CTPM by Chitkara

Author

construction project management: planning, scheduling

Krishan K. Chitkara Author and Program Director, CPMT Plus

Krishan K. Chitkara is the Executive Director of the Institute of Construction Project Management, Gurgaon, located at about 15 KM from New Delhi international airport. He has vast experiences in construction and academic fields. Chitkara has worked at senior levels for over 30 years in reputed construction establishment and academic institutions in India and abroad. The diverse construction tasks executed by him include defence works, residential and commercial complex, precast turnkey jobs, roads and airfields, and lub-oil refinery works. He was Project Planning Manager and Construction Manager in Iraq, Chief Engineer (Planning) and Chief Engineer (Construction) in United Arab Emirates and Sultanate of Oman and General Manager of a concrete precast Company in Saudi Arabia. In India, he served as the General Manager in a Construction Company, Project Manager and Planning Manager in Military Engineering Service and Advisor in Ready-mix Concrete. He is former Director of the National Institute of Construction Management and Research, New Delhi, and was Professor in Works Management in the College of Military Engineering, Pune. His book titled " CONSTRUCTION PROJECTS MANAGEMENT: Planning, Scheduling and Controlling" was published by Tata McGraw-Hill, New Delhi. He has published several papers and conducted number of seminars/workshops in Project Management with computer application for senior managers of government, public and private sectors. Lt Colonel (Retd) K.K. Chitkara, AVSM, was commissioned into the Corps of Engineers of Indian Army in the year 1954. He graduated in Civil Engineering and secured first class first in M B A. In India, he is Fellow of the Institute of Engineers, Institute of Surveyors and Institute of Valuers. He was awarded ATI VISHISHT SEVA MEDAL by the President of India for the distinguished service of exceptional order rendered by him for construction of a road in high altitude areas in India. ©CPMT plus, Krishan K. Chitkara [email protected]

Contents

construction project management: planning, scheduling

Contents

Lessons Appendices Illustrations

LESSON - 01

construction project management: planning, scheduling

Construction Project Management Techniques Plus Lesson Contents Lesson – 1: Construction Project Management Framework 1.1 1.2 1.3 1.4 1.5 1.6

Introduction and objectives. What is a project? What are the salient characteristics of a construction project? What are the broad phases and processes encountered in a construction project life cycle? What does construction project management imply? How does the management of construction projects differ from the management of ongoing process industries? 1.7 Who are the participants involved in the management of a construction project? 1.8 How is construction project management organized? 1.9 What is the role and responsibility of a project manager? 1.10 Why do construction projects usually fail to achieve their mission? 1.11 What makes a competent project manager?

Appendix A: Indian Construction Scenario. SAQ : Q 01A to Q40A Exercises

: Ex 01A to Ex 14A

Lesson – 2: Project Management Techniques: An Overview 2.1

Introduction and objectives.

2.2

What are the techniques employed in making a project go-ahead decision?

2.3

How is project scope defined and communicated?

2.4

How is project time planned?

2.5

How are project resources scheduled?

2.6

How are project costs budgeted?

2.7

How are project objectives controlled?

2.8

Why and how is the planning system codified?

2.9

How is the project information system managed?

2.10 What are the benefits of systematically planning, scheduling and controlling projects? Appendix B: Project Feasibility Study SAQ : Q 01B to Q40B Exercises

: Ex 01B to Ex 16B

Lesson – 3: Project Work Breakdown 3.1

Introduction and objectives.

3.2

What does project work breakdown imply?

3.3

How are project work breakdown levels classified?

3.4

What are the methods used for identifying project activities?

3.5

How is the duration of an activity defined?

LESSON - 01

construction project management: planning, scheduling

3.6

How is the duration of an activity assessed?

3.7

What are the elements of an activity cost?

3.8

What are the benefits of Work Breakdown Structure (WBS) technique?

Appendix C: Sizing of Work Packages SAQ : Q 01C to Q20C Exercises

: Ex 01C to Ex 17C

Lesson – 04: CPM /PERT Network Analysis 4.1 Introduction and objectives. 4.2 What are the basic features of a CPM network? 4.3 How is the CPM network of a major task developed? 4.4 How is a CPM network time compressed? 4.5 How is a PERT network modelled and analysed? 4.6 How does PERT deal with uncertainties in a project duration estimation? 4.7 How is the probability of meeting a project completion date determined in PERT? 4.8 What are the differences between CPM and PERT? Appendix D: Project Duration Assessment Using Monte Carlo Simulation Technique SAQ : Q 01D to Q20D Exercises

: Ex 01D to Ex 7D

Lesson – 05: Precedence Network Analysis 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8

Introduction and objectives. How is a Precedence Network modelled? How to time analyse a Precedence Network? How to draw a Precedence Network for repetitive works projects? Why and how networks are classified? How to draw precedence network of a major project? What are the similarities and differences among the project network analysis techniques? What are the merits and limitations of network analysis techniques?

Appendix E : Project Time–Cost Trade–off Technique SAQ : Q 01E to Q25E Exercises

: Ex 01E to Ex 4E

Lesson – 06 : Project Work Scheduling 6.1 Introduction and objectives. 6.2 What is bar chart scheduling technique and what are its merits and limitations? 6.3 Why network plans are time scheduled? 6.4 How network plans are time scheduled? 6.5 How to apply the Line-Of-Balance (LOB) technique for scheduling repetitive projects? 6.6 How to forecast resource requirement?

LESSON - 01

construction project management: planning, scheduling

6.7 How are schedules classified? Appendix F: Decision Network Analysis SAQ : Q 01F to Q25F Exercises

: Ex 01F to Ex 9F

Lesson – 07 : Planning Construction Manpower 7.1 Introduction and objectives. 7.2 What are project manpower planning functions? 7.3 How are construction workers categorized ? 7.4 How are workers’ productivity norms developed? 7.5 What are the factors affecting workers’ productivity? 7.6 How to schedule manpower requirement? 7.7 How is project manpower grouped? 7.8 How is indirect manpower forecast prepared? 7.9 What are the guiding principles of organizing workers’ teams? 7.10 What are the principles of designing a good incentive plan? Appendix G: Project Management Organization SAQ : Q 01Gto Q20G Exercises

: Ex 01G to Ex 11G

Lesson – 08: Planning Construction Materials 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9

Introduction and objectives. What is the ABC classification of materials? How is materials provisioning planned? How is materials quantity estimated? How is materials procurement processed? What influences regular stock inventory? How is project materials inventory planned? How Operations Research solves materials planning problems? What is the scope for application of Value Engineering in the procurement of materials and how to implement it?

Appendix H : Resources Allocation Using Linear Programming SAQ : Q 01H to Q25H Exercises

: Ex 01H to Ex 11H

Lesson – 09: Project Construction Equipment 9.1 Introduction and objectives. 9.2 How is major construction equipment classified? 9.3 How ground conditions affect the performance of earthwork equipment? 9.4 What are the salient features of earth excavating equipment? 9.5 What equipment is commonly used for earth cutting with short hauling distance? 9.6 What equipment is commonly used for scraping and transporting earth with long hauls? 9.7 How the transportation distance affects the selection of earth hauling equipment? 9.8 What are the types of earth compacting and grading equipments? 9.9 What are the types of commonly–used concreting plants and equipments? 9.10 What are the common types of cranes used for material hoisting? Appendix I : Earthmoving Equipment: Approximate Production Planning Data for Primary Tasks

LESSON - 01

construction project management: planning, scheduling

SAQ

: Q 01I to Q22I

Exercises

: Ex 01I to Ex 10I

Lesson –10: Selecting Construction Equipment 10.1 10.2 10.3 10.4 10.5 10.6

Introduction and objectives. What are the factors that affect the selection of construction equipment? How task considerations dictate the choice of the equipment? How cost considerations influence the equipment selection? What are the equipment engineering factors considered during the selection of an equipment? What are the equipment acquisition options available to the contractors.

Appendix J : Time Value Of Money SAQ : Q 01J to Q30J Exercises

: Ex 01J to Ex 10J

Lesson –11 : Planning Construction Costs 11.1 Introduction and objectives. 11.2 How is cost estimated during the project life cycle? 11.3 What are the methods of estimating project costs? 11.4 How is detailed cost estimate structured? 11.5 How are construction costs classified? 11.6 How are resources unit cost standards developed ? 11.7 Why and how is work package standard cost determined ? 11.8 How are ‘S’ Curve used as a forecasting tool? Appendix K: Break-Even Analysis SAQ : Q 01K to Q25K Exercises

: Ex 01K to Ex 10K

Lesson – 12 : Planning Construction Budget 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9

Introduction and objectives. Why a project needs budget? How is a project budget structured? How is a sales revenue budget prepared? How is an operating expenses budget compiled? How are the cost inflation, escalation and contingencies are catered for in the budget? What forecasts are included in the master budget? What is a flexible budget? What are the essential features of an effective project budget ?

Appendix L: Capital Budgeting Process SAQ : Q 01L to Q30L Exercises

: Ex 01L to Ex 9L

Lesson –13 : Project Scope Control 13.1 13.2 13.3 13.4 13.5 13.6

Introduction and objectives. What does the scope control imply? How are project’s designs and drawings processed? What are the various modes of executing construction projects? How is project time and cost performance controlled? What does a project scope close–up involve?

LESSON - 01

construction project management: planning, scheduling

13.7 How is scope control system organized? 13.8 What are the pre–requisites and benefits of an effective scope control system? 13.9 What are the guiding principles for implementing project management practices? Appendix M: Project Quality Management SAQ : Q 01M to Q40M Exercises

: Ex 01M to Ex 9M

Lesson – 14: Resources Productivity Control 14.1 14.2 14.3 14.4 14.5 14.6

Introduction and objectives. What does resources productivity control involve? How is labour productivity controlled? How is equipment productivity controlled? How is materials productivity controlled? How can a jobsite construction manager influence the project success productively?

Appendix N: Worker’s Safety Comes First SAQ : Q 01N to Q40N Exercises

: Ex 01N to Ex 10N

Lesson – 15 : Project Cost Control 15.1 15.2 15.3 15.4 15.5 15.6 15.7

Introduction and objectives. What is project cost control approach? How is cost performance measured? How is the value of work done (sales) controlled? Why and how is direct cost controlled? How is contribution controlled? How is budgeted performance controlled using the earned value analysis?

Appendix O: Project Risk Management–An Overview SAQ : Q 01O to Q40O Exercises

: Ex 01O to Ex 15O

Lesson –16: Project Time Control 16.1 16.2 16.3 16.4 16.5 16.6

Introduction and objectives. How to monitor time progress? Why and how to crash the project time? What is what–if analysis? How to determine the extension of time in a contracted project ? What are the guidelines for reviewing work progress?

