Financial And Economic Performance Of The Construction Industry: A Research Study

Aim and research question(s)

This report focusses on financial and economic performance of the construction industry. Each year a large amount of cash inflow takes place in the construction business. This money is accountable for the development of particular sector. The following paragraphs will deal with the aims and objectives of the report followed by the problem statement, research methodology and a short literature review.

The money that is being invested for improvement of infrastructure is assumed to be wasted and the resources that are used gets exhausted. This research aims at finding solutions to the problem by proper analysis of data of three organisations.  

Aim:

The aim of the project is to carry out research to know where the cash pumped in construction sector is used.

Objectives:

• To analyze financial data of various construction businesses.
• To find the sectors where the money invested in this industry every year is spent.
• To ensure that construction industry is corruption free and plan strategies for further development of the business.

Research questions:

• What are various financial data of the organizations that needs to be analyzed?
• Which sectors are being benefitted by money invested in this industry?
• What are the corruptions that occurs in this industry?

Rationale of the study:

The rationale of the project is to find out the areas where the money pumped in construction sectors goes. This subject is important because of the fact that safety of people lies in the hands of the construction sector. Previous researches conducted are mostly qualitative. They provide theoretical explanation of the topic. Therefore, further research needs to be conducted to carry out quantitative research on various financial data of three organisations.

Structure of the study:

The research study consists of a short introduction, Aim and objectives, a short research question, literature review, research methodology followed by a short summary.

The financial performance of public and private sectors that takes part in the construction industry describes the path through which cash funded in construction has been utilized. This is significantly useful in accounting for the cash spent every year in this industry. Some articles are reviewed in the following paragraphs that are criticized.

According to Kraatz and Sanchez (2014), construction industry has an impact on the global society. Therefore, the financial investment in this industry has to be used in the R&D department. This is important because construction industry has a number of application like in transport, telecommunication, water supply and energy. R&D department will ensure that the operations performed by this particular industry is safe. Dr. Geert Dewulf head of the department of construction management and engineering situated in Netherlands uses the invested funds in researching on urban planning and infrastructure asset management. Therefore, it can be said that the financial performance of the construction business aims at achieving safer operations.

According to Le, Shan, Chan and Hu (2014), corruption is increasing day by day in the construction sector. Financial performance of the construction industry is declining day by day. It is becoming a main concern not only in countries like US, Australia and United Kingdom as well as in Developing countries like India and Nigeria. In construction industry, corruption can occur in any level like designing, operation and maintenance. The journal also reviewed that the corruption mainly occurs due to flow of public money as well interference of the politicians while taking any decisions related to cost. Therefore, it is evident from the above discussions that money invested in this industry is not being used for development purpose.

Preliminary critical literature review

According to Mok, Shen and Yang (2015), the stakeholders of the construction business contributes largely to the financial performance of the business. Stakeholder management is an effective way of managing the flow of money in construction industry. The three success factors for the effective management of the stakeholders are proper communication among various stakeholders, identification of social responsibilities and appropriate flow of information in the industry. These three factors will improve job satisfaction of various stakeholders that will have a direct effect on the financial performance of the industry. They will effectively convert the invested money into fruitful outcomes. Some of the important factors for improved financial performance are proper stakeholder’s management and managing complex construction projects.   

According to Porwal and Hewage (2013), the private and public sector construction business is still lagging behind. The report reveals that the building tools used for construction is the same old traditional one and therefore has low maturity with respect to Building information management use. To solve this problem a variety of factors needs to be addressed including the technical issues, procedural and organizational issues. A huge amount of money is pumped into this industry to make innovations in construction.

According to Sun et al. (2017), money is invested in construction sector to improve the building information management that will help to develop the relationship among the stakeholders, facilitate fast communication, enhance the productivity and increase profits. However, research on this has found that there are some limits in implementing BIM in this sector. Therefore, it is quite evident from the above discussions that the money spent on this industry by the stakeholders are actually wasted.  

According to Fulford and Standing (2014), the industry is lagging behind other industries in  productivity. Australian Bureau of Statistics have reported that between the year 1986 and 2008, no such improvement has taken place in terms of productivity. It was claimed that this was due to the financial crisis. Few suggested for collaborating with the industry however, there lies some limitations that acts as a barrier in collaboration.

