Professional Documents
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Definition
Management : Process by which a cooperative group directs action towards common goals Construction Management : is the art and science of mobilising & managing materials, equipment & money to complete the assigned project on time within budgeted costs and specified technical performance standards.
Importance of management
In unpredictable fast changing environment, to complete the project within time, cost and quality
Basic ingredients in project management
Functions of management Decision making Organizing Staffing Planning Controlling Communicating Directing
Functions of management
Decision-making action chosen from alternatives Organizing establish structural relationship among functions
divide work into component activities Define target and responsibilities Allocate resources
Staffing process by which managers select, train, promote and retire subordinates
Functions of management Planning- involves deciding in advance, what, how and in what order is to be done to achieve the objectives Planning time What is to be done? What are the activities involved? How it is to be done? When it is to be done? Where it is to be done?
Functions of management
Planning time All projects are time bound It is time factor which determines the project cost Project work breakdown Modelling and analyzing networks Scheduling work programme
Functions of management
WBS
A Complex project is made manageable by breaking down into individual components in a hierarchical order
Network techniques are CPM, PERT and PNA Common features Develop network model for depicting time plan Apply critical path concept- determine project duration Employ network analysis for controlling project time
Planning time - Network analysis PERT Three time estimates for an activity Optimistic time : shortest time (a) Most likely time : modal time. If the activity repeated several times under same conditions (m) pessimistic time : longest time (b) Completion of a activity follows beta distribution t exp = (a + 4m + b) / 6 Standard deviation which is a good measure of variability SD = (b-a) / 6 Variance = SD2
Planning resources
Resource plan shows when and in what quantity the resources are to be inducted at project site
Manpower planning Materials planning Equipment planning cost planning Budget planning
Functions of management
Controlling- monitor the performance and apply corrective measures in case of deviation from the plan Communicating ideas are transmitted to others Directing (leadership)- actual performance of subordinates are directed towards common goals
Provide effective leadership Motivate participants behaviour Communicating instructions and orders
Types of construction project Members of construction team Stages of construction project Relevance to government
Principles of management
Guiding rules of laws for managerial action To improve organizational performance Division of work Authority and responsibility hand in hand Discipline Unity of command Unity of direction one common plan Subordination of individual interest to general interest Remuneration Centralization of authority Scalar chain Order a place for everything and everything in its place
Organizational structure
Depends on the nature of project
Each project may be staffed by existing personnel in the functional divisions of the organization. This arrangement is referred to as the matrix organization as each project manager must negotiate all resources for the project from the existing organizational framework.
Organizational structure
Organization may consist of a small central functional staff for the exclusive purpose of supporting various projects, each of which has its functional divisions as shown. This decentralized set-up is referred to as the project oriented organization as each project manager has autonomy in managing the project.
Problem on CPM
Information on activities required for a project is as follows. Draw the network and calculate the earliest start (ES), earliest finish (EF), latest start (LS) and latest finish (LF) times of each of the activities
Activities Node Duration (days) A 1-2 2 B 1-3 7 C D E F G H I J K
1-4 2-5 8 3
Activity
Problem on PERT1 predecessor Most Most likely Most optimistic time pessimistic time
A B C D E F G H I
A A B B C E D,F G,H
4 5 4 15 10 8 4 1 6
6 7 8 20 18 9 8 2 7
8 15 12 25 26 16 12 3 8
Construct arrow diagram Determine critical path and expected project completion time Determine probability of completing project in 55 days
PERT 2
Job 1-2 1-6 2-3 2-4 3-5 4-5 6-7 5-8 7-8 a 3 2 6 2 5 3 3 1 4 m 6 5 12 5 11 6 9 4 19 b 15 14 30 8 17 15 27 7 28
Draw project network Calculate length & variance of critical path Approx probability that jobs on critical path will be completed by due date of 42 days
PERT3
Activity A B C D E F G H Preceding activity None None A A A B,C D E,F,G a 2 10 8 10 7 9 3 5 m 4 12 9 15 7.5 9 3.5 5 b 12 26 10 20 11 9 7 5
Draw project network PREPARE ACTIVITY SCHEDULE Calculate length & variance of critical path Approx probability that jobs on critical path will be completed by DEAD LINE OF 30 WEEKS
Cost control
Cost accounting different from financial accounting Cost accounting concerned with the quantity of materials, labour productivity in addition to money value Classification of construction costs Direct costs: cost that can be correlated to a specific activity
Cost of materials, labour and other expenses Direct material cost covers all cost which becomes a permanent part of the project Direct labour cost covers net expenses namely basic wages, overtime and allowances for all category of workers at work site