Appendix P: Construction Contracts Administration SAQ : Q 01P to Q40P Exercises

: Ex 01P to Ex 17P

Lesson – 17: Planning Data Codification 17.1 17.2 17.3 17.4 17.5 17.6 17.7 17.8

Introduction and objectives. Why is project data codified? What data in a project needs codification? How are codes labelled? How to assign codes at various levels in a work breakdown structure? How to structure activity identification codes? How to define resources codes? How to develop cost and finance accounting codes?

LESSON - 01

construction project management: planning, scheduling

17.9 How to prepare technical document codes? 17.10 What are the principles underlying an effective codification system? Appendix Q: Managing Privatized Infrastructure Projects SAQ : Q 01Q to Q40Q Exercises

: Ex 01Q to Ex 10Q

Lesson – 18: Project Management Information System 18.1 Introduction and objectives. 18.2 What is meant by information? 18.3 What information is needed for managing projects? 18.4 How PMIS is designed to deliver the information? 18.5 How is monitored information communicated? 18.6 How can project management software support PMIS? 18.7 How to select the software for PMIS? 18.8 How have advances in Information Technology supported PMIS? 18.9 What are the functions of the Project Monitor ? 18.10 What is the role of management in PMIS? Appendix R: Upgrading Total Project Management Skills SAQ : Q 01R to Q40R Exercises

: Ex 01R to Ex 14R

Appendices

construction project management: planning, scheduling

Appendices Contents Appendix–A: Indian Construction Scenario Construction and Scope. Construction Contribution in the Indian Economy. Growth of Indian Construction Industry. ·

Domestic Construction Tasks Ahead. Globalization: Challenges for the Construction Industry.

Appendix–B: Project Feasibility Study Purpose of the Feasibility Study. Analysing Factors Affecting Project Feasibility. Feasibility Report. Appendix–C : Sizing Project Work Packages Importance of Work Packages. Factors Affecting Sizing of Work Packages. Re-sizing Work Packages. Appendix–D: Project Duration Assessment– Using Monte Carlo Simulation Technique Introduction. Concept. Activity Duration Probability Distribution Function. Methodology. Examples. Risk in Assessed Project Completion Time. Appendix–E: Project Time–Cost Trade–off Technique · · · ·

Time–Cost Relationship. Concept. Plotting Project Cost–Time Function. Time Crashing. A Word of Caution. Appendix–F: Decision Network Analysis Scope. ·

Types Of Decision Network Analysis Techniques.

· · ·

Decision Network Analysis. Decision Tree Analysis. Conclusion.

Appendix–G: Project Management Organization

· · ·

Project Organization Concept. Project Organizational Forms. Project Organizational Structure. Project Responsibility Centres.

Appendices

construction project management: planning, scheduling

·

Strengths and Weaknesses of the Project Management Matrix Organization. Conclusion.

Appendix–H : Resources Allocation Using Linear Programming Introduction and Scope. Solution of Linear Programming Problems by Graphical Method. Solution of Linear Programming Problems by Simplex Method. Solution of Linear Programming Problems by Dual Method. Conclusion. Appendix–I: Earthmoving Equipment: Approximate Production Planning Data for Primary Tasks · · ·

· · ·

Introduction.

Tracked Bull Dozer Ideal Output Per Hour in Bulk Volume in Easy-To-Do Loose Soil. Front-End Loader Ideal Output Per Hour in Bulk Volume Easy-To Haul Loose Soil. Ideal Output of the Tracked Loader Shovel. Excavating and Lifting Equipment Ideal Output Per Hour in Bulk Volume. Scrapper Ideal Output Per Hour in Bulk Volume in Easy To Scrap Soil. Performance Factors.

Appendix–J: Time Value Of Money · · · · · ·

Time-Money Link. The Future Value of a Single Amount. The Future Value of an Annuity of Equal Amount. The Present Value of a Future Amount. The Present Value of an Annuity of Equal Amount. The Present Value of Cash Inflow of Unequal Amount and Discount.

Appendix–K: Break-Even Analysis Introduction. Break-Even Analysis Methodology. Assumptions and Limitations. Uses of Break-Even Analysis. Appendix–L: Capital Budgeting Process Importance of Capital Budgeting. Estimating the Cash Flow. Establishing the Cost of Capital. Applying the Investment Appraisal Criterion. Appendix–M: Project Quality Management Introduction and Scope. Quality Concept. Quality Management Principles. Corporate Quality Policy. Production Quality Management Processes. Quality Cost Analysis. Total Quality Management. Quality in Total Project Management.

Appendices

construction project management: planning, scheduling

TQM Vs TPM. Appendix–N : Worker’s Safety Comes First Why Safety Comes First? Causes of Accidents at Construction Site. Statutory Safety Measures in India. Formulating Project Safety Policy. Building Safety in Site Layout and Temporary Facilities. Safety Related Role of the Project Personnel. Conclusions.

Annexure (i): Extracts from The Building and Other Construction Workers ( Regulation of Employment and Condition of Service ) Act 1996 and Central Regulation 1998. Annexure (ii): Construction Safety Checklist.

Appendix–O: Project Risk Management–An Overview ·

Introduction and objectives.

·

How are risks identified?

·

How are project risks analyzed?

· · · ·

How is risk response plan developed? How are project risks controlled? How does the human side affect the management of risks? What is the role of a Project Manager in managing risks? What are the benefits of managing project risks?

Appendix–P: Construction Contracts Administration · · · · · · · · · · · · ·

Introduction and Scope. Role of the Participants. Production Performance Control. Specification Interpretation. Scope Change Control. Sub-contractor Approval. Disputes, Claims and their Modes of Settlement. Contract Termination Control. Interim Valuation Payment Control. Contract Bonds and Securities. Project Close-out. Formal Correspondence Rules. Guidelines to Minimize Problems in Contract Administration.

Appendix–Q : Managing Privatized Infrastructure Projects Introduction and Scope. Stakeholders. Role of Government in Designing and Implementing the Concessions. Concessionaire Project Management Process. Key factors in Management of Privatized Infrastructure Projects. Conclusion.

Appendices

construction project management: planning, scheduling

Appendix–R: Upgrading Total Project Management Skills · Introduction and Scope. Knowledge Areas Needed for Managing Construction Projects. Skills Development Model. Skills Up-gradation Methodology. Academia-directed Project Management Education. Corporate-directed Project Management Training. Individual-directed Self-learning. Distance Learning in Virtual Classroom to Speed up Delivery. Conclusion.

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Illustrations List Lesson 1

Construction Projects Management Framework

Illustration # 1.1 Typical Housing Project (CPMPSC Exhibit 1.01 pp27). Section 1.8 Lesson 2

Project Management Techniques: An Overview

Illustration #2.01: 2000 Housing Units Project: Sub-project Work Breakdown Structure (CPMPSC Exhibit 3.1 pp74). Section 2.4.1 Illustration # 2.02: Residential Building Task Work-breakdown Structure (CPMPSC Exhibits 3.2 pp 75). Section 2.4.1 Illustration # 2.03 : Residential Building Foundation Work Package and Activities Work Breakdown Structure (CPMPSC Exhibits 3.3 pp 76). Section 2.4.1 Illustration # 2.04 Primary School Construction: Work breakdown Structure ( CPMPSC Exhibit3.6 pp 83). Section 2.4.1 Illustration # 2.05 Construction of Education Buildings: Activities Matrix with Duration (CPMPSC Exhibit 3.7 pp 84). Section 2.4.1 Illustration # 2.06: Pumping Station Project: CPM Network Time Analysis ( CPMPSC Exhibits pp 105). Section 2.4.2 Illustration # 2.07: PERT Network of Pumping Station Project (CPMPSC Exhibits pp 133). Section 2.4.2 Illustration # 2.08 PNA Network of Raft Foundation Construction (CPMPSC Exhibits5.1 pp 148)Note illustration Section 2.4.2 Illustration # 2.09 Summary Precedence Network of Educational Buildings (CPMPSC Exhibits 5.5 pp 164) Section 2.4.2 Illustration # 2.10 Summary Precedence Network of Primary School (CPMPSC Exhibits5.4 pp 163) Section2.4.2 Illustration # 2.11 Raw Water Clarifier Tank Construction Precedence Network and Schedule (CPMPSC Exhibits 5.7 pp 167) Section 2.4.2 Illustration # 2.12 Site Development Project CPM and PNA Networks (CPMPSC Exhibits 5.8 pp 174) Section 2.4.2 Illustration # 2.13 Site Development Project: Bar Chart Work Programme (CPMPSC Exhibit 6.1 pp 183). Section 2.4.4

Illustration # 2.14 Site Development Project: Resources Limited Schedule (CPMPSC Exhibit 6.5 pp 196). Presentation to be improved. Section 2.4.4 Illustration # 2.15 2000 Housing Units Project: Summary Schedule of Education Buildings (CPMPSC Exhibit 6.6 pp 197) Section 2.4.4 Illustration # 2.16 Residential Buildings Foundations Construction Cyclograph, (CPMPSC Exhibit 6.7 pp 204). Section 2.4.4

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Illustration # 2.17 Residential Building Finishes Plan: Derived Using Line-of-Balance Technique, (CPMPSC Exhibit 6.8 pp 205). Section 2.4.4

Illustration # 2.18 Residential Building Finishes Control Chart : Derived Using Line-of-Balance Technique (CPMPSC Exhibit6.9 pp 207) Section 2.4.4

Illustration # 2.19 : 2000 Housing Units Project: Residential Building Monthly Target Tracking Chart( CPMPSC Exhibit 6.10 pp 209-210). Section2.4.4

Illustration #2.20: 2000 Housing Units Project, Summary Schedule of Construction Tasks (CPMPSC Exhibit 2.2 pp 44). Section 2.4.4 Illustration # 2.21: 2000 Housing Units Project, Man–month Requirement and Earned Value Forecast(CPMPSC Exhibit 2.3pp 48). Section 2.5.1 Illustration #2.22: 2000 Housing Units Project: Extract from Workers 'Requirement Forecast (CPMPSC Exhibit 7.1 pp 235). Section 2.5.2 Illustration # 2.23 :Residential Building's Sub-Project: ABC Classification of Direct Material ( CPMPSC Exhibit 8.1 pp249) Section 2.5.3 Illustration # 2.24: Functional Classification of Construction Equipment (CPMPSC Exhibit 9.1 pp 277). Section 2.5.4 Illustration # 2.25: 2000 Housing Units Project: Major Plant & Equipment Planned (CPMPSC Exhibit 2.6 pp 53). Section 2.5.4 Illustration # 2.26 :Construction Equipment Costing: Hourly Owning and Operating Cost Estimate ( CPMPSC Exhibit 10.3 pp 328). Section 2.5.4 Illustration # 2.27: Foundation Construction Sub-Project: Activity-wise Workers' Requirement Estimate for One Foundation Module Construction (CPMPSC Exhibit 2.7 pp 54). Section 2.6.1 Illustration # 2.28: Foundation Construction Sub-Project: Major Materials Requirement Estimate for One Foundation Module (CPMPSC Exhibit 2.8 pp 56). Section 2.6.1 Illustration # 2.29: 2000 Housing Units Project: Organisation Chart ( CPMPSC Exhibit 12.1 pp 368 same as Exhibit 1.01 pp27). Section 2.6.2 Illustration #2.30: 2000 Housing Units Project: Task Responsibility Centres (CPMPSC Exhibit 12.2 pp 369). Section2.6.2 Illustration #2.31 Project Expense Budget Formats (CPMPSC Fig 12.2 pp 374). Section 2.6.2

Illustration # 2.32: Project Control System (CPMPSC Exhibit 13.1 pp 395). Section 2.7.1 Illustration # 2.33 : Project Performance Control ( CPMPSC Fig 13.2 pp399).