According to Australia and Australia (2015), infrastructure audit was made that revealed the poor infrastructure of construction sector. The factors that determined the poor condition was bitter relationship among the stakeholders of business, poor building tools that are used for construction purpose, poor cash flow in the business, delay in decision making and so on. Therefore, to reduce these problems strategies should be planned that will make the relationship between various stakeholders strong.

Organisation of the project (research plan including: an overview of your proposed methods of data collection and data analysis; Gantt chart schedule; and clear presentation of data sources.)

The operations of the construction industry plays an important role in economic growth of a country (Alzahrani & Emsley, 2013). The construction projects that are undertaken such as roads, bridges and buildings also measures economic growth. Therefore, the success of the construction industry is the important issue to most governments, users and communities. The design complexity is increasing day by day and therefore, large amount of money should be invested in the research field.

The economic growth of construction business is dependent on financial growth of the construction industry (Lingard, Wakefield & Blismas, 2013). Therefore, more money should be invested in this sector. 

Research methodology:

Research methodology is an important aspect that helps to connect the factors affecting the project with the scientific data that are collected related to the research topic. In this particular research secondary data will be collected that will be used for data analysis.

Research philosophy:

It explains the methods that will be used for data collection and analysis. As the project requires quantitative research, therefore the research approach should be methodical.  

Research design:

Three types of research design needs to be followed. They are explanatory, exploratory and descriptive research design. For this research, we will follow the descriptive research design to gain in-depth knowledge on construction business.

Process of Data Collection:

Data collection methods are of two types. They are primary data collection that are collected through surveys and interviews and secondary data that are collected from the sources available in the internet.

Sampling method:

There are a large number of private and public construction businesses in Australia. Among them, few will be chosen whose turnover rate is high for the purpose of data collection.

Sample size:

Among the private and public sector industry the sample size chosen is eleven. 

Feasibility Time frame:

WBS	Task Name	Duration	Start	Finish
0	Research on Financial and economic performance of public and private sector construction industry	53 days	Mon 9/17/18	Wed 11/28/18
1	Choosing the topic of the project	5 days	Mon 9/17/18	Fri 9/21/18
2	Identifying the initial problem	5 days	Mon 9/24/18	Fri 9/28/18
2.1	Setting the aims and objectives	1 day	Mon 9/24/18	Mon 9/24/18
2.2	Identifying the rationale of study	1 day	Tue 9/25/18	Tue 9/25/18
2.3	Structuring the study	3 days	Wed 9/26/18	Fri 9/28/18
3	Literature Review	5 days	Mon 10/1/18	Fri 10/5/18
4	Determining the research methodology	24 days	Mon 10/8/18	Thu 11/8/18
4.1	Research Philosophy and approach	2 days	Mon 10/8/18	Tue 10/9/18
4.2	Research Design	2 days	Wed 10/10/18	Thu 10/11/18
4.3	Data Collection process	14 days	Fri 10/12/18	Wed 10/31/18
4.4	Sampling method	5 days	Thu 11/1/18	Wed 11/7/18
4.5	Selecting the sample size	1 day	Thu 11/8/18	Thu 11/8/18
5	Data analysis	10 days	Fri 11/9/18	Thu 11/22/18
5.1	Determining the Research area	1 day	Fri 11/9/18	Fri 11/9/18
5.2	Null Hypothesis	2 days	Mon 11/12/18	Tue 11/13/18
5.3	Alternative Hypothesis	2 days	Wed 11/14/18	Thu 11/15/18
5.4	Methodology	1 day	Fri 11/16/18	Fri 11/16/18
5.5	T-Test	4 days	Mon 11/19/18	Thu 11/22/18
6	Identifying ethical issues	2 days	Fri 11/23/18	Mon 11/26/18
7	Identifying the limitations of the project	2 days	Tue 11/27/18	Wed 11/28/18

Table 1:

(Created by author) 

Research area: The engineering constructional activity in different segments of Australia was performed mainly by three companies namely CPB Contractors, Lend Lease, Nexus Infrastructure. Apart from these companies, other public sector companies like Defence Housing Australia, 11 Principles Pty Ltd and others also conduct huge amount of engineering construction in the country. The research aims to find the relationship or difference between the engineering construction in public and private sector.

Research question: Is the average engineering constructional activity in private sector is significantly different from average engineering constructional activity in public sector.

Null hypothesis (H0): The average engineering constructional activity in private sector is same as the average engineering constructional activity in public sector.

Feasibility of project within time-frame

Alternative hypothesis (H1): The average engineering constructional activity in private sector is different from average engineering constructional activity in public sector.

