Life Cycle Costing in the UAE Built Environment

Subject: Industry
Pages: 9
Words: 2469
Reading time:
10 min
Study level: PhD

Introduction

Life Cycle Costing Analysis (LCCA) is a modern technology used to determine the most cost-effective options for purchasing, operating, maintaining, and disposing of an object or process. This strategy helps in the economic analysis of building projects (Gille 2010). In the construction industry, Life Cycle Costing provides the total cost relating to the facility ownership rather than providing only the initial cost of designing and constructing the building. Three factors that are taken into account in the construction projects include the maintenance, operational, and disposal costs (Bull 2003). While planning the project operations, most construction companies depend on the estimation of the initial costs of designing, building, and implementation costs (Al-Hajj & Horner 1998). According to Park (2009), LCC is best used in estimating such costs to determine the projects’ budget whilst evaluating and selecting among various project alternatives. The LCC technique is considered the best way to promote savings while justifying the benefits of the operational practices in sustainable construction activities.

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As revealed by Norman (1990), a failure has been observed in the evaluation of project costs emerging from the utilization of capital resources over the length of its life. During the planning phase, the initial cost of the project is only emphasized to deliver the advantage to the concerned stakeholders. Therefore, most organizations were observed to continue this approach. However, they often suffered from cost overwhelms that threatened their future development. According to Rebitzer and Seuring (2003), such construction organizations need to adopt proper cost evaluation measures to save the project from collapsing. Investment decision-making on projects in the light of low initial costs can be considered as an endeavor to spare cash in the short run. On the other hand, the project managers expected that they should have a long-term vision during their investment (Keuper 2011). In other words, most managers in the construction industry have realized that the total life cycle cost of the project should be minimized rather than its initial cost.

Many traditional techniques are currently being used for estimating the initial cost of projects in the construction sector. As revealed by Datta and Roy (2010), such techniques can be categorized into qualitative and quantitative life cycle costing. The qualitative techniques include analogical and intuitive approaches. On the other hand, quantitative techniques can include both analytical and parametric approaches. Moreover, some new and more sophisticated estimation techniques such as neural networks, regression analysis, and case-based reasoning are applied to modern building projects (Gille 2010). Even though such procedures can be considered as precise estimation approaches, the project managers fail to use them appropriately to evaluate the overall project life cost. Only the initial cost is deemed significant in the planning phase. Following the abovementioned techniques, there is no proper consideration for estimating the operational, maintenance, and disposal costs of the project (Flanagan, Jewell, & Norman 2005). Such kinds of costs can result in cost overruns soon of the construction project. This research suggests that the maintenance, operational, and disposal costs should be projected during the planning phase. This undertaking can lead to saving a substantial amount of money thereby minimizing the chances of overrunning project costs. The Life Cycle Costing Analysis is a suitable approach that can be used to estimate the overall project cost during the planning phase.

Life Cycle Costing Analysis helps estimate the total project cost. It is also an essential method for selecting the best possible project among competing choices. Besides, Keuper (2011) posits that the LCCA can be used to evaluate investment opportunities. It is observed that the concept of the Life Cycle Costing is not new. For example, in 1970, the United States Department of Defense for evaluating a new weapon system utilized it (Alexander 1987; Ahmed 1995). Moreover, it was considered as an approach for improving cost-effectiveness and technology equally by the Civilian Government Agencies (Norman 1990).

This research study is an evaluation of the Life Cycle Costing Analysis. The researcher has chosen the UAE construction sector with a view of determining its importance, driving factors, and the barriers that hinder the industry from implementing the LCCA effectively.

An Introduction to the UAE Construction Industry

With the number of mega construction projects increasing day-to-day, the UAE’s construction sector is considered to be expanding significantly. The increase in social infrastructure spending has made the UAE construction industry to be one of the most popular sectors in the Middle East. As a result, it remains overwhelmed by the Emirates of Abu Dhabi and Dubai as both acts as important drivers of the country’s development. This set of circumstances requires a vibrant construction industry that adopts the most recent technological advancements in the management of initial, operational, maintenance, and disposal costs (Gille 2010).

Dubai’s real estate business is deemed more durable and sustainable with Abu Dhabi’s business sector staying stable throughout the first and second quarters of 2014 (Sayegh 2014). However, a developing pipeline of undertaking projects in the country is likely to upsurge construction spending in the upcoming years. The country’s infrastructure and spending are also boosted because of the influx of individuals from other countries. This state of events has resulted in an increased population in the UAE. Various players in the construction sector are striving to establish more buildings and infrastructure to meet the needs of the ever-increasing population (Sayegh 2014).

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In the Northern Emirates, there is a culture of emphasizing the promotion of resort hospitality projects due to the increased demand for constructing buildings. As a result, the hospitality sector has been growing constantly. Sayegh (2014) reveals that there is increased spending in both the infrastructure and tourism industries, particularly the development of airplane terminals, ports, and roadways. By 2016, the construction sector anticipates the arrangements of the Expo2020, which will keep on building further developments in infrastructure and real estate. The volume of the reported and arranged projects in the UAE by 2016 is approximately US$ 400 billion. By May 2016, the working construction projects are valued at US$ 312 billion. It is projected that this value can increase to US$ 820 billion by the end of 2016 (Kane 2015).