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Section 2.7.1 Illustration # 2.34 Typical Performance Control Responsibility Matrix ( CPMPSC Exhibit 13.6 pp 418). Section 2.7.1 Illustration # 2.35: Labour Productivity Accounting System (CPMPSC Fig 14.1 pp 421). Section 2.7.2 Illustration # 2.36 Project Budgeted Cost Chart ( CPMPSC Exhibit 15.11 pp-463). Section 2.7.3 Illustration # 2.37 Integrated Time- Cost Performance Chart ( CPMPSC Fig 15.1 pp445). Section 2.7.3 Illustration # 2.38 CPM / PERT Updated Network (CPMPSC Fig 16.1 pp 474). Section 2.7.4

Illustration # 2.39: Primary School Construction: Updated Summary Precedence Network (CPMPSC Exhibit 16.1 pp 478).Section 2.74 Illustration # 2.40: Updated Line-of-Balance Chart (CPMPSC Exhibit 16.2 pp 479).

Section 2.7.4

Illustration # 2.41: Updated Bar Chart Schedules ( CPMPSC Exhibit 16.3 pp 481) Section 2.7.4 Illustration # 2.42: Pumping Station Project Original and Time Compressed Network (CPMPSC Exhibit 16.6 pp 488). Section 2.7.4 Illustration # 2.43 2000 Housing Units Project Work Codes ( CPMPSC Exhibit 17.1 pp 507). Section 2.8 Illustration # 2.44: Labeled List of Drawings for a Health Centre Building ( CPMPSC Exhibit 17.3 pp 526). Section 2.8 Illustration # 2.45. Project Team Functions and Software Requirements. ( CPMPSC Table 18.1 pp 538) Section18.3 Lesson 3

Project Work Breakdown

Illustration # 3.1: 2000 Housing Units Project: Sub-project and Task Level Work Breakdown (CPMPSC Exhibit 3.1 pp74) Section 3.3.2 Illustration # 3.2: Construction of Residential Building: Work-breakdown Structure (CPMPSC Exhibits 3.2 pp 75) Section 3.3.2 Illustration # 3.3 : Construction of Residential Building Foundation : Work-breakdown Structure (CPMPSC Exhibits 3.3 pp 76) Section 3.3.2 Illustration # 3.4: Pumping Station Project: Work-breakdown Structure (CPMPSC Exhibit 3.4 pp 80) Section 3.4.2 Illustration # 3.5 Primary School Construction: Work breakdown Structure ( CPMPSC Exhibit3.6 pp 83) Section 3.4.2 Illustration # 3.6 :Planning of a Factory Project During Feasibility Stage: Task Matrix (CPMPSC Exhibit 3.5 pp 82) Section 3.4.3 Illustration # 3.7: Construction of Education Buildings: Activities Matrix with Duration (CPMPSC Exhibit 3.7 pp 84) Section 3.4.4

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Illustration # 3.8: CI/SfB Table No.1 (CPMPSC Table 3.2 pp 85 ) Section 3.4.5

Lesson 4

Project CPM/PERT Network Analysis

Illustration # 4.1 : Pumping Station Project: CPM Network Time Analysis ( CPMPSC Exhibits pp 105) Section 4.3.1 Illustration # 4.2 : Pumping Station Project: Layout Drawing ( CPMPSC Fig 3.1 pp 78 ) Section 4.3.1 Illustration # 4.3 Activities of Pumping Station Project (CPMPSC Exhibits pp 122) Section 4.3.3 Illustration # 4.4 Activities Dependence Table of Pumping Station Project (CPMPSC Exhibits pp 123) Section 4.3.4 Illustration # 4.5 Work Package Logic Diagram of Pumping Station Project (CPMPSC Fig 4.15 pp 125) Section 4.3.5 Illustration # 4.6 Logic Diagram of Pumping Station Project (CPMPSC Fig 4.17 pp 127) Section 4.3.5 Illustration # 4.7 Draft Network of Pumping Station Project (CPMPSC Fig 4.18 pp 129) Section 4.3.6 Illustration # 4.8 Critical Path Calculation of Pumping Station Project (CPMPSC Fig 4.19 pp 131-132) Section 4.3.10 Illustration # 4.9 Pumping Station Project: Time Compressed Network (CPMPSC Exhibits16.6 pp 488) Section 4.4 Illustration # 4.10 PERT Network of Pumping Station Project (CPMPSC Exhibits 4.3 pp 133) Section 4.5.1 Illustration # 4.11: Normal Distribution Table (CPMPSC Table 4.4 pp143 with figure) Section 4.7

Lesson 5 Precedence Network Analysis Illustration # 5.1 Precedence Network of Raft Foundation Construction (CPMPSC Exhibits5.1 pp 148) Section 5.2

Illustration # 5.2 Repetitive Works Project: Precedence Network of Four Rafts Foundation Construction (CPMPSC Exhibits 5.2 pp 156) Section 5.4 Illustration # 5.3 Summary Precedence Network of Educational Buildings (CPMPSC Exhibits 5.5 pp 164) Section 5.4 Illustration # 5.4 Primary School Structure Construction Precedence Network( CPMPSC Exhibits 5.3 pp 162) Section 5.5.1 Illustration # 5.5 Summary Precedence Network of Primary School (CPMPSC Exhibits5.4 pp 163) Section 5.5.2

Illustration # 5.6: Raw Water Treatment Clarifier Layout (CPMPSC Exhibits pp 165) Section 5.5.2 Illustration # 5.7 Raw Water Clarifier Tank Construction Precedence Network and Schedule (CPMPSC Exhibits

ILLUSTRATIONS LIST

construction project management: planning, scheduling

5.7 pp 167) Section 5.5.2 Illustration # 5.8 Site Development Project CPM and PNA Networks (CPMPSC Exhibits 5.8 pp 174) Section 5.7.3 Illustration # 5.9A: Factory Construction Project Conversion of CPM into PNA Network (CPMPSC Exhibits 5.9a pp 175) Section 5.7.3

Illustration # 5.9B: Factory Construction Project: PNA Network (CPMPSC Exhibits 5.9 b. pp 176) Section 5.7.3

Lesson 6 Project Work Scheduling Illustration # 6.1: Site Development Project: Bar Chart Work Programme (CPMPSC Exhibit 6.1 pp 183) Sections 6.2.1 & 6.4.3 Illustration # 6.2 2000 Housing Units Project: Summary Schedule of Education Buildings (CPMPSC Exhibit 6.6 pp 197) Section 6.2.2 Illustration # 6.3 Site Clearance Project Earliest Start Time Schedule ( CPMPSC Table 6.2 pp188} Section 6.4.5 Illustration # 6.4 Site Development Project: Time Limited Optimum Resources Schedule ( CPMPSC Exhibit 6.4 pp 193) Section6.4.8 Illustration # 6.5 Site Development Project: Resources Limited Schedule (CPMPSC Exhibit 6.5 pp 196) Section 6.4.11 Illustration # 6.6 Residential Buildings Foundations Construction Cyclograph (CPMPSC Exhibit 6.7 pp 204) Section 6.5.1 Illustration # 6.7 Residential Building Finishes Plan: Derived Using Line-of-Balance Technique (CPMPSC Exhibit 6.8 pp 205) Section 6.5.5 Illustration # 6.8 Residential Building Finishes Control Chart : Derived Using Line-of-Balance Technique (CPMPSC Exhibit6.9 pp 207) Section 6.5.5 Illustration # 6.9 : 2000 Housing Units Project: Residential Building Monthly Target Tracking Chart( CPMPSC Exhibit 6.10 pp 209-210) Section 6.5.5 Illustration # 6.10 2000 Housing Units Project: Summary Schedule of Construction Tasks (CPMPSC Exhibit2.2 pp 44) Section 6.5.5 Illustration # 6.11: 2000 Housing Units Project: Man–month Requirement and Earned Value Forecast (CPMPSC Exhibit2.3 pp 48) Section 6.6 Lesson 7 Planning Construction Manpower Illustration # 7.1: Typical Building Construction Worker’s Production Planning Data( CPMPSC Table7.3 pp225) Section 7.4.1 Illustration # 7.2 :2000 Housing Units Project: Extract from Workers 'Requirement Forecast (CPMPSC Exhibit 7.1 pp 235) Section 7.6.4

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Illustration #7.3: Typical Housing Project Organisation ( CPMPSC Exhibit 1.1 pp27and Exhibit 7.2 pp 237) Section 7.7.1 Lesson 8 Planning Construction Materials Illustration # 8.1: Residential Building's Sub-Project: ABC Classification of Direct Material (CPMPSC Exhibit 8.1 pp249) Section 8.2.2 Illustration # 8.2: Monitoring Material Schedule ( CPMPSC Table 8.5 pp261 ) Section 8.5.3 . Illustration # 8.3: Minor Materials Mobilisation Stock (CPMPSC Exhibit 8.2 pp 270) Section 8.7.4 Illustration # 8.4 (CPMPSC Fig 8.3 pp268). Section 8.7.2 Lesson 9 Project Construction Equipment Illustration # 9.1: Functional Classification of Construction Equipment (CPMPSC Exhibit 9.1 pp 277)- newly added illustration in the lesson 9.2. Section 9.2 Illustration # 9.2 : 2000 Housing Units Project: Major Plant & Equipment Planned (CPMPSC Exhibit 2.6 pp 53). Section 9.2 Illustration # 9.3: Earth Excavating and Lifting Equipment (CPMPSC Exhibit 9.2 pp 281) Section 9.4 Illustration # 9.4: Earth Cutting and Hauling Equipment ( CPMPSC Exhibit 9.4 pp 286) Section 9.5 Illustration # 9.5: Common Earth Compacting Equipment ( CPMPSC Exhibit 9.5 pp 293) Section 9.8.1 Illustration # 9.6 Typical Major Compacting Equipment: Salient Features (CPMPSC Exhibit 9.6 pp299) Section 9.8.1 Illustration # 9.7: Major Concreting Equipment ( CPMPSC Exhibit 9.7 pp 301) Section 9.9 Illustration # 9.8: Materials Handling Equipment (CPMPSC Exhibit 9.8 pp 306) Section 9.10 Lesson 10 Selecting Construction Equipment Illustration # 10.1: Standard Methods of Determining Depreciation (CPMPSC Exhibit 10.2 pp 322) Section 10.4.1 Illustration # 10.2: Construction Equipment Costing: Hourly Owning and Operating Cost Estimate ( CPMPSC Exhibit 10.3 pp 328) Section 10.4.3 Illustration #10.3:Plant Leasing Offer of a Concrete Pump (CPMPSC Exhibit 10.4 pp 335) Section 10.6.3 Illustration #10.4: Equipment Replacement Decisions Data (CPMPSC Exhibit 10.5pp 338) Section 10.6.4

