
points who acts as a reason for over costing problem. Many case studies are written as
reference in above chapter which declares this issue as a global problem and explain
the main reasons behind it as per research work conducted in different countries like
India, Pakistan, Iran, Egypt, etc.
● After critical analysis and evaluation, 15 points are selected at second stage and
recorded in questionnaire and it is filled by more than 30 professionals i.e., field
experts, engineers, project managers, construction managers, site engineers, material
experts, planning engineers, etc. in order to obtain the most important fifteen factors
in criticality arrangement which are acting as back- bone of this problem with special
reference to construction industry of Pakistan. These professionals can be called as
“Target Population”.
For this purpose, sample size distribution method was used. It is a method used in
research work, to select a population of relevant units, experts to investigate the
problem which is under consideration in research work. These fifteen most important
14
 factors are written in close-end type of questions categorized with 5-point scale
method and analysis will be made with the help of statistical tools. Attached
questionnaire is converted into the google sheets and link was shared in circle of
experts and engineers who filled out this questionnaire. Questionnaire is design from
highly agree (1st Point), neutral (3rd point) to highly disagree (5th point). So, the points
having value close to 1 are regarded as most critical points which cause time and cost
overrun.
Experts working in different domains having experience range from 2 years to 35
years were involved in this phase and all the relevant details are described in detail in
next chapter.
● At third stage, a building project located at Raiwind Road, Lahore for apartment
purposes is selected & reviewed in order to investigate the effects of escalation as per
second objective of study of this research work. Bill of material for finishing items
approved by senior management of project under consideration is attached in results
chapter showing comparison between rates of almost 40 items is attached to show that
how the prices are increased in almost 1 year timeline.

● At 4th and last stage, a cost index is generated with the help of market rate system
analysis published by Finance Department of Government of Punjab, two times in a
year. For this purpose, reference of rates of material and labor involved in
construction is described with the help of tables in chapter 2 in details. All the items
are fixed for three times tenures i.e., January 2019, January 2022 and June 2022. 1 st
Bi-annual is valid from 1st January of relevant year to 30 th June of that year and 2nd Bi-
annual is valid for 1st July of relevant year to 31st December of that year. But in case
of 2022, an exponentially surge in prices of material is recorded, so with the basic
theme of upgraded rates according to prevailing market conditions, third rate column
is also added to clearly highlight the current situation and how it effects the building
construction. Third column is locked up to the date of 15th June 2022.

15
3.3 Survey Form

The survey form developed for this purpose is attached in Annexure A

Annexure A

Survey Form / Questionnaire Form As per 1st Objective of Study

Part-I

Name:

Designation:

Company Name:

Email ID:

1. Please mention in which domain of construction firm you are relate to

● Client

● Contractor

● Consultant

● Builder (Acting as Investor/Client but working as a contractor by hiring professional

staff and labor rate petty contractors/ daily wages labor)

2. Please indicate your years of experience in the construction industry

● 0 to 5 years

● 5 to 10 years

● 10 - 15 years

● >15 years

4. Worth/Estimate of project on which you are giving your professional services

● More than 10 million PKR

16
 ● More than 100 million PKR

● More than 1000 million PKR or more than 1 billion PKR

5. What is company’s level of registration in Pakistan Engineering Council (PEC), if

working in contractor side?

● C-A

● C-B

● C-1

● C-2

● C-3

● C-4

● C-5

● C-6

Part 2

Sr. Factors for Cost Rating Scale

No. Escalation Problem in Highly Agree Neutral Disagree Highly
Pakistan Agree Disagree
1 2 3 4 5
1 Fluctuation in material
prices [43,44,45]
2 Inflation [15,45]
3 Design Errors [29,30,33]
4 Late Design Approval
and Availability [43,44]
5 Less Productivity of
Work Force [29,30]
6 Poor Cash Flows
[29,30,35]
7 Poor Site Management

17
 [21,28,33,35]
8 Poor planning and
scheduling
[20,29,30,35,36]
9 Political Instability
[15,20,21,29,30]
10 Lack of Proper
Procurement Plan
[18,19,29,30,42]
11 Inaccurate Engineering
Estimates [9,21,29,30,32]
12 Project Location [15,47]
13 Unseen Weather
Conditions
[15,16,29,30,34,40]
14 Strikes [15, 47]
15 Material Shortage
[16,45,48]

3.4 Case Study

Details of Project as per 2nd Objective of Study

Project Name: Icon Luxury Apartments

Location: Raiwind Road, Lahore.

Number of Apartments: 600

Project Start Date: 1st August 2021

Scheduled Deliver Date: 31st October 2024.

Number of Buildings: 3

Number of Floors: Basement, Ground Floor and 11 floors with roof top. (Total 14 floors)

18
Total Covered Area: 10, 25,000 square feet

Parking Capacity: 925 cars

Client: Icon Valley

Main Contractor: Progressive International

Structural Consultant: Mushtaq and Bilal associates

Architectural Consultant: AHR Global

Facilitates: Gated/24-hour security available, gym, sports area, mosque, commercial zone,
swimming pool, children playing area, etc.