Research that was conducted by Nassar and Hosny (2013) revealed that the UAE construction industry would produce solid growth for the country’s economy shortly. The government of the UAE has shown its dedication to financial broadening. It is expanding its engagement of quality as a speculation destination. It is recognized by the UAE government that a strong construction sector is required to maintain and develop progressive development. The factors fueling the demand for more infrastructures include leisure and real estate investment. Other aspects in the utility sector include the UAE’s rapid growth and development, urbanization, and the migration of the young population to the country. However, similar investments and diversification programs are observed to perform well in the GCC markets in countries such as the Kingdom of Saudi Arabia and Qatar. The UAE construction sector will face rigid competition for collecting resources from local, regional, and global markets (El-Sayegh & Mansour 2013).

Importance of Life Cycle Costing for the UAE Construction Sector

The players in the construction industry are focused on profit maximization by lowering the overall costs of establishing buildings. While making decisions in all stages such as initiation, operation, maintenance, replacement, and disposal during the construction of a project, the managers have to bear the accompanying economic implications (Wübbenhorst 1986). The evaluation of the project cost and implementation of the economic optimization strategies has led to the exploration of various methods of saving to increase while increasing the benefits of the project throughout its life (Shao 2008). This underpinning is strictly observed in public procurement. In the UAE, many initiatives are being endorsed to change the approach of the public sector to procure construction projects. With particular efforts focused on the construction sector, many organizations have identified the Life Cycle Costing Analysis as an important technology in the economic evaluation of a project.

It is widely acknowledged that the private sector organizations in the UAE use the LCC analysis as a cost evaluation method in an unstructured way for their internal purposes. They rarely depend on the LCC calculation for quality selections (Nassar & Hosny 2013). It is observed that the public sector organizations have continued to implement the LCC more vigorously. As a result, the approach to construction costing is getting more recognition than in the private sector. The compelling execution of the life cycle costing includes the use of a keen, comprehensive plan alongside quality material, and development aligns with the selected environmental considerations (Kishk et al. 2003). The ultimate objective of executing the LCC analysis in the UAE’s construction sector is to aid decision-making based on various aspects such as identifying, evaluating, and controlling costs. It also involves the production of selected work besides establishing the expenditure planning profiles.

According to Kishk et al. (2003), the UAE construction sector acknowledges that the implementation of the LCC allows economic justification. The incorporation of sustainable elements of the Cost Life Cycle together with the implementation of the evaluation program in the management of construction projects provides sustainable and cost-effective environmental benefits.

Research Problem

The research problem identified in the study is that the cost evaluation processes used by the construction companies in the UAE are characterized by excessive time wastage, quality concerns, and cost overruns (Kishk et al. 2003). In the country’s construction industry, it is evidenced that the projects executed by many organizations are subject to excessive maintenance and operational costs that pose threats to their success. Several drawbacks are also seen in the current cost evaluation processes and the selection of methods among alternatives. As a result, budget overruns are contributed during the project life cycle that includes the initial, operational, maintenance, and disposal costs.

Various reports have also indicated failures in the cost evaluation processes due to poor planning (Kim et al. 2011). For example, it is reported that the construction industry in the United Arab Emirates emphasizes lower tender prices that lead to high operational and maintenance costs. These factors necessitate the valuation of the Whole Life Cycle Costing in the UAE construction sector to address the failure of the cost appraisal process. This study is an effort to determine the area of the LLC application, extent, and level of application. It also seeks to reveal the perceptions of the various stakeholders towards the implementation of the Life Cycle Costing approach. Finally, yet importantly, the report reveals the barriers existing in the usage of the evaluation program in the UAE construction industry. However, various efforts have also been extended to the formulation of solutions with a view of alleviating the difficulties encountered in the implementation of the LCC evaluation program.

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Research Aims

This research aims to identify and investigate the Life Cycle Cost Analysis in a special context of the construction industry in the United Arab Emirates.

Objectives of the Research

The following are the objectives of this research.

  • To identify and explore how the LLC is applied and perceived to be the best cost evaluation process
  • To identify and examine how the LLC is perceived in the UAE construction industry and its importance to the industry
  • To examine the literature on the usage of the LLC and the selection of the construction project among alternatives based on the assessment program
  • To explore the drivers, barriers, and the possibility of using the LCCA in the UAE construction industry
  • To recommend then construction organizations in the UAE use then LCCA-based data analysis

Research Methodology

A two-phase approach will be used in this study. The first phase will entail the initial literature review. The second stage will involve the administration of a structured questionnaire to collect the data for analysis. In the first phase, an initial literature review will be presented with a view of the evaluation of diverse scientific works of literature on the construction industry of the UAE. The pieces of literature will be evaluated to understand the previously discovered issues in the construction sector. Moreover, the initial literature will also form the basis of the second phase of the research, which will involve the administration of structured questionnaires to the UAE construction practitioners. The structured questions will aim at conducting a detailed investigation into the key issues identified during the first stage.