Lesson 11 Planning Construction Costs Illustration # 11.1 Typical Indirect Costs Classification of a Multi-national Company ( CPMPSC Exhibit 11.1 pp347) Section 11.5.3

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Illustration # 11.2 Indirect Costs: Functional Breakdown ( CPMPSC Exhibit 11.2 pp348) Section 11.5.3 Illustration # 11.3 :Foundation Construction Sub-Project: Activity-wise Workers' Requirement Estimate for One Foundation Module Construction (CPMPSC Exhibit 2.7 pp 54) Section 11.7.1 Illustration #11.4 Foundation Construction Sub-Project: Major Materials Requirement Estimate for One Foundation Module (CPMPSC Exhibit 2.8 pp 56) Section 11.7.1 Illustration # 11.5 Readymix Concrete Production Cost ( CPMPSC Exhibit 11.2 pp348) Appendix K Lesson 12 Planning Construction Budgets Illustration #12.1 : 2000 Housing Units Project: Organisation Chart ( CPMPSC Exhibit 1.1 pp27andExhibit 12.1 pp 368). Section 12.3.2 Illustration # 12.2: 2000 Housing Units Project: Task Responsibility Centres (CPMPSC Exhibit 12.2 pp 369) Section 12.3.2 Illustration #12.3 : Typical Contractor’s Monthly Interim Payment Application (CPMPSC Table 12.1 pp 372) Section 12.4 Illustration #12.4 : Typical Expense Budget Breakdown (CPMPSC Fig 12.2 pp 374) Section 12.5.1 Lesson 13 Project Scope Control Illustration # 13.1 : Project Performance Control (CPMPSC Fig. 13.2 pp 399) Section 13.2 Illustration # 13.2: 2000 Housing Units Project: Design and Drawings development Schedule (?)Section 13.3.1 Illustration # 13.3: 2000 Housing Units Project: List of Drawings for Health Centre Building. (CPMPSC Exhibit 17.3 pp526) Section 13.3.2

Illustration # 13.4: 2000 Housing Units Project Typical Responsibility Centre Performance Reports ( CPMPSC Exhibit 13.2 pp 403) Section 13.5.2 Illustration # 13.5: Project Control System (CPMPSC Exhibit 13.1 pp 395) Section 13.7.2 Illustration # 13.6 Foundation Construction Sub-Project (CPMPSC Exhibit 13.3 pp 406) Section 13.5.2 Illustration # 13.7 : Typical Performance Control Responsibility Matrix ( CPMPSC Exhibit 13.6 pp 418) Section 13.8

Lesson 14 Resources Productivity Control Illustration # 14.1: Time–Keeper Daily Time Card (CPMPSC Table 14.1 pp 422). To be developed by the programmers Section 14.3.2 Illustration # 14.2: Supervisor/Foreman Daily Labour Employment Report (CPMPSC Table 14.2 pp 424) Section 14.3.2

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Illustration # 14.3: Weekly Labour Productivity Report (CPMPSC Table 14.3 pp 425) Section 14.3.2 Illustration # 14.4: Labour Productivity Control Chart (CPMPSC Exhibit 14.1 pp426. Section 14.3.2 Illustration # 14.5: Typical Daily Equipment Employment Report (CPMPSC table 14.4 pp 428) Section 14.4.2 llustration # 14.6: Weekly Equipment Productivity Sheet (CPMPSC Table 14.5 pp 429) Section 14.4.2 Illustration # 14.7: Stock Record Card ( CPMPSC Table 14.6 pp 432) Section 14.5.3 Illustration # 14.8 Typical Materials Requisition and Issue Control (CPMPSC Table 14.7 pp 433) Section 14.5.4 Illustration # 14.9: Typical Materials Return Control (CPMPSC Table 14.8 pp 434) Section 14.5.4 Illustration # 14.10: Typical Stores Accounting Ledger Sheet (CPMPSC Table 14.9 pp 435) Section 14.5.5

Lesson 15 Project Cost Control Illustration # 15.1 : Project Budgeted Cost Chart (CPMPSC Exhibit 15.1.1 pp 463) Section 15.7 Illustration # 15.2 : Integrated Time- Cost Performance Chart ( CPMPSC Fig. 15.1 pp 445 ) Section 15.7 Lesson 16 Project Time Control Illustration # 16.1 : CPM / PERT Updated Network (CPMPSC Fig 16.1 pp 474). Section 16.2.2 Illustration # 16.2 : Primary School Construction: Updated Summary Precedence Network (CPMPSC Exhibit 16.1 pp 478) Section 16.2.2 Illustration # 16.3 : Updated Line-of-Balance Chart (CPMPSC Exhibit 16.2 pp 479) Section 16.2.2 Illustration # 16.4:Updated Bar Chart Schedules ( CPMPSC Exhibit 16.3 pp 481) Section 16.2.2 Illustration # 16.5: Master: Network of Pumping Station Project (CPMPSC Exhibit 16.4 pp 483) Section 16.5 Illustration # 16.6 : Pumping Station Project: Modified Network Incorporating Changes ( CPMPSC Exhibit 16.5 pp 484) Section 16.5 Lesson 17 Planning Data Codification Illustration # 17.1 : 2000 Housing Units Project Work Codes ( CPMPSC Exhibit 17.1 pp 507) Section 17.4.2 Illustration # 17.2 : CI / SfB Table 1 (CPMPSC Table 17.1 pp 505) Section 17.4.4 Illustration # 17.3 :CSI MasterFormat ( CPMPSC Table 17.6 pp 516) Section 17.4.5 Illustration # 17.4 : Manpower Code ( CPMPSC Table 17. 10 pp 524) Section 17.7.1 Illustration # 17.5 :Materials Code ( CPMPSC Table 17.4 pp 512) Section 17.7.2 Illustration # 17.6 :Equipment Code ( CPMPSC Table 17.7 pp 519) Section 17.7.3

ILLUSTRATIONS LIST

construction project management: planning, scheduling

Illustration # 17.7 :Finance Accounting Code ( CPMPSC Table 17.9 pp 523) Section 17.8.3 Illustration # 17.8 : 2000 Housing Units Project Health Centre Building: Labelled List of Drawings ( CPMPSC Exhibit 17.3 pp 526) Section 17.9.1 Lesson 18 Project Management Information System Illustration # 18.1 : Typical Software Requirement in Project Management (CPMPSC table 18.1 pp 538) Section 18.3

Acknowledgements

construction project management: planning, scheduling

Acknowledgements Krishan K Chitkara, the author, expresses his sincerest thanks to the contribution and support extended by the following in making the CPMT Plus: Construction Industry Development Council, India. Author is grateful to the Hon. G. V. Ramakrishna, Chairman, for writing the ‘Foreword’ in CPMT Plus, and thankful to Mr. P. R. Swarup, Director, CIDC, for his encouragement and cooperation in developing this CD-ROM. Housing and Urban Development Corporation (HUDCO). Author is thankful to Mr. V. Suresh, Chairman, Directors and Staff for their support in developing the CPMT Plus. In particular, Dr. P. S. Rana, Director Corporate Planning has been the main source of inspiration in bringing out this CD and the students from HUDCO have made valuable contribution in the development of the CPMT Plus. Primavera Systems, INC, of USA, for providing and permitting to use the working model of Primavera Project Planner 3.0 and SureTrak Project Manager 3.0 in the CPMT Plus. Primavera Project Planner (R), P3 (R), and SureTrak Project Manager (R) are registered trademarks of Primavera Systems, Inc. International Labour Organisation, Geneva, for permitting to reproduce the ‘Checklist’ from “ Safety, Health and Welfare on Construction Sites: A Training Manual’. published in 1995. Project Management Institute, Inc, PA 19073-3299 USA, for allowing to include the project manager skill model titled “The Superior Project Manager”, from “The Quest To Find The Superior Project Manager”, published in PM Network, July 1998. Institute of Construction Project Management, Gurgaon, faculty and staff engaged in promoting state-of the art knowledge in Construction Management. Construction Journal of India for the support in development of CPMT Plus. Publisher and Developer of CPMT Plus, for their untiring effort in bringing this project to its present form. Last but not the least, I am thankful to my family for their understanding and continued support which saw me through the extended working hours. K. K. Chitkara, Author and Program Director, CPMT Plus. Disclaimer. Despite their best efforts, the author, supporters and contributors of this CPMT Plus, accept no responsibility for any inaccuracy, errors or omissions resulting

Acknowledgements

construction project management: planning, scheduling

from the text and conversion of the text into CD-ROM format.

Appendices

construction project management: planning, scheduling

Appendices Contents Appendix–A: Indian Construction Scenario Construction and Scope. Construction Contribution in the Indian Economy. Growth of Indian Construction Industry. ·

Domestic Construction Tasks Ahead. Globalization: Challenges for the Construction Industry.

Appendix–B: Project Feasibility Study Purpose of the Feasibility Study. Analysing Factors Affecting Project Feasibility. Feasibility Report. Appendix–C : Sizing Project Work Packages Importance of Work Packages. Factors Affecting Sizing of Work Packages. Re-sizing Work Packages. Appendix–D: Project Duration Assessment– Using Monte Carlo Simulation Technique Introduction. Concept. Activity Duration Probability Distribution Function. Methodology. Examples. Risk in Assessed Project Completion Time. Appendix–E: Project Time–Cost Trade–off Technique · · · ·

Time–Cost Relationship. Concept. Plotting Project Cost–Time Function. Time Crashing. A Word of Caution. Appendix–F: Decision Network Analysis Scope. ·

Types Of Decision Network Analysis Techniques.

· · ·

Decision Network Analysis. Decision Tree Analysis. Conclusion.

Appendix–G: Project Management Organization

· · ·

Project Organization Concept. Project Organizational Forms. Project Organizational Structure. Project Responsibility Centres.