Data collection: The secondary construction data in public and private sector is collected from Australian Bureau of Statistics for 11 years i.e. from 2008 to 2018.

Methodology: The statistical method of one sample t test of difference is applied assuming the population construction data of difference of public and private sector is normally distributed with sample mean and unknown standard deviation. The sample size that is the number of years of collected sample data is 11. Hence, the degrees of freedom of the test is 11-1 = 10. The assumed significance level of the test is 0.05 or in other words, 95% assurance can be provided on the results of the test. 

T test table:

One sample t test of difference
Sample size	11
sample mean	8479.336364
sample sd	5451.231278
standard error	1643.608072
test statistics	5.158977074
significance level	0.05
p value	0.00042586
null hypothesis	There is no difference between the average construction of public and private sector
alternative hypothesis	There is a significant difference between the average construction of public and private sector
decision	null hypothesis is rejected as p value is less significance level

Hence, performing the t test of difference it can be concluded that there is enough evidence to reject the null hypothesis or accepting the alternative hypothesis to conclude that there is significant difference between the average construction of public sector and average construction in the private sector in Australia.

Summary: Hence, it can be said that the average public sector constructional activity is different from average private sector constructional activity in Australia with 95% confidence level. Here, it is assumed that the population is approximately normally distributed but in case the population do not follow the normal distribution a suitable non-parametric method must be employed to conduct the test and the result will be different.

Ethical consideration:

• It should be ensured that the data of the organisations used for data analysis is true and collected from a trustable source.
• The information gained should not demoralize the morale of the companies.

Limitations of the study:

Some limitations that needs to be considered are:

• Financial data of different organisations were not properly available.
• Information regarding the public sector construction industry is not available.

References:

Alias, Z., Zawawi, E. M. A., Yusof, K., & Aris, N. M. (2014). Determining critical success factors of project management practice: A conceptual framework. Procedia-Social and Behavioral Sciences, 153, 61-69.

Alzahrani, J. I., & Emsley, M. W. (2013). The impact of contractors’ attributes on construction project success: A post construction evaluation. International Journal of Project Management, 31(2), 313-322.

Australia, I., & Australia, D. I. (2015). RE: Australian Infrastructure Audit.

Feng, Y. Y., Chen, S. Q., & Zhang, L. X. (2013). System dynamics modeling for urban energy consumption and CO2 emissions: A case study of Beijing, China. Ecological Modelling, 252, 44-52.

Fulford, R., & Standing, C. (2014). Construction industry productivity and the potential for collaborative practice. International Journal of Project Management, 32(2), 315-326.

Hampson, K., Kraatz, J. A., & Sanchez, A. X. (2014). The global construction industry and R&D. In R&D Investment and Impact in the Global Construction Industry (pp. 42-61). Routledge.

Kikwasi, G. (2013, February). Causes and effects of delays and disruptions in construction projects in Tanzania. In Australasian Journal of Construction Economics and Building-Conference Series (Vol. 1, No. 2, pp. 52-59).

Le, Y., Shan, M., Chan, A. P., & Hu, Y. (2014). Overview of corruption research in construction. Journal of management in engineering, 30(4), 02514001.

Lingard, H., Wakefield, R., & Blismas, N. (2013, May). If you cannot measure it, you cannot improve it: Measuring health and safety performance in the construction industry. In the 19th Triennial CIB World Building Congress, Queensland University of Technology,, Brisbane, Queensland, Australia.

Mok, K. Y., Shen, G. Q., & Yang, J. (2015). Stakeholder management studies in mega construction projects: A review and future directions. International Journal of Project Management, 33(2), 446-457.

Porwal, A., & Hewage, K. N. (2013). Building Information Modeling (BIM) partnering framework for public construction projects. Automation in Construction, 31, 204-214.

Sun, C., Jiang, S., Skibniewski, M. J., Man, Q., & Shen, L. (2017). A literature review of the factors limiting the application of BIM in the construction industry. Technological and Economic Development of Economy, 23(5), 764-779.

Takim, R., Harris, M., & Nawawi, A. H. (2013). Building Information Modeling (BIM): A new paradigm for quality of life within Architectural, Engineering and Construction (AEC) industry. Procedia-Social and Behavioral Sciences, 101, 23-32.

Yi, W., & Chan, A. P. (2013). Critical review of labor productivity research in construction journals. Journal of management in engineering, 30(2), 214-225.