Cost control Indirect costs : all costs attributable to a given project but cannot be identified with the performance of a specific activity
Production overheads indirect manpower (supervisors), indirect materials (consumables) External support service costs Administration overheads
Cost control
Indirect cost Can be variable or fixed Variable cost tend to vary with volume of production Ex: telephone running expenses, office stationary Fixed cost do not change appreciably with volume of production One time cost like camp construction cost or periodic costs like supervisor salary
Cost control
Control estimates During feasibility study idea on approximate cost of project preliminary estimate For cost control- master control estimate required prepared during planning stage Cost breakdown similar to work break down Made up of direct costs, indirect, funds earmarked for contingencies and escalation During execution stage master control estimate is revised
Production information for 3MS for future estimates To take corrective measures to minimise cost at any step
Cost control
Budgeting costs Budget relates the cost with time progress Budget expected cost of performance under prevailing conditions Standards stands for cost achievable under efficient operating conditions Value of work performed implies monetary value of work completed Earned value analyses to measure project performance
Cost control
BCWS- time phased schedule of a budget BCWP- approved cost of work performed on data date ACWP- Cost incurred on accomplishing work on data date Cost variance = BCWP ACWP Schedule variance = BCWP BCWS Cost performance index = BCWP/ ACWP Schedule performance index = BCWP / BCWS
Cost control
Project progress (%) = BCWP/ Budgeted cost BCWP is sum of approved cost of all completed works Cost overrun = BCWP- ACWP / BCWP Time overrun = BCWP BCWS / BCWP
Activity
6 8 5 3 5 12 8 6
4 4 3 3 3 8 5 6
80 90 30 40 200 50 -
Calculate normal duration, its cost and critical path Ca;lculate plot on graph cost/time function for project & state
Lowest cost & associated time Shortest time & associated cost
Arbitration
Arbitration is the means by which concerned parties to a dispute get the same settled through the intervention of a third person Arbitrator but without having recourse to a court of law To cut down expenses and time involved in a prolonged trial in a court of law Arbitrator is chosen by parties to decide between them Arbitrator hears through the pleadings of both parties and give decision which is called as award which shall be binding to both parties
Arbitration
Regular appointment of arbitrator either through a letter from competent authority of arbitration agreement or through a courts order Arbitrators live span covers from the date, arbitrator enters on the reference for the first time and date of signing and publishing his award Award should be published within time frame of 4 months laid down in schedule of arbitration act where no specified time limit is specified
Arbitration
Subject matter Matters civil in nature are referred to arbitration Disputes and questions related to Ambiguity in specifications Designs Drawing & instructions Quality of workmanship Quality of materials used
Arbitration
Fixing dates of hearing Arbitrator should give atleast 15 days clear notice for fixing dates of hearing Fix the dates after mutual consultation with both parties before him Conduct of proceedings by arbitrator Arbitrator has legal right to call upon any person connected with disputes to give evidence before him Reasoned award - as per arbitration act, it is not mandatory to give reasoned award (if total claim is above Rs 75000 and above) Court remit award to arbitrators for reconsideration when it is observed to be indefinite Each of the contesting sides may appoint one arbitrator of his choice Twin arbitrators appoint an umpire within 1 month as per law
Arbitration
Powers and duties of arbitrator Administer oath to parties and witnesses Take opinion of court, question witness and parties to extent to ascertain facts Make conditional award Award interest upto the date of award Grant installments and time of payment
Fund flow
Movement of fund in an organisation To estimate cash level in short term and plan accordingly Cash inflows Sale of goods Owners equity Balance cash requirement covered by debt financing
Cost control
Costing Method of estimation of production cost Production cost = direct cost + indirect cost Labour cost = labour effort in man-hours x std labour hourly rate Labour hourly std cost = annual estimated labour cost / annual productive hours Materials cost = materials consumption quantity x standard materials unit price
Cost control
Materials std price Is the estimated all in price of unit quantity of an item delivered at project site It is fixed and does not change with market fluctuations Simplifies estimation, planning, budgeting and control of material costs Difference between standard price and actual price is analyzed at time of accounting costs
Cost control
Equipment utilization cost = equipment utilization hour x std equipment hourly rate Equipment hourly std rate = Owning cost per hour + operating cost per hr Where owning cost = depreciation And operating cost = fuel cost + maintenance + major repair + operator cost + tyre replacement cost
Productivity
Productivity Labour productivity Defined as output per labour hour. measure of overall effectiveness of a construction work system in utilizing labour, equipment and capital to convert labour efforts into useful output and is not a measure of capabilities of labour alone.