Appendices

construction project management: planning, scheduling

·

Strengths and Weaknesses of the Project Management Matrix Organization. Conclusion.

Appendix–H : Resources Allocation Using Linear Programming Introduction and Scope. Solution of Linear Programming Problems by Graphical Method. Solution of Linear Programming Problems by Simplex Method. Solution of Linear Programming Problems by Dual Method. Conclusion. Appendix–I: Earthmoving Equipment: Approximate Production Planning Data for Primary Tasks · · ·

· · ·

Introduction.

Tracked Bull Dozer Ideal Output Per Hour in Bulk Volume in Easy-To-Do Loose Soil. Front-End Loader Ideal Output Per Hour in Bulk Volume Easy-To Haul Loose Soil. Ideal Output of the Tracked Loader Shovel. Excavating and Lifting Equipment Ideal Output Per Hour in Bulk Volume. Scrapper Ideal Output Per Hour in Bulk Volume in Easy To Scrap Soil. Performance Factors.

Appendix–J: Time Value Of Money · · · · · ·

Time-Money Link. The Future Value of a Single Amount. The Future Value of an Annuity of Equal Amount. The Present Value of a Future Amount. The Present Value of an Annuity of Equal Amount. The Present Value of Cash Inflow of Unequal Amount and Discount.

Appendix–K: Break-Even Analysis Introduction. Break-Even Analysis Methodology. Assumptions and Limitations. Uses of Break-Even Analysis. Appendix–L: Capital Budgeting Process Importance of Capital Budgeting. Estimating the Cash Flow. Establishing the Cost of Capital. Applying the Investment Appraisal Criterion. Appendix–M: Project Quality Management Introduction and Scope. Quality Concept. Quality Management Principles. Corporate Quality Policy. Production Quality Management Processes. Quality Cost Analysis. Total Quality Management. Quality in Total Project Management.

Appendices

construction project management: planning, scheduling

TQM Vs TPM. Appendix–N : Worker’s Safety Comes First Why Safety Comes First? Causes of Accidents at Construction Site. Statutory Safety Measures in India. Formulating Project Safety Policy. Building Safety in Site Layout and Temporary Facilities. Safety Related Role of the Project Personnel. Conclusions.

Annexure (i): Extracts from The Building and Other Construction Workers ( Regulation of Employment and Condition of Service ) Act 1996 and Central Regulation 1998. Annexure (ii): Construction Safety Checklist.

Appendix–O: Project Risk Management–An Overview ·

Introduction and objectives.

·

How are risks identified?

·

How are project risks analyzed?

· · · ·

How is risk response plan developed? How are project risks controlled? How does the human side affect the management of risks? What is the role of a Project Manager in managing risks? What are the benefits of managing project risks?

Appendix–P: Construction Contracts Administration · · · · · · · · · · · · ·

Introduction and Scope. Role of the Participants. Production Performance Control. Specification Interpretation. Scope Change Control. Sub-contractor Approval. Disputes, Claims and their Modes of Settlement. Contract Termination Control. Interim Valuation Payment Control. Contract Bonds and Securities. Project Close-out. Formal Correspondence Rules. Guidelines to Minimize Problems in Contract Administration.

Appendix–Q : Managing Privatized Infrastructure Projects Introduction and Scope. Stakeholders. Role of Government in Designing and Implementing the Concessions. Concessionaire Project Management Process. Key factors in Management of Privatized Infrastructure Projects. Conclusion.

Appendices

construction project management: planning, scheduling

Appendix–R: Upgrading Total Project Management Skills · Introduction and Scope. Knowledge Areas Needed for Managing Construction Projects. Skills Development Model. Skills Up-gradation Methodology. Academia-directed Project Management Education. Corporate-directed Project Management Training. Individual-directed Self-learning. Distance Learning in Virtual Classroom to Speed up Delivery. Conclusion.

CPMT

construction project management: planning, scheduling

Appendices Indian Construction Scenario

Time Value Of Money

Project Feasibility Study

Break-Even Analysis

Sizing Project Work Packages

Capital Budgeting Process

Project Duration Assessment: Using Monte Carlo Simulation Technique

Project Quality Management

Project Time—Cost Trade–off Technique

Worker's Safety Comes First

Decision Network Analysis

Project Risk Management: An Overview

Project Management Organization

Construction Contracts Administration

Resources Allocation Decisions

Managing Privatised Infrastructure Projects

Earthmoving Equipment: Approximate Production Planning Data for Primary Tasks:

Upgrading Total Project Management Skills

Lesson 1 Appendix

construction project management: planning, scheduling

INDIAN CONSTRUCTION SCENARIO Appendix A

A.1

CONSTRUCTION SCOPE

The construction activity has been in existence since the dawn of civilisation, when the caveman started building his dwellings. Even in ancient times, man created architectural marvels which came to be regarded as the wonders of the world, for example, the Pyramids of Egypt, the Great Wall of China, the Angkor temples of Cambodia, and the Tower of Babel. The medieval times witnessed the construction of world-famous landmarks like the Taj Mahal in India and the Leaning Tower of Pisa in Italy. A more recent example of man's achievements in this direction is the Eiffel Tower in Paris and the high-rise skyscrapers. In the present day world, technical breakthroughs have revolutionized construction activity. Modern construction areas include high-rise buildings, dams and irrigation networks, energy conversion and industrial plants, environmental protection works, infrastructure facilities like roads, bridges, railways, airports and seaports, satellite launching stations, on-shore and off-shore oil terminals. In India , investment in new construction works during the year 1998–99 was of the order of Rs. 1367.54 billion

A.2

CONTRIBUTION OF CONSTRUCTION WORKS IN THE INDIAN ECONOMY

Construction activity contributes to the economic development of a country. The GDP per capital and the investment in the construction per capita generally follows a straight-line relationship, that is, construction activity increases with the increase in per capita income. In some of the developing countries, the growth rate of construction activity outstrips that of the population and of the GDP. In case of India, for example, during the last ten years, the total capital formation by construction was about 44% of the total investment and the contribution of construction in GDP was nearly 5%. Construction accelerates economic growth of a nation. In India, for example, during the plan period 1980-85 for every rupee of investment, construction added 78 paise to the GDP as compared with 20 paise per rupee of investment in agriculture. Construction is an employment spinner. It generates more employment than most of the sectors. In India, during the eighties, the overall annual employment increased by 2%, whereas increase of employment in the construction sector during the same period recorded an annual growth of about 7%. Further, in India, the number of persons employed in the Indian Construction Industry is around three millions. India’s planned development coupled with the reforms, despite the ever increasing population, have contributed to the remarkable growth in the country’s economy. DEMOGRAPHIC INDICATORS

Lesson 1 Appendix

construction project management: planning, scheduling

Year

1995

1996

1997

1998

1999

Population

946

963

980

998

999

Population Growth Rate

1.84

1.81

1.79

1.82

Source: Construction Industry Development Council, Third National Conference, Souvenir–2; February 2000

Main Macroeconomic Indicators : GDP and Components – INR in Trillions Year

1995

1996

1997

1998

1999

GDP at Real Prices (1993-94)

8.76

9.38

9.99

10.49

11.02

GDP at Current Market Prices

11.27

12.06

12.86

14.27

14.98

Primary Sector

8.11

8.43

9.41

9.77

Manufacturing Sector

0.75

0.84

0.90

0.96

Service Sector

1.50

1.69

1.86

2.05

Construction Sector

1.70

1.90

2.1

2.2

Source: Construction Industry Development Council, Third National Conference, Souvenir–2; February 2000

FINANCIAL INDICATORS Year

1995

1996

1997

1998

Changes in Consumer Price Index %

9.10

8.40

7.2

6.1

Short Term Interest Rate %

18-20

18-20

18-20

18-20

Long Term Interest Rate %

10-13

10-13

10-13

10-13

Rs.32.0

Rs.36.0

Rs.42.7

US $ Annual Average Exchange Rs.31.0

1999 4.20

Rs.43.8

Rate Source: Construction Industry Development Council, Third National Conference, Souvenir–2; February 2000

India witnessed a rapid growth in the production of the essential construction materials.

Production of the Essential Construction Materials Annual Production in Million Tons Per Year Year

Cement

Steel

Coal

1947

3.2

1.0

-

1950

5.3

1.4

32.3

1960

-

-

55.2

Lesson 1 Appendix

construction project management: planning, scheduling

1970

14.7

4.5

76.3

1980

29.6

8.8

119.0

1990

45.8

12.6

225.5

1995

76.2

22.7

-

1998

82.9

24.8

318.9

During the last few years, the construction prices of the essential construction materials have

remained fairly stable. AVERAGE CONSTRUCTION MATERIAL PRICES ITEM

Unit

1995

1996

(INR)

1997

1998

1999

Cement in bulk

Tonne

2,600

2,700

2,750

2,800

2,800

Steel bars

Tonne

14,000

14,500

15,000

15,000

15,000

Source: Construction Industry Development Council, Third National Conference, Souvenir–2Feb.2000

Construction is the second largest industry on the basis of the total labour force engaged. Development patterns in the construction largely reflect the national trends in terms of growth, income generation, housing and other economic indicators. However, a lot remains to be done for the construction workers, most of them live below the poverty line. This largely floating, mostly untrained workforce with no fixed accommodation and lacking other normal facilities, is engaged in hazardous work conditions with no appreciable compensatory benefits. The safety, training and welfare of the construction workers must come first, always and every time.

A.3 GROWTH OF INDIAN CONSTRUCTION INDUSTRY During India’s pre-independence period, the Indian Construction Industry was mainly confined to low-tech nature of construction in the field of railways, dams, drains, canals, roads, buildings, ports, utility services and other facilities. With the dawn of independence, Indian construction entered into a new era. The new construction increased rapidly from mere Rs2.00 billion in 1951-52 to Rs1367.54 billion in 1998-99. It is expected to rise to Rs 3060.36 billion during 2006-07.

GROWTH IN CONSTRUCTION INDUSTRY New Construction in Billion IRS 1951-52 Rs 2.00b

1961-62 Rs. 5.50b

1969-70 Rs 13.60b

1980-81 Rs 136.4 9b

1986-1987 Rs 305.73b

GROWTH IN CONSTRUCTION INDUSTRY

1990–1991 Rs 583.63b

Lesson 1 Appendix

construction project management: planning, scheduling

New Construction in Billion IRS 1995-96

1996-97

1997-98

1998-99

Rs 1027.58b

Rs 1129.56b

Rs 1242.44b

Rs 1367.54b

1999-2000

2000-2001

Rs 1497.92b

Rs 1669.94b

(forecast)

(forecast)

Based on the bidding value, Indian contractors are broadly divided into three categories, i.e. bidding value over Rs 300m, between Rs 100m to Rs 300m, and less than Rs 100 million. There are over 28,000 construction companies. Majority of the constuction companies fall in the last category having bidding capacity less than Rs 100 million. There are about 200 companies including those with joint ventures, who can undertake large-sized turnkey / EPC contracts. The top ten construction companies in India are tabulated below: LEADING INDIAN CONSTRUCTION COMPANIES Name of the Companies Larsen &Toubro Ltd. (ECC Group)

Turnover U.S $ Million 448.24(96-97)

Main Work Heavy Industrial Construction, Institutional Buildings, Special Structures.

http://www.larsentoubro.com http://www.lntecc.com Gammon India Ltd. http://www.gammomindia.com Hindustan Construction Company Ltd.

