Seasonal Consideration Drives Construction Completion Patterns

CEIC Russia Data Talk: Tricky climate patterns and often unpredictable government regulations are but two of many challenges that Russian construction companies have to deal with in their day-to-day business. These challenges may have far-reaching implications that are observable from an analysis of Russian construction statistics. Statistical data released by the Federal State Statistics Service pertaining to the performance of the Russian construction industry reveal an interesting trend: most construction projects tend to be completed towards the end of the calendar year. For example, the fourth quarter of 2012 accounted for 37.07% of total buildings completed in that year, as well as 45.36% of total building area volume, and 46.68% of total floor area. However, despite accounting for a large proportion of construction completions, these projects account for no more than 34.82% of construction work costs (this highest value was recorded in the fourth quarter of 2007). For comparison, projects wrapped up in in the fourth quarter of 2012 required 33.99% of the costs, as construction costs may not necessarily be closely related to the actual building progress. A number of factors contribute to this trend, owing to the complexity of the building process. However, many of these patterns can be explained by Russia’s notoriously punishing winters and its accounting standards. The winter season might stretch from as early as October all the way to May in some years. Harsh weather conditions during Russia’s winters render most construction efforts either impractical at best or impossible at worst. They force the construction companies to wrap up construction projects in warmer seasons prior to the onset of winter. As such, the number of winter-time completions is always statistically low (as low as 14.78% of all completed projects by number of buildings in the first quarter of 2006). This trend is further amplified, to some extent, by the New Year and Russian Christmas celebrations (the latter on January 7th), effectively eliminating almost half of January from the work schedules. On the accounting aspect, Russia’s peculiar trend is also tied to the budget cycle of Russia’s construction projects. As the end of the Russian fiscal year coincides with the end of the calendar year, any projects left incomplete by New Year’s Eve (due to delays) are moved into next year’s accounting and budgeting plans. This will often result in a lengthy paper trail and additional administrative costs, hence serving as an incentive for companies to adhere to their prior plans and rush for the construction project’s completion as soon as possible. Since setbacks are commonplace in any construction endeavours in Russia (for any reasons ranging from natural disasters to supply issues), schedules are often delayed in light of these unexpected circumstances, leading to a dilemma between the accelerated completion of construction projects or allowing them to drag on into the next fiscal year. On the one hand, scrambling to complete the project may risk corner-cutting and impair overall project quality, and on the other delaying the construction project into the next fiscal year may potentially hurt the company’s bottom lines and damage its reputation. Depending on the year, the build-up of delays, and the subsequent rushes and discrepancies between quarters that they cause, may lead to delays that amount to as much as 41.71% (fourth quarter of 2004) of the total buildings completed, 53.71% (fourth quarter of 2006) of the building area volume, 52.98% (fourth quarter of 2006) of the total floor area. The real question, of course, is why the companies continue the same trend of not allowing themselves any leeway by planning to finish construction earlier in the year, during summer, for example, but that is one question that cannot be answered by statistical data alone. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By I. Kostin - CEIC Analyst Back to Blog
10th April 2013 Seasonal Consideration Drives Construction Completion Patterns

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