Productivity
Site productivity
Work size Work site accessibility Labour availability Local climate Work culture Contractual agreements
Material management
Ensures that the quantity and quality required are on job as per requirement Project manager concerned about material handling problems Lead times for material delivery are normally included in project network Delay in material procurement creates material shortage causing idle labour and time loss Indent, arrival and inventory of raw materials Materials classified as bulk, std items and fabricated items
Inventory control
Inventories consist of raw materials, work-in-progress, spare parts and finished goods Types of inventory Movement inventory transit inventory Buffer inventory safety stock Anticipation specialized items like crackers, umbrella Decoupling inventory disengage different parts of production system- even if a machine break down, the work on others would not stop Cycle inventory purchases are made in lots than for exact amount at a point of time
Inventory control
Inventory decisions How much to order When to place order How much safety stock to be kept Inventory costs Purchase cost purchase price for items bought from outside sources or production cost Ordering / setup cost /procurement cost- cost associated with processing and chasing of purchase order, transportation, inspection. Carrying cost holding/ storage cost cost associated with storing an item in inventory Stockout cost- cost associated with not serving customers shortages internal production loss- external loss of customer goodwill.
Inventory control
Inventory management systems Fixed order quantity system reorder level is determined when stock reaches this level, a fresh order is made size of order is fixed and not the time Periodic review system time after which supplies of orders are made are fixed Fixed order quantity system Classical EOQ Model Assumptions Demand for item is certain, constant over a period of time Lead time is known & fixed Per unit ordering and holding cost are constant
Inventory control
Purchase price is constant. No discount available Inventory is replenished immediately as stock level reaches exactly equal to zero.
Inventory cycle : interval between two successive points when orders are placed T(Q) = O(Q) + H(Q) O(Q) = N X A O(Q) = Total annual ordering cost N- No of times order is placed per year A- cost per order H(Q) Total annual holding cost H(Q) = Q/2 * h h- unit holding cost
Inventory control
Suppose if demand and lead time variable there is need to provide for safety stock Demand rate during lead time is in excess of forecasted Delivery of goods delayed Reorder level = expected demand during lead time + safety stock
Financial management Knowledge of financial mgt is essential to take appropriate decisions in construction trade Financial aspects
Return & risk of investment Choice & limitation of financing
Basic concept of investment is time value of money Investor prefers investment that gives retuns earlier Concerns of investor are
Timing Quantum of return
Financial management
Discounted cash flow techniques NPV IRR NPV Positive NPV means profit IRR Rate that equates present value of a stream of future cash flows to cost of initial investment R is solved by trial and error method IRR greater than cost of capital, project is acceptable
Financial management
Diff between NPV & IRR NPV method discounts all proceeds at firms Cost of capital Implicitly assumes that proceeds can be reinvested at this rate IRR assumes that cash flows can be reinvested at IRR Cost of capital is constant over a time period NPV assumption is better one IRR is easier to use
Financial management
Risk : variability of possible return is known as risk Depends on competition, market condition, cost of raw materials Cost of capital is the cost of raising capital which is required to deploy in the proposed project How to raise capital? Borrowing Cost of debt : interest payment associated with it Cost of equity capital :all stockholders receive dividend from their investment Defined as the rate of discount that equates present value of all expected future dividends with the market price of stock