61.23 (96-97) 63.54 (97-98) 87.31 (96-97) 88.66 (97-98)

Hydraulic Structures, Tunnelling, Natural Draft Cooling Towers, Heavy Industrial Construction, Bridges and Flyovers Hydraulic Structures, Bridges, Flyovers, Irrigation Structures, Heavy Industrial Construction.

180.70(96-97) 151.76(97-98) for 9 months only 64.07 (1997) 54.86 (1998) 50.50 (95-96) 58.50 (96-97)

Hydraulic Structures, Hydro-Electric Power Plants, Heavy Industrial Construction.

29.00 (95-96) 27.00 (96-97) 32.00 (97-98) 60.00 (96-97) 61.00 (97-98)

Hydraulic Structures, Roads and Highways, Hydro Power Plants.

54.30 (96-97)

Hydraulic Structures, Roads and Highways, Hydro Power Plants and Cooling Towers, Directional Drilling. Hydraulic Structures, Roads and Highways, Hydro Power Plants and Cooling Towers, Directional Drilling, Pipelines, Heavy Construction.

http://www.hccindia.com Jaiprakash Industries Limited

Unitech Ltd.

http://www.unitechlimited.com Kvaerner Cementation India Ltd.

Roads, Bridges, Heavy Industrial Construction, Housing and Institutional Buildings, Real Estate Hydraulic Structures, Heavy Industrial Construction

http://www.kvaerner.com Continental Construction Ltd. http://www.cclindia.com National Buildings Construction Corporation Ltd. http://www.nbccindia.com Bridges & Roof Co. Ltd. http://www.bridgroof.com Punj Lloyd Ltd. [email protected]

43.50 (96-97) 51.50 (97-98)

Hydraulic Structures, Roads and Highways, Hydro Power Plants and Cooling Towers, Directional Drilling.

Source: Construction Industry Development Council, Third National Conference, Souvenier -- 2nd Feb., 2000

A.4 DOMESTIC CONSTRUCTION TASKS AHEAD The economic development of a nation is closely linked with investments in infrastructure. India with its infrastructure development programme is emerging as one of the top construction markets in the world. FORECASTING GROWTH IN CONSTRUCTION INDUSTRY

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construction project management: planning, scheduling

SECTOR–WISE CONSTRUCTION FORECAST New Construction in billion IRs Sector

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

Power

476.00

518.00

560.00

616.00

679.00

Railways

127.20

139.80

153.30

168.40

185.30

Road

105.70

114.40

124.20

135.20

147.60

Ports

26.50

29.30

32.50

36.20

39.00

Other transport

198.80

232.70

261.50

294.20

342.40

Communication

182.00

191.00

232.00

250.00

312.00

2.00

2.20

2.40

2.70

2.90

1118.20

1227.40

1365.90

Storage Total basic infrastructure

1502.70

1709.10

Note: All figures in billion Rupees Source: Union Budget & Construction Industry 1998-99, Context Data Services, Mumbai.

LIKELY INVESTMENT PATTERN BETWEEN THE PUBLIC AND PRIVATE SECTOR Year

Public Sector %

Private Sector %

1999-2000

66.90

33.10

2002-2003

60.90

39.10

2002-2006

55.80

44.20

Source: Union Budget 1998 – 99 & Construction Industry Context Data Services

Business Opportunities and Major Projects in the Pipeline in January 2000 include: (Value in U.S. $ Million) 1.1 Jawaharlal Nehru Port, Liquid Cargo Berth 1.2 Mumbai (JNPT) Marine Chemical Terminal 1.3 Six-berth Terminal at Nhava Creek 1.4 Kandla Container Freight Station 1.5 New Mangalore Bulk Handling Terminal 1.6 Port facilities for Expansion of Mangalore Refinery 1.7 Tuticorin Construction of New Outer Harbour (including modern container terminal) 1.8 Container Haling Facilities at Berth No. 7 1.9 Chennai Construction of New Outer Harbour 1.10 Visakhapatnam Construction of Outer to Outer Harbour (Port Construction Through Private Sector) 1.11 Construction of Captive and Multipurpose Berths 1.12 Kochi Construction of Container Terminal

35 535 335 5 100 35 1200 80 700 800 140 800

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1.13 Construction of LPG & LNG Terminal at Puthuvypeen 1.14 Calcutta Cargo Handling Facilities at Budge Budge Container Terminal 1.15 Second Dock Arm at Haldia 1.16 Mormugao Construction of Outer Harbour 1.17 Construction of FRH Master Plan Berths 1.18 Construction of Berths West of Breakwater 1.19 Paradip Dry Dock Ship Repair Facilities 1.20 Upgradation of facilities for Container Berth 1.21 Captive Fertiliser Handling System Estimated Total Investment

100 40 250 700 75 200 470 35 35 6670

A.5 PROJECT EXPORT Construction is an everlasting activity across the globe. Its profitability, like that of any other business, fluctuates according to the law of demand and supply. In most countries, the construction activity constitutes 6~9% of the gross domestic product (GDP). It covers more than half of the fixed capital formation. The total annual value of construction works in the world ranges from 1 to 1.5 trillion US dollars. Since the early 1980s, the contract market for international construction projects has risen to US$ 120-180 billion per annum. There are about 250 international companies competing with each other for global construction tenders. But India’s share is negligible.

COUNTRY South Asia East Asia North Africa South and Other Africa Middle East CIS South America Total

INDIA’S ANNUAL PROJECT EXPORTS (for fiscal years) (Value in INR Millions) 1994-95 1995-96 1996-97 1997-98

1998-99

596.40 440.00 -

877.00 208.10 757.30 60.00

45.30 7.60 284.10

413.60 1741.40 83.60 266.80

11464.80 1193.20 -

1289.00 273.20 2600.00

437.60 2340.00

659.80 111.60 17.30 3125.40

1802.50 4307.10

2092.90 14751.70

A.6 GLOBALIZATION CHALLENGE FOR INDIAN CONSTRUCTION INDUSTRY Globalization stands for the interdependence of the entire world and its people. In its generic form, the globalization aims at growing international linkages in all fields of human activity, i.e. finance, trade, market strategy, technology development, knowledge exchange, cultural reforms, governance regulations and political unification of the world. Globalization creates increasing interdependence and interconnectedness of national economies. It brings about multiplicity of linkages and interconnections between states, societies and corporate entities. Although the facilities produced by the construction industry are immobile, the inputs used by it are highly mobile. Construction materials and services provided by Architectural, Consulting,

Lesson 1 Appendix

construction project management: planning, scheduling

Contracting and Construction management firms are transferable across regional and national boundaries; however, these are subjected to certain national policies like procurement laws, immigration rules, and cross border movement of sponsors ,contractors and workforce. The globalization process will:

· · · · · · · · ·

Accelerate technological exchange. Standardize labour practices. Increase exports of products and services. Shorten the product life cycle. Share costs in product development. Gain greater access to foreign markets. Provide access to highly qualified people. Broaden access to financial resources. Establish joint ventures and partnerships in the distance markets.

The tasks ahead, in the global context, will place high demands on the Indian construction industry. The construction promoters will demand better facilities at cheaper rates with short delivery period. Emphasis, especially in case of privatized infrastructure projects will be on completion within budget, earlier than the stipulated time and better quality than that specified. Construction related specialities and disciplines will grow. Mega projects, both at national and international level, will need global joint ventures. Innovation and creativity coupled with professionalism, new practices, new technologies and mechanization will win in the long run. In the global environments, Government can make the construction industry competitive by reducing duty on imports of high tech engineering plant and equipment, giving incentives to the local equipment manufacturers, providing sale tax benefit to encourage precast industry, reforming contract practices, providing facilities for capturing overseas markets, backing construction professional bodies, reducing interest rates and encouraging money supplies through financial institutions. In order to prevent social crimes in the construction industry, the Government must enforce exemplary punishments and heavy penalties for unsafe working, sub-standard construction, corrupt practices and other construction related crimes. In today’s dynamic global environment, the rate of obsolescence of knowledge is very high. With the fast emerging new knowledge and the rapidly changing technology, the organization needs mechanism to react faster than their competitors. Challenge for organizations is to make learning available to its members, faster than competitors, when and where the need arises. It is particularly important in the highly competitive construction field. This has made updating of knowledge and skills a continuous process. India is a member of the WTO. India has signed GATT. Therefore, there is no going back on globalization. The Indian Construction Industry, to survive in the global context, must gear up to face the challenges ahead. In the construction field, upgrading of technology, improving construction practices and upgrading managerial skills, is a continuous process and it is not a one-time effort.

Appendix B

construction project management: planning, scheduling

PROJECT FEASIBILITY STUDY Appendix B B.1 Purpose of the Feasibility Study Construction project are capital intensive. Capital expenditure decisions have long-term effects, are irreversible, and involve substantial outlays. The basic characteristic of a business- related capital project, like real estate and privatized public infrastructure construction is that it needs a huge investment of funds in the expectation of a stream of benefits extending far into the future. The success of such a project, to a great extent, depends upon the feasibility study.