19
Chapter 4 Results & Discussion

4.1 Survey Form Data Result

Data collection was done by experts of different domains. Total 90 questionnaires were
shared out of which 70 questionnaires has been received. It means almost 78% of total
questionnaires has been received and data is compiled as per their results. Domains in which
field experts and engineers have provided the is categorized as follows:

Table # 4: Domains of Response for Survey Form

Working Domain Number of %age against Total %age against

Respondents Received
Client 19 21 27
Contractor 27 30 38.5
Consultant 14 15.5 20
Developers 10 11 14.5

Likert Scale is usually used to analyze the results. It may have 3 or 4 options, 5 options, 7 or
even 9 options in order to analyze the data depending on the requirements of research work.
It is best to get a personalized professional opinion and behavior of expert towards the study
objective and furthermore, Likert scale is easier to use, more accurate as it gives true
reflection of respondent’s answer about survey being conducted as per his field of expertise.
Summary of data received is highlighted as:

Table # 5: Data Received from Survey Form

Relativ
Highly
Highly Disagre e
5 Point Scale Agree Neutral Disagre
Agree e Averag
e
e Index
Main Factors 1 2 3 4 5
Fluctuation in material
60 9 1 0 0 1.16
prices
Inflation 67 3 0 0 0 1.04
Design Errors 38 17 4 4 7 1.93

20
Late Design Approval and
25 21 11 6 7 2.27
Availability
Less Productivity of Work
7 12 19 12 20 3.37
Force
Poor Cash Flows 24 21 11 10 4 2.27
Poor Site Management 4 8 34 21 3 3.16
Poor planning and
13 24 21 6 6 2.54
scheduling
Political Instability 25 27 11 3 4 2.06
Lack of Proper Procurement
5 15 31 14 5 2.99
Plan
Inaccurate Engineering
9 14 25 13 9 2.99
Estimates
Project Location 2 12 38 12 6 3.11
Unseen Weather Conditions 10 21 23 9 7 2.74
Strikes 5 14 27 13 11 3.16
Material Shortage 9 18 24 8 11 2.91

Where as Relative Average Index (A.I) formula is used to categorize the important
and critical factors to classify the all factors as per their criticality and significance.
R.A.I = (S x N) / T
and
R.A.I = Relative Average Index
S = Scale
N = Number of respondents respond for specific scale
T = Total Number of Respondents
R.A.I factor value close to 1 will be considered more critical and going up further will
reduce the criticality of factor, so it gives an easy approach to categorize the most
important factors as per 1st objective of this research study.
As per table # 5 exhibits there are following three factors with relative average index
closest to one:
1. Inflation
2. Fluctuation in material prices

21
 3. Design errors

4.2 Project Case Study Result

For 2nd objective of study, comparison sheet is attached as follows:

Figure- 4.1- Bill of Material Comparison

22
23
With reference to attached file above, a huge increase of 33.7% of initial cost is observed
which have negative impact on project. To minimize the cost factor, following measurements
are taken by stakeholders of project.

1. Downsizing of staff
2. Reduction in overtime of labor
3. By lowering the specifications and quality of some materials like paint, tiles, etc.
4. Overall progress is slow down and project is almost 25% behind the initially approved
schedule.
5. Increasing the cost of apartments up to 15%.

4.3 Cost Index:

For preparation of cost index, rate analysis of some items is finalized as per MRS 1st Bi-
Annual 2019 and 2022 respectively. Four items are selected with references cited properly at
the end of every sheet. which are:

1. Plane Cement Concrete used for flooring purposes of ratio 1:2:4 (Cement:Sand:Aggregate)

2. Plaster of ¾” thickness and Mortar ratio of 1:4 (Cement:Sand).

3. Brick Work of 9” thickness with Mortar Ratop of 1:5 (Cement:Sand).

4. Plane Cement Concrete used for flooring purposes of ratio 1:4:8 (Cement: Sand:
Aggregate)

Figure 4.2- Rate Analysis of 1:2:4 Concrete as per MRS Rates Jan-2022

24
Figure 4.3- Rate Analysis of 1:2:4 Concrete as per MRS Rates Jan-2019

25
Figure 4.4- Rate Analysis of Plaster as per MRS Rates Jan-2022

26
Figure 4.5- Rate Analysis of Plaster as per MRS Rates Jan-2019

27
28
Figure 4.6- Rate Analysis of Brick Work as per MRS Rates Jan-2022

29
Figure 4.7- Rate Analysis of Brick Work as per MRS Rates Jan-2019

30
Figure 4.8- Rate Analysis of 1:4:8 Concrete as per MRS Rates Jan-2022

31
Figure 4.9- Rate Analysis of 1:4:8 Concrete as per MRS Rates Jan-2019

32
 Table # 6: Cost Index Factor

Description Base Year- Jan, Interest Year- Cost Index % Cost Index
2019 Jan 2022 Factor
PCC 1:2:4 226.08 289.15 27.89 1.27
Plaster 25.56 36.37 42.29 1.42
Brick Work 9” 222.78 314.40 41.12 1.41
PCC 1:4:8 179.30 231.72 29.23 1.29

Where as

C.I = (I.Y-B.Y/B.Y) x 100

C.I = Cost Index

I.Y = Interest year for which cost factor is required

B.Y = Base year locked for calculation

And

C.I.F = 1 + (C.I/100)

C.I.F = Cost Index Factor for Base year

As per above attached rate analysis in figures, cost index for above four items as per table # 6
shows the increase in cost value from given period in percentage. So, 3rd objective of study is
met with derivation of cost index factor for following four materials which well explains the
escalation in terms of cost.

33
Chapter 5 Conclusions
1. As per data gathered after survey and results as shown above in the table, three most
critical factors which are the root cause of time and cost overrun are inflation, fluctuation in
material prices and design errors.

2. Due to these above-mentioned crucial factors, cost overrun occurs and it cause negative
results on any project which impacts the infrastructural and economic progress of a
society/country.

3. 25% to 42% increase in rate of items under consideration for this research work is
observed.

Recommendations
Cost index factors for construction industry of Pakistan has not properly worked out yet as
compare to India and other countries. This research work is first step toward this domain and
further research can be carried out in this domain for every year. Petrol price hike after June
2022 will further increase the prices so an updated research work in this domain will be a
fruitful attempt in order to highlight the cost escalation with respect to construction industry
of Pakistan.

34
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