Wednesday, November 18, 2009

Leverage On ICT In Construction Industry





Information and Communication Technology (ICT) has been widely applied across many sectors in order to increase competitiveness and reduce costs (Marsh et al 2000), and is today seen as a vehicle to gain a competitive advantage (Ives et al 1991, Earl 1993). The average annual growth rate of ICT investment in the construction industry is increasing every year and constitutes now a significant part of the total project cost.

However, some studies indicate that the ICT utilization ratio is still relatively low in the construction industry (Woksepp and Olofsson, 2007). A study about the usage of ICT tools in the European construction industry (InPro internal report D2, 2007), revealed a lack of use of ICT tools in construction projects, especially in the early stages, despite several good alternatives available. In Malaysia, during the two-day Infrastructure & Construction Asia’s Building Information Modelling & Sustainable Architecture 2009 conference (in August 2009), Public Works Department director-general Datuk Seri Prof Judin Abdul Karim urged the construction companies to adopt information and communications technology (ICT) to enhance their capability. He said the awareness of using ICT was there but the cost of investment prohibited companies from adopting the technology and upgrading the system especially for the small companies. It was not a problem of knowledge and information on the usage of the ICT. He also emphasized on the importance to have a integrated software system as a lot of professionals like architects and engineers within the same companies were using different kinds of software. Standardisation is important in obtaining effective workflow for the project development and implementation (The Star, 2009).

Some of the main causes for this were suggested to be deficient understanding and lack of knowledge about the possibilities of ICT, unsuccessful implementation into project organizations and limitations of software functionality. Another reason is most likely that construction companies often find it difficult to justify ICT investments in an industry that suffers from low profit margin (Alshawi et al 2003) and that many managers often view ICT investments as a process of consumption rather than capital expenditure (Irani et al 2002) and do not realize the importance of evaluating the IT investment (Willcocks et al 1997). Moreover, the traditional approaches to evaluate investments have been shown inadequate (e.g. Peacock et al 2005, Love et al 2001, Andresen 1999, Irani et al 1999, Shank et al 1992). DeLone et al (1992) argues that commonly used benefit and cost analyses are often found lacking due to difficulty of quantifying intangible benefits. The lack of effective evaluation models does not only have an influence on individual projects but also, in the long run, the motivation to innovate and introduce new ICT tools in the construction industry.

The main purposes of using ICT in construction projects are to improve operational efficiency of an organization, to improve quality and to reduce project time and to increase profit levels (Gunasekaran et al 2001). Intangible effects could be sustainable competitive advantage (e.g. Barney 1991, Powell et al 1997,Henderson et al 1999), better project control and understanding, marketing, customer service, et cetera. Carefully evaluated and considered ICT investments with established objectives can boost an organization forward with the increased likelihood to achieve successful implementation and improved project performance while reducing costs. Equally, poor investments, those that are inadequately justified or whose costs, risks, and benefits are poorly managed can hinder and even restrict an organization's performance (GAO 1997). The effects associated with an ICT investment are uncertain and difficult to measure (Ekström et al 2003) and the benefits and value of IT investments are being questioned by researchers and practitioners (Dadayan 2006). However, a great number of researchers have shown the values of using ICT in construction projects (e.g. Dawood et al 2005,Bouchlaghem et al 2005, Fischer et al 2004, Björk 2001).

The process of investment justification has been identified as a major barrier to implementing ICT (Love et al 2000, Andresen et al 2000, CIRIA 1996, Enzweiler 1996) and because of the growing concern about the effectiveness of information systems expenditure there is an increasing need to re-think approaches to the evaluation of information systems in order to demonstrate business benefits from these investments (Remenyi et al 1999).


EVALUATING ICT INVESTMENTS

According to Farbey (1992), the evaluation is envisaged to serve different objectives, such as:

1. Being used as a part of the process of justification of a system;
2. To enable an organization to make comparisons between different projects competing for resources;
3. To provide a set of measures that enables the organization to exercise control over the project.

Moreover, evaluation and the subsequent measurement and comparison with actual achievements will provide the learning experience which is necessary if the organization is to improve its system evaluation procedures and development capability. Evaluation and justification of ICT investments is a complicated process, not only in the construction industry but also in all major industries, since cost and benefits associated with the investment are uncertain and difficult to measure (Ekström et al 2003). Early estimates, in general, are typically plagued by limited scope definition and are often prepared under time pressure (Trost et al 2003).