The objective of feasibility study, invariably, is to analyze the factors affecting the viability of a project and to present the findings with recommendations in the form of a project feasibility report for implementation. A feasibility report forms the basis for the investment decisions made by the project promoters, for the support extended by the financial institutions, for the clearance given by the appropriate approving authorities, and for giving an insight to the project manager into the techno-economic basis on which the project is approved. B.2 Analysing Factors Affecting Project Feasibility The factors influencing the feasibility vary with the nature of the project, e.g. the risk factor in a privatized infrastructure five years' duration road project is far more dominant than that in two-year duration lump-sum road construction contract. The typical factors considered in the feasibility study of a business related construction project, like real estate development and privatized infrastructure construction, are given below: · Market analysis. · Technical and ecological analysis. · Financial and economic analysis The analysis of factors generates enough information to select the most appropriate course of action for implementing the project, if feasible. B.2.1 Market Analysis. This is concerned primarily with the aggregate demand and market share. The market analyst requires a wide variety of information and appropriate forecasting methods. These include: Sales trends in the past and the present sales level. · Past and present supply position. · Competition. · Cost structure. · Consumer behaviour, intentions, motivation, attitudes, preferences and requirements. · Distribution channels and marketing policies in use. · Administrative, technical and legal constraints. B.2.2 Technical Analysis. This seeks to determine whether the pre-requisites for the successful commissioning of the project have been considered and reasonably good choices have been made

Appendix B

construction project management: planning, scheduling

with respect to location, size, process etc. or not. The important aspects considered in technical analysis are: · Preliminary investigations, tests and pre-feasibility studies already done. · Conceptual design and specifications. · Layout of the site, buildings and plant. · Construction methodology. · Availability of manpower, raw materials, power and other inputs. · Equipment and machines required. · Necessary auxiliary equipment and supplementary works. · Pollution control measures. · Work schedules. · Approximate cost breakdown. B.2.3 Financial Analysis. This ascertains whether the proposed project will be financially viable in the sense of being able to meet the burden of servicing debt and whether the proposed project will satisfy the return expectations of those who provide the capital or not. The aspects, which have to be looked into while conducting financial analysis, are: · Cost of project. · Investment outlay. · Break-even point. · Cash flows of the project. · Projected financial position. · Risks analysis and contingencies. · Projected profitability. A business related project is considered profitable if: · Net present value (NPV) > 0 · Payback period (PBK) < Target period · Internal rate of return (IRR) > Cost of capital · Accounting rate of return (ARR) > Target rate · Benefit-Cost ratio (BCR) > 1 The projected profitability analysis methodology is covered in Appendix L. B.3 Feasibility Report Several institutes have published feasibility study guidelines. These institutions include UNIDO Geneva, the World Bank, Industrial Development Bank of India (IDBI), Planning Commission and so on. The contents of a typical feasibility report include the following heads and each of these heads is supported with data: 1. Project background and mission statement. 2. Market demand, where applicable. 3. Project description and location. 4. Scope of work and design feature. 5. Resource inputs required and sources of supplies. 6. Project organization. 7. Implementation schedule.

Appendix B

construction project management: planning, scheduling

8. Capital cost estimate. 9. Cash flow and sources of funding. 10. Cost benefit analysis. 11. Risks analysis and contingencies. 12. Profitability analysis. 13. Conclusion. Feasibility studies consume time. In large-sized projects, undertaking a feasibility study may become a project in itself. A project manager may or may not be associated with the feasibility study but it is important that he understands how the project was conceptualized, analyzed and evaluated prior to a go-ahead decision.

Appendix C

construction project management: planning, scheduling

SIZING PROJECT WORK PACKAGES Appendix C C.1 Importance of Work Packages Work packages (WP) form a common base for linking the key functions in project management. In the project master plan or the contracted works control plan, each work package is assigned its performance objectives. These are generally stated in terms of its completion period, standard cost, resource productivity standards and the standard sale price. A project team uses work-packages as the common database. The work package duration forms the basis for the time planning and scheduling of the project work. Detailed information about the resources such as men, materials and machinery needed for the execution of each activity in a work package enables the preparation of resource forecasts. The work package sale price and the production cost is used to determine the income and cash-flow forecasts. The measure of performance thus, gets closely linked with the execution of its work packages. The work package concept, thus, leads to a simple project management theory, i.e. use work packages as the base for designing, estimating, planning, scheduling, organizing, directing, monitoring, communicating and controlling projects. Sizing and defining the work contents of a work package is of prime importance in project management

C.2 Factors Affecting Sizing of Work Packages By definition, each work package contains an identifiable, quantifiable, costable, measurable, sizeable, assignable and controllable package of work. But there is a wide gap in its size and development methodology as it has no single solution. However, the following factors should be considered while defining and sizing a work package: Identifiable. It is the smallest identifiable independent work element in which work can be executed with the least interference from the preceding and succeeding work packages. In general, each work package consists of identifiable and quantifiable inter-dependent activities, which consume time and, possibly, resources. Quantifiable. A work package, generally, consists of more than one activity. In the case of a multi-activity work package, each activity has its own unit of measure which, in some cases, is related to the bill of quantities. It is necessary that a work package should be expressible in one unit of measure, say length, area or volume, so that its performance can be measured. In case it is not possible to define its unit of measure, then its work content should be further divided into more than one package, each becoming a work package. Costable. Each work package consumes resources. Its cost is the sum of the costs of the activities consisting the work package. The cost of executing a work package, while working efficiently under normal conditions, is termed as the standard work package cost and it forms the building block for planning, budgeting and controlling project costs. The smaller the size of the work package, the lesser is the margin of error in estimating the time and cost. The estimation errors, whether positive or negative, usually reduce the margin of errors when considered collectively.

Appendix C

construction project management: planning, scheduling

Measurable. In contracted projects, the sales prices for various items of work are fixed and these are listed in the bill of quantities (BOQ). The sale price in the BOQ, is generally expressed in the units of the work item. But for forecasting and monitoring the work done , it is necessary to compute the sale price, preferably activity-wise. This computation is carried out by developing a correlation between each work item and activity by breaking down an item of work into activities, or sub-dividing an activity into items of work, as the case may be. Example No. 1. Illustrates splitting up the sale price of the Bill of Quantities (BOQ) work item into work package sale price. Consider a BOQ item representing Concrete M 25 in the plinth-wall of a module of a building of the repetitive type residential building construction complex. This work item can be broken down into sale prices of connected activities of the work package as under: BOQ

Activity

A-5 Bitumen painting A-11 Reinforcement fixing

Qty. Unit Rates ($) 362 SM -

-

Amount ($)

2.45

886.90

-

Included in raft work package

A-8 Shuttering

485 SM

-

-

A-8 Concreting

43.7 CM

163.50

7144.95

A-8 De-shuttering

-

-

-

-

A-8 Curing

-

-

-

-

-

-

-

8031.85

Total ($)

Standard unit sale price of work package of the plinth-wall expressed in work unit of CM concrete poured works out to be $ 8031.85 / 43.70 = $ 183.80 / CM Example No.2 - Shows the determination of sale price of work package for the construction of ground- floor-slab of one module from given BOQ work item. BOQ

Activity

Qty.

Unit

Rates ($)

Amount ($)

A-5

Bitumen painting

319

SM

2.45

781.55

A-2

Back filling

120

CM

5.00

600.00

A-5

Plinth filling

305

CM

20.00

6100.00

A-4

A-4

172

SM

7.50

1290.00

A-6

Polythene sheeting

225

SM

1.00

225.00

A-9

Shuttering

11

SM

A-10 Weld mesh laying

0.651 TON

A-9

Concreting

28.34

A-9

Curing

-

Total ($)

Included 1518.10

988.28

CM

163.5

4633.59

-

-

14618.42

Sale price of work package for the construction of ground-floor-slab in work units of CM concrete works out to be $ 515.82/CM, i.e. 14618.42 divided by 28.34. Sizeable. A small-sized work package is beautiful, but there is a limit. A work package must be reasonable in size, so that it can be assigned to a single supervisor. As far as feasible, it should comprise of one large-sized group of sequentially interacting activities. Further, it should not

Appendix C

construction project management: planning, scheduling

contain too many activities independent or parallel, requiring a suitably grouped team of workers for each activity, as this will increase the foreman's span of control and adversely affect the internal cohesion. As a rough guide, the package size can be kept within 0.25% to 5% of the cost of the project and, in the case of non-repetitive work, the time duration for the construction work package could generally be kept between one to five progress reporting periods. Assignable. Organizationally, a project is divided into a number of construction responsibility centres or cost centres. Each of these centres is allocated resources and assigned targets, expressed in terms of work packages. Each cost centre is further divided into work centres. Each of these work centres consists of one or more work packages. Each work centre is assigned targets to be achieved and is allocated resources to accomplish the targets. The work package is the lowest level which can be assigned to a single person. If the work package is large in size, then it must be re-defined to enable a single supervisor to be its head. If it is not possible, then a single person may have to be nominated to oversee the tasks. Controllable. The project performance can be best measured and controlled in terms of work packages. The smaller the size of a work package, the greater is the precision in measurement and controlling of performance. C.3 Re-sizing Work Packages The size of a work package should be determined after considering the factors given above. If the work under consideration does not fulfil most of the above criteria, then it should be further decomposed into more than one work package, if necessary, so as to be able to: · Identify the physical accomplishment of a work item. · Avoid overlapping from the preceding and succeeding work packages. · Reduce the parallel activities. · Minimise the sequential inter-dependent activities. · Further improve the time and cost estimates. · Enable one person to supervise the work package. · Eliminate time-breaks, if they occur in the execution of sequential activities. · Reduce the variations in the type of resource needed for execution. · Separate the quality acceptance criteria. · Conform to the contract bill-of-quantity measurement unit.

Appendix D

construction project management: planning, scheduling

PROJECT DURATION ASSESSMENT USING MONTE CARLO SIMULATION TECHNIQUE Appendix D D.1 Introduction Monte Carlo simulation technique uses the model of a system to analyse the behaviour of a system. In simulation analysis, the project network model is given the large number of sets of random inputs within the specified probability distribution of each activity, and the output is then statistically analysed to determine the probabilities of various project completion time schedules. D.2 Concept Consider a construction contract pretender stage, where the preparation of the tender involves the following three concurrent activities: Code Activity duration A Preliminary design B Site investigation C Preparation of bid documents

Assessed duration 55 days 60 days 50 days

Based on the one-time duration estimate, the site investigation activity B is critical and is expected to take 60 days. However, after considering various risk factors, the team reviews the one-time estimate and arrives at the following results using PERT, which indicates the completion period as 61 days with a 50% probability of completion. Activity A B C

Optimistic Time 50 50 45

Most Likely Time 55 60 50

Pessimistic Time 65 75 70

Expected Time 56 61 50

The above case, when simulated 10 times with randomly selected inputs, shows that the completion period works out to be 66 days with a 50% chance of completion, i.e., 6 days more if one-time (most likely estimate) is used and it is 5 days more if three-time estimate (PERT) is used. The 100 iterations simulation gives assessed duration as 63 days with 50% probability of completion. COMPLETION ESTIMATION FOR TENDER PREPARATION

Appendix D

construction project management: planning, scheduling

Duration Iteration No. 1 2 3 4 5 6 7 8 9 10 Expected Mean

Assessed Manually Using Simulation Technique (10 iterations) Activity A Activity B Activity C Completion 50-55-65 50-60-75 45-50-70 Time Ra 62 57 55 60 65 50 52 58 51 61

Rb 71 58 67 55 60 63 57 72 73 51

Rc 48 65 59 49 52 58 47 56 53 69

71 65 67 60 65 63 57 72 73 69 66.2 with 50% Probability

The results obtained using different techniques are summarized below: Activity duration Technique Completion time (days) basis 60 with deterministic CPM most likely time estimate PERT three-time estimate 61 with 50% chance Monte Carlo (10 three-time estimate 66 with 50% chance iterations) Monte Carlo (100 three-time estimate 63 with 50% chance iterations) The 10 simulated iterations, given above, demonstrate that for project time scheduling, PERT

estimates need further refinements. The Monte Carlo simulation process (say, with more than 1000 simulation) gives a better estimation of the project completion time. It needs a computer to simulate the model understudy in the Monte Carlo technique, say by 1000 a times, to determine a real life solution to a network having varying activity duration probability distribution. D.3 Activity Duration Probability Distribution Function The duration of an activity, which forms the basis of network time analysis, is an estimate. The changes in estimates are inevitable due to uncertain future. Probability provides a yardstick to measure the uncertainty. Histograms constructed from small sample measurements do not show the exact pattern of the population. If the number of supervisors estimating the activity duration is large, with relative frequency plotted along ordinate axis and time against abscissa, the histogram will show more and narrower rectangles. If the size of sample is made infinite, this discrete distribution will approach a smooth curve profile. In Monte Carlo technique, each activity is assumed to have a probability distribution pattern (i.e. a profile) for its duration. If by suitable choice of scale of axes, the area under the curve is made unity, the resultant figure is called a probability distribution. The probability concept uses this scale that runs from 0 to 1. In probability distribution, ‘zero’ represents the impossible situation and ‘one’ depicts the almost certain case. The divisions in-between represent the varying degree of likelihood.