In this research, the questionnaire will be used as a data collection method rather than conducting direct interviews. The data gathered through interviews are prone to bias and subjectivity due to the injection of the investigator into the research work. The structured questionnaire survey will be administered to the UAE government agencies and representatives of main construction organizations prevailing in the country. Such bodies are considered the major clients in the UAE construction industry. In addition, a simple random sampling method will be selected. Each sample respondent of the population will stand an equal chance of being chosen. The members will be randomly selected from each stratum or fragment.

Expected Outcomes

It is expected that the researcher will provide apt answers to the aims of the research systematically. The researchers should investigate the areas and extent of the LLC in the UAE construction industry. Moreover, the researcher hopes that the drivers, barriers, and important factors will also be evaluated. This state of events will help the researcher explore the loopholes in the current practices used by the UAE construction industry for the project cost evaluation method. It should also provide solutions and recommendations to the industry.

Dissertation Structure

Introduction: The first chapter deals with the introduction of the selected topic under consideration. The researcher discussed the aims, objectives, and research questions in this chapter. Moreover, a brief overview of the LLC, the UAE construction industry, the importance of the LCC, and the research methodology to be adopted is also explained in this chapter.

Literature Review: The second chapter contains a detailed literature review in which the views of the previous research as well as authors and practitioners will be explained and analyzed concerning the LLC as a cost evaluation method.

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Research Methodology: This chapter presents the research methodology that will be adopted by the researcher. The researcher will explain the research approach, data collection methods, and sampling information to be used in the research study.

Presentation of Data and its Analysis: In chapter four, the collected data will be presented systematically. A critical analysis will be conducted based on the findings from both the literature review and questionnaire tools.

Conclusion and Recommendation: Lastly, in this chapter, conclusions will be drawn and presented based on the results and findings obtained from the literature review. This strategy will provide qualitative as well as quantitative backing to the research. The UAE construction organizations were also recommended to use the LCC evaluation procedures. Possible limitations to the study and areas for future research will also be highlighted.

References

Ahmed, A 1995, ‘Kuwait Public Commercial Investments in Arab countries’, Middle Eastern Studies, vol. 31 no. 2, pp. 293-306.

Alexander, K 1987, ‘Computer Aided Life Cycle Costing’, Facilities, vol. 5 no. 11, pp. 49.

Al-Hajj, A & Horner, M 1998, ‘Modelling the Running Costs of Buildings, Construction Management and Economics, vol. 16 no. 4, pp. 459-470.

Bull, J 2003, Life Cycle Costing for Construction, E & FN Spon: London.

Datta, P & Roy, R 2010, ‘Cost Modelling Techniques for availability Type Service support contracts: A literature Review and Empirical Study’, CIRP Journal of Manufacturing Science and Technology, vol. 3 no. 2, pp. 142-157.

El-Sayegh, S & Mansour, M 2013, ‘Risk Assessment and Allocation in Highway Construction Projects in the UAE’, Journal of Management in Engineering, vol. 31 no. 6, pp. 1943-5479.

Flanagan, R, Jewell, C, & Norman, G 2005, Whole Life Appraisal for Construction, Blackwell Science, Oxford.

Gille, C 2010, ‘Life Cycle Costing’, CON, vol. 22 no. 1, pp. 31-33.

Kane, F 2015, A professional perspective on construction industry in the UAE. Web.

Keuper, F 2011, ‘Life Cycle Costing’, Business + Innovation, vol. 2 no. 33, pp. 3-3.

Kim, Y, Cha, H, Kim, K & Shin, D 2011, ‘Evaluation Method of Green Construction Technologies Using Integrated LCC and LCA Analysis’, Korean Journal of Construction Engineering and Management, vol. 12 no. 3, pp. 91-100.

Kishk, M, Al-Hajj, A, Pollock, R, Aouad, G, Bakis, N & Sun, M 2003, Whole life costing in construction – A state of the art review. Research paper, RICS Foundation, London.

Nassar, K & Hosny, O 2013, ‘Fuzzy clustering validity for contractor performance evaluation: Application to UAE contractors’, Automation In Construction, vol. 31 no. 1, pp. 158-168.

Park, S 2009, ‘Whole Life Performance Assessment: Critical Success Factors’, Journal of Construction Engineering and Management, vol. 135 no. 11, pp. 1146-1161.

Rebitzer, G & Seuring, S 2003, ‘Methodology and application of Life Cycle costing’, International Journal LCA, vol. 8 no. 2, pp. 110-111.

Sayegh, S 2014, ‘Project Risk Management Practices in the UAE Construction Industry’, IJPOM, vol. 6 no. 2, p. 121.

Shao, X 2008, ‘Integration and Optimization of Life Cycle Assessment and Life Cycle Costing for Product Design’, Chinese Journal of Mechanical Engineering, vol. 44 no. 9, p. 13.