Traditionally, specialists in different areas have been engaged in the task of evaluating the benefits and costs of future ICT investments. Many times these specialists have little or no knowledge of the overall consequence of the investment. Andresen et al (2000) describe the IT managers’ large influence on the selection of data management systems on which the senior management uses to support their decision making. Specialists such as IT managers have mostly poor understanding of the company’s overall business goals and are often excluded from the decision-making process. The senior management on the other hand is well acquainted with the company’s business but has little insight into the fast-changing ICT development and often lacks feedback from previous strategic ICT projects. Anandarajan et al (1999) pointed out the influence of the accountants in ICT investment decisions. They usually focus on analyses that can be measured in monitory terms but lack insight into the effects on the work processes. Instead of making the analysis of ICT investment the task of a specific profession, general methods and tools should be developed to assist the decision-making process.

According to Lindfors 2003, DeLone et al (1992), the tool is divided into three basic levels:

1) First, a technical level that represents the accuracy and efficiency of the system;
2) Second, a semantic level that addresses the success in conveying the message; and
3) Third, an effectiveness level which measures the effect the information has on the recipient.

· Technical level comprises productions, process and system quality.
· Semantic level comprises system use, product and information quality.
· Effectiveness or influence comprises user satisfaction or individual impact to recipient and influence on system is more on the project and organizational impact.

According to (DeLone and McLean 1992), there are a number of variables that recognize the effects for each categories:

• System quality – effect on the information system itself which produces the information
• Information quality – accuracy, meaningfulness and timeliness of the information produced
• System use – use of the information system
• User satisfaction – interaction of the information system with its recipients: users and project owner
• Individual impact – influence on management decisions
• Project/organizational impact – effect on organizational performance
• Process quality – effect on information management process quality (Lindfors 2003).

Refer to Table 1 : Information System Success Variables (at the top of article)

A study done by Woksepp and Olofsson (2007), the expected project cost from realizing an ICT investment should be identified, structured and quantified using a theoretical framework developed from a project perspective. All costs are incurred and accounted for in the project. Costs can be defined as the expenditure necessary to achieve the benefits. The costs are divided into three categories, ‘Capital costs’, ‘Operational costs’ and ‘Indirect costs’. Each of the categories consists of a number of variables that recognize the effects according to:

• Capital costs – Up front costs, e.g. software and hardware.
• Operational costs – Start-up and on-going costs, e.g. personnel and consultants.
• Indirect costs – Indirect expenses, e.g. support and productivity losses.

This structure intends to enable easier identifying, quantifying and grading of the costs and it also facilitates an easier management and follow-up of the results.

Refer to Table 2 : Project Cost Categories (at the top of the article)

The capital costs – including the up front costs that can be attributed to expenses such as acquisition of software and hardware - have been separated from the operational costs so that the project owner can readily calculate the depreciation time. Capital costs also include additional hardware accessories, such as increased processing performance, memory or similar.

The operational costs - including the start-up and on-going costs, e.g. personnel and consultancy costs, are often underestimated and exceeding ‘obvious’ costs such as hardware and software costs. Operational costs also include the costs for carrying out the evaluation.

Indirect costs are those expenses that are not classified as direct, e.g. support and productivity losses (e.g. when introducing a new ICT system or tool into an organization).

The process of assessing the costs is similar to that for analyzing benefits using the collective experiential knowledge of the multi-disciplinary evaluation group. The cost evaluation procedure consists of four levels of cost variable aggregation. First, the costs are identified. The evaluation group proceeds methodically and uses the list of cost categories and their adjacent variables to establish the costs and to ensure that no hidden costs are overlooked. Now, in practice, this is nearly impossible because the hidden costs are often related to future events which yet can not be anticipated, e.g. staff hours for maintaining the system, cost for communication, etc. However, additional input can be added in a later stage. Second and third level; the identified costs are grouped into appropriate category (variable) and quantified in monetary terms. And fourth level, the variables are classified into one of three grades: 1 – ’Most likely’, 2 – ’Likely’ and 3 – ’Unlikely’, depending on the likelihood of that happening. The structure and procedure facilitates for the users to identify individual costs – effect and size – as well as take in the overall result. It also facilitates pinpointing the most significant costs, which in an early stage could be enough in order to put together a preliminary budget. Only those costs that directly or indirectly affect the project are dealt with. The sum of the cumulated categories together with respective classifications represents the total cost for the evaluated investment. The prerequisites can be adjusted on all four levels, giving the users a maximum of flexibility to adapt the evaluation to new conditions.


CONCLUSION

As many ICT investment also involves changes in the process, the traditional construction processes has to be changed to take advantage of the benefits that the ICT tools can offer. This is as an integral part of the concurrent engineering approach. Still, the shift in focus from individual stakeholders to benefits for the project gives a momentum to optimize the benefits in the use of a new ICT tools in construction. This will surely affect the processes and the contractual environment in the project, since it has to support sharing of information and achieved benefits and the costs of the investment in the project.