Financial management
Cost of retained earning Cumulative profit that has accrued over time and has not been distributed to the shareholders by the firm Working capital management refers to all aspects of mangement of current assets and liabilities Management of working capital involves the following Conversion of fund to inventory Inventory to accounts receivables Account receivables to funds
Financial management
Management of cash Transaction motive cash required for daily affairs, purchase, payment Precautionary motive predictability of cash inflow and outflow. A reserve of cash required for normal flow (eg) delay in bill payment Speculative motive- firm keeps a fund aside for new profit making opportunity that may arise
Financial management
Stochastic model Assume demand for cash is stochastic i.e randomly distributed one can set control limits after analysis of previous demands from accounting records Miller and orb model Upper limit of cash h, lower limit z When cash touches upper limit h-z amount is transferred to short term securities to earn interest When cash balance touches zero, securities amounting to z encashed to raise cash level to z
Financial management
Financing working capital Trade credits credits advanced by seller to purchaser Short term bank credits Bank studies following before advancing loan Whether nature of project eligible Whether proposal has acceptable rate of return Whether securities are available to bank Whether proposal can be technically carried out
Financial management
Loan arrangement Overdraft - drawee is authorized to draw cheques to a stipulated limit over and above his own credit balance. Cash credit arrangement similar to overdraft. Borrower draws up to a stipulated amount. In case amount is set against hypothecation of goods, borrower may not exceed the value of hypothecation Bill purchase arrangement to supply credits to cater to the need for production. Borrower submit certified bill to bank and authorizes bank to collect bill on behalf of borrower
Financial management
Modes of securing risk Hypothecation Banks provide credit against security of movable property. Legal rights to sell the goods remain with the bank. Pledge properties against which credit is secured are tranferred to bank custody (share certificates, gold etc) Mortgage bank advance loan against mortgaging an immovable property.
Financial management
Intermediate term financing large sum of investments that might take several years to invest like building a plant. Investment produces benefits for several years Debt scheduled for repayment in more than one year but in less than 7 to 10 years. Term loans and lease financing are common methods to mobilise capital Term loans Banks, state financial corporation, Industrial development banks
Financial management
Bank may evaluate repayment schedule Firm evaluates whether PV of net cash flow justifies the loan To minimize risk of default , bank impose following restrictions o Financial information to supervise present status and future plans of company- present and projected balance sheets o Additional debt prohibitions against incurring additional debts o Management any major change in management requires prior approval from bank o Financial status - firm may be obligated to maintain the current ratio during the currency of debt.
Financial management
Lease financing A lease is a contract in which the lessee is to make a series of payments to the lessor for the economic use of an asset owned by the lessor. The ownership rights lie with the lessor Financing non profit and public sector project Financial analysis of Public projects cant be compared with NPV or IRR. Political factors, resources availability need to be also considered. In private sector, primary purpose to do business measured by money. So techniques like NPV can select desirability of project.
Financial management
Benefit - cost analysis Whether policy contributes to well being of society Cost & time schedule of project is first determined Returns are quantified difficult to estimate (eg) benefits of water supply system construction- reduction of mortality Inflows and outflows occur at different time periods, principle of time value of money is considered Benefit and cost is only an estimate Various infrastructure projects can be ranked with benefit cost analysis
Estimates
Consultant gives owner clear ideas of Approx volume of materials required Probable cost of complete project He need to work out estimates so that owner may get prepared Rough cost estimate Preliminary estimate based on schematic drawings of project using Unit rate estimate product of unit rate and number of units
Estimates
Plinth area estimate total space built up against total cost of project Rate based on volume of building includes half the depth of foundation but parapet is excluded Detailed estimate Based on actual work drawings No variation with actual values Required for technical sanction and approval of project First find out all rates per unit including profits Cost of each item = unit rate X calculated quantity of item
Estimates
Revised estimate This is made when there is a change amounting to more than 5% of original value due to price hiking or change in specification Supplementary estimate Required when some of items are overlooked during preparation of original estimate Total estimate Complete estimate which furnishes total cost of project
Labour legislation
Why labour legislation is necessary? To fix terms of employment Proper working conditions Social security Cordial relation between employers and employees Labour and industrial laws Concerning payment to labour
Payment of wages act, 1936 Minimum wages act, 1948 Employee state insurance act, 1948 Payment of bonus act, 1965 Employee provident fund, 1952 Payment gratuity act, 1972
Labour legislation
Contract labour is the employee of main contractor Main employer is not responsible for provisions of workers employed by subcontractor Worker is entitled to day of rest in each week with full payment Beyond normal working hours overtime allowance Employer should maintain registers and record Govt should employ inspectors for enforcement of act Employees can claim when violations against provision occur (within 6 months)
Payment of gratuity
Gratuity shall be payable to employee on termination of his employment after his continuous service for not less than 5 years On his retirement, resignation or On his death or disablement due to accident
Factories act
Health, safety, welfare, working hours, annual leave, accidents and penalties are taken care of Health arrangements for proper cleanliness, disposal of waste, ventilation, comfortable working temperature Safety proper precautions against fire, explosives , first aid equipment, ambulances 8 hrs / day work not more than 48 hrs per week Worker engaged on holidays compensation leave
Industrial psychology
Objective Improve production Keep up the motivation Application Remove fatigue limit working hours Realize the role of project in national development Relations between employer & employee should be cordial- during sickness & death visits essential
Tunnelling
HAZARDS & PRECAUTION Burial from ground collapse conventional timbering Inundation Even trickle of water should be sealed Emergency lighting Uncluttered walkways escape route Fall from working platform Atmospheric pollution CO fumes from vehicles Effective communication Safety audits
Accounting procedures
Accounts of PWD maintained with certain procedures To ensure smooth & efficient functioning at all levels EE is responsible & he maintains detailed account of all payments & receipts in his division Accounts audited by Accountant General Administrative sanction Formal acceptance of proposal of work by administrative dept Approval is obtained by explaining proposal along with its preliminary estimate
Technical sanction Order passed by competant authority by sanctioning detailed estimate of money for work to be carried out by PWD After this sanction only invitation of tenders for execution of work can be done
Types of bills First and final bill when only a single payment to be made for a contract on its completion Used for small or petty works Value of bill does not exceed Rs 500 Running account bill Also called as Form C in technical terms For works executed both on piece work system as well as for supplies received. For medium size works in which part bills in white form and final bill in yellow forms.
Types of bills
Final bills payment made on running account to a contractor on termination of his contract. Passed by Executive engineer incharge Based on detailed measurements only. Maintenance of imprest account Imprest denotes standing advance of a fixed sum of money given to a person in order to enable him to make specific classes of payment which may be entrusted to him. Amount of imprest should not exceed Rs1000 In order to enable subordinate staff to make petty cash payments, amount of imprest is sanctioned.
Cash book
All transactions to be recorded at actual occurrence time Pages are machine numbered and no page or line left blank Corrections & overwriting to be avoided Work register Contains permanent and cumulative record of expenditure - month by month during a year on each item of work so that actual expenditure can be compared with estimates Kept by EE
MBOOK
Measurement book is original record actual measurement of work done is legibly written Count of all supplies received so that payments can be made to contractors for work done. Solid evidence in court of law M-book should have following features: Pages to be machine numbered Register of all measurement books to be maintained date of issue &return
MBOOK
Written legibly no one to record measurements other than person authorized No blanks to be left Name of contractor, full name of work, date of commencement of work should be given before measurements are recorded. Corrections should be attested Index column SE can take disciplinary action if book is lost
Nominal muster roll Attendance record of daily labour employed Work completed by them and amount payable Maintained by Junior Engineer Daily labour report Submitted by junior engineer to assistant engineer daily Contains: Name of work on which they are employed Number of labourers Class of labour Approx value of work done