References

1. Woksepp, S. and Olofsson, T. (2007). “An evaluation model for ICT investments in construction projects. “ ITcon Vol. n (200n). eBygg – Center for Information Technology in Construction, Department of Civil & Environmental Engineering, Luleå University of Technology, and NCC Construction Sverige AB, SE.
2. Marsh, L. and Flanagan R. (2000). "Measuring the costs and benefits of information technology in construction." Engineering Construction and Architectural Management 7(4): 423-435.
3. Ives, B. and Jarvenpaa S. L. (1991). "Applications of global information technology: key issues for management." MIS Quartely, Mar 91 15(1): 33-49.
4. Alshawi, S., Irani, Z. et al. (2003). "Benchmarking information technology investment and benefits extraction." Benchmarking: An International Journal 10(4): 414-423.
5. Irani, Z. and Love P.E.D. (2002). “Developing a frame of reference for ex-ante IT/IS investment evaluation.” European Journal of Information Systems 11: 74-82.
6. Irani, Z., Ezingeard, J.-N. and Grieve, R.J. (1999). “Integrating the cost of an IT/IS infrastructure into the investment decision-making process.” The International Journal of Technological Innovation and Entrepreneurship (Technovation), 17(11/12): 637-647.
7. Willcocks, L. and Lester, S. (1997). “Assessing IT productivity: Any way out of the labyrinth?” In Management IT as a strategic resource, Willcocks, L., Feeny, D.F. and Islei, G. (eds.). The McGraw-Hill Company, London.
8. Willcocks, L. and Lester, S. (1996). “Beyond the IT productivity paradox.” European Management Journal, 14(3): 279-290.
9. Woksepp, S. and Olofsson, T. (2007). “Credibilty and applicability of Virtual Reality models in design and construction.” Submitted to the 24th CIB W78 Conference in Maribor, Slovenia, 26-29 June.
10. Woksepp, S. and Olofsson, T. (2006). “Using Virtual Reality in a large-scale industry project.” ITcon 11: 627-640
11. Anandarajan, A. and Wen, J. H. (1999). "Evaluation of information technology investment." Management
decision 37(4): 329-337.
12. DeLone, W. H. and McLean, E. H. (2003). “The DeLone and McLean Model of Information Systems Success: A Ten-Year Update.” Journal of Management Information Systems 19(4): 9-30.
13. DeLone, W. H. and McLean, E. H. (1992). “Information Systems Success: The Quest for the Dependent
Variable.” Information Systems Research 3(1): 60-95.
14. Lindfors C. (2003). “Process oriented information management in construction – Information systems supporting the work processes of project managers and project groups.” PhD Thesis, Department of Industrial Economics and Management, Royal Institute of Technology, Sweden.
15. Dadayan, L. (2006). “Measuring Return on Government IT Investments.” Proceedings of the 13th European Conference on Information Technology Evaluation, Genoa, Italy, 28-29 September.
16. Ekström, M. A. and Björnsson H. C. (2003). “Evaluating IT investments in Construction - Accounting for
17. strategic flexibility.” CIFE Technical Report #136, Stanford University.
18. Gunasekaran, A., Love, P. E. D., et al. (2001). "A model for investment justification in information technology projects." International Journal of Information Management 21(5): 349-364.
19. Remenyi, D. and Sherwood-Smith, M. (1999). “Maximise information systems value by continuous participative evaluation.” Logistics Information Management, 12:½: 14-31.
20. Trost, S. M. and Oberlender G. D. (2003). "Predicting Accuracy of Early Cost Estimates Using Factor Analysis and Multivariate Regression." Journal of Construction Engineering and Management 129(2): 198-204.
21. Björk, B.-C. (2001). “Document Management – a key IT technology for the construction industry.” Proceedings of the ECCE ICT Symposium 2001 Association of Finnish Civil Engineers, Espoo, Finland.
22. Thursday August 20, 2009, “Construction companies urged to adopt ICT”. http://biz.thestar.com.my/news/story.asp?file=/2009/8/20/business/20090820082547&sec=business


PREPARED BY: HABIZAH SHEIKH ILMI (2007130933)

1 comment:

  1. Heya¡­my very first comment on your site. ,I have been reading your blog for a while and thought I would completely pop in and drop a friendly note. . It is great stuff indeed. I also wanted to ask..is there a way to subscribe to your site via email?

    Construction Tools

    ReplyDelete