Appendix D

construction project management: planning, scheduling

The method of fitting of a distribution based on a set of data are covered in the standard books in statistics. There are computer programs available which can determine the probability distribution function. But in practice the selection of an appropriate input distribution is based on the estimator's perception of the range and probability of the likely outcome. Such distributions should be relatively easy to understand and simple to determine. For these reasons, the simple distributions pattern like uniform distribution, triangular distribution, binomial (trapezoidal) distribution, gamma distribution and exponential distribution and normal distribution are considered adequate for project time estimation. A probability distribution gets defined when its equation, mean and standard deviations are known. In PERT, three-time estimate of the activity duration is assumed to follow beta probability distribution, with standard deviation as one-sixth of the difference between pessimistic and optimistic times (Note Beta distribution requires more than 3 points to define the distribution, and as such, it cannot be simulated using Monte Carlo Technique). In triangular distribution three-time estimate, the two extreme values are defined as percentage (or numerical value or percentile) with respect to most likely time (say minus 5% and plus 15% of most likely value) rather than the end points of the beta distribution. The mean and variance of a project probability distribution are derived (as in PERT), and these are used to compute the probability of meeting arbitrary selected scheduled completion time or determining the probability of meeting the given scheduled duration without crashing the project. D.4 Methodology The Monte Carlo simulation for estimating probable project completion time follows the procedure given below: Develop the network model. Assess the probability distribution (uniform, triangular or trapezoidal) for the duration of each activity. Generate a uniform random number on the interval (0-1). Such data can be extracted from random tables or can also be calculated manually (refer books on Statistics or Operations Research). Random numbers can also be generated by computer. Transform the random number to a random variant conforming to the activity duration probability distribution, using relationship as explained in the examples given in subsequent paragraphs. Incorporate the random variant for the duration of each activity in the network model. Time analyse the network to determine critical activities and project completion time. Store this output data for further statistical analysis. Run the above process, number of times, using different random numbers. Analyse the stored output data of each iteration to determine project probability distribution, its mean value and standard deviation. The project probability distribution with its stored data, is then used to identify criticality

Appendix D

construction project management: planning, scheduling

probability of activities that will be critical to project completion. This enables estimation of: the probability of completion of a project on a given date, and the probability of occurrence of a given scheduled event. D.5 Examples The procedure for the application of Monte Carlo technique for time scheduling of a project is illustrated in subsequent examples using a simple network model drawn below with varying activity duration distribution patterns:

D.4.5.1 Example Using Uniform Distribution

Formulae Random number at x = R = Area of probability distribution at x = x × h 'h' is the height of rectangle represented by uniform probability distribution. Random variant at x = R / h , within the range L ~ U Since total Area of probability distribution = h( U – L ) = 1 Therefore, expected duration at x = X = L + x = L + R ( U – L ) Consider the model network given above with activities having durations that follow uniform distribution pattern as tabulated below: Activity

Assessed Duration Minimum (weeks)

Assessed Duration Maximum (weeks)

A B C

12 10 12

16 15 20

Expected Duration X=L+R(U–L ) 12 + Ra (16 – 12) 10 + Rb (15 – 10) 12 + Rc (20 – 12)

Appendix D

construction project management: planning, scheduling

D E F

6 8 7

10 14 12

6 + Rd (10 – 6) 8 + Re (14 – 8 ) 7 + Rf (12 – 7)

Where, Ra, Rb, Rc, Rd, Re and Rf, are the random number in an iteration. For example, if in an iteration Ra = 0.26, then expected duration of Activity A Xa = 12 + 0.26 ( 16 - 12 ) = 13.04 The result of 10 iterations used for determining expected activity durations with probabilities selected at random using statistical tables, are given in Table D 4.4. Table D4.4. UNIFORM DISTRIBUTION Manually Using Simulation Technique (10 Iterations)

Blue colour shows critical activities and the percentage of an activity becoming critical can be calculated from this table. For example, chances of activity A becoming critical are 4 out of 10 i.e. 40%. D.4.5.2 Example Using Triangular Distribution by different methods

Duration probability distribution

Appendix D

construction project management: planning, scheduling

Formulae–1; when L < X < M, Random number = R = Area of probability distribution at x = R = ½ × x × h ....................1 But ½ H (U – L) = 1, and h / H = x / ( M – L) Eliminating H, ½ h ( U – L ) = x / ( M – L)………………………………(2). From (1) and (2), Random variant = x =

Therefore X = L + x = L +

, where 0 < R <

Formulae-2: when M < X < U Random number = R = Area of probability distribution at x = (1 – R ) = ½ × (U – x ) × h …. ( 1) But ½ × H ( U – L ) =1 , and h / H = (U – x) / (U – M) Eliminating H, ½ × h (U – L) = (U – x) / (U – M) ...................................................2 From (1) and (2), Random variant = x = Therefore X = U –

where

< R < 1.

Considering formulae 1 and 2 above, it can be deduced that for R between the interval (0,1) :

If R <

, Set X = L +

If R >

, Set X = U –

Consider the model network given above with activities having three time duration estimate that follow triangular distribution pattern as tabulated below: Activity

Assessed Duration

Assessed Duration

Assessed Duration

Appendix D

construction project management: planning, scheduling

A

Minimum ( weeks) 12

Most likely (weeks) Maximum (weeks) 14 16

B

10

12

15

C

12

18

20

D

6

8

10

E

8

12

14

F

7

9

12

The graph given below shows the probability of the activity becoming critical in Monte Carlo and PERT.

D4.6 Risk in Assessed Project Completion Time Risk is the possibility of economic or financial loss or gain, physical damage, injury or delay as a consequence of the uncertainty associated with pursuing a course of action. It signifies a situation where the actual outcome of an activity or an event is likely to deviate from the estimated or forecast value. Risk consequences due to delay in the project completion do have financial implications. It can attract heavy penalty or a loss of goodwill. The contractor may loose a contract in the offing. He may miss the bonus for early completion. He may fail to transfer resources planned elsewhere. All of these have financial bearing and the financial loss in each case can be determined by the concerned stakeholder. Risk has three components: · · ·

A situation leading to an event, the occurrence of which is likely to deviate from the estimated or forecast value. The probability of occurrence of that event. Monetary consequence of that event i.e. loss or gain.

Appendix D

construction project management: planning, scheduling

A risk value is mathematically quantified by multiplying risk consequences with the probability of its occurrence. Risk value = Probability of occurrence of risk x Risk consequences. CPM and PDM are being widely used for assessing project duration. These network techniques use one time duration estimate and focus on deterministic critical path. It makes these techniques static as they do not indicate probability aspect, which measure the risk. PERT is a valuable tool that can be used to determine probability of completion of the project on varying dates. For example, assuming Z days correspond to 50% probability of completion and the project normal distribution having s standard deviation, the probability of variations from the project planned completion date (Z) can be determined from the table given in Illustration 4.11. The frequently used data is given below: Likely Completion Period As planned within Z days

Probability % 50.00 %

Within exactly

s

days after Z

84.13 %

Within exactly

2s

days after Z

97.73 %

Within exactly

3s

days after Z

99.865 %

Within exactly

–s

days before Z

15.87 %

Within exactly

–2s days before Z

2.28 %

Within exactly

–3s days before Z

0.135 %

Unlike PERT where the activity duration follows beta distribution, the Monte Carlo can take duration of activities with varying probability distribution patterns. PERT deals with unique critical path(s) whereas Monte Carlo projects a number of paths which can become critical. Unlike PERT where the critical activities do not change, Monto Carlo gives an unbiased estimate of the mean and variation of the project duration along with the degree of criticality of each activity. It considers the probable range and pattern of duration of each activity to determine its probability of appearing on critical path. This information enables forecasting probability of project completion on a given time schedule and to decide the acceptable risk level while developing the project master schedule.

Appendix E

construction project management: planning, scheduling

PROJECT TIME-COST TRADE-OFF TECHNIQUE Appendix E E.1 Time-cost Relationship Project time and cost are inter-related. The project cost function shows the relationship of the cost versus the completion time. Its ordinate represents the cost and the abscissa has a time scale. In the formulation of the project cost function, the direct and indirect costs and the financial gains resulting from early completion are considered.

The project time corresponding to the minimum value of the cost function gives the most economical duration of the project. The project cost curve also gives the minimum cost of reducing the project duration from its optimum (economical) completion time. All crash points correspond to the maximum time crashing possible. In addition, it provides a ready reckoner for assessing the changes in cost with varying project duration and resulting critical activities. E.2 Concept The basic concept behind the formulation of a project time-cost function is that the normal time duration of an activity is based on considerations of normal cost, using an efficient or desired method of performance of the activity. Each activity is considered in isolation, while working out its normal time and normal cost. The reduction in duration below the normal time by a changed method of execution implies an increase in the cost. There will also be a stage beyond which the activity duration cannot be further reduced. The lower limit up to which an activity time can be reduced, is called the crash time and the corresponding cost is referred to as the crash cost.

Appendix E

construction project management: planning, scheduling

The difference between the normal time and the crash time of an activity indicates its potential to undergo crashing. The slope of the activity cost function shows the rate of increase of cost, with the reduction in time for the activity. Crashing potential of an activity = Normal time – Crash time.

There are a number of ways of reducing the activity duration from the normal time and these will depend upon the activity under consideration. The most common methods of time reduction are as follows: Increase the resources allotted and/or work overtime. Change the mode of execution/performance of an activity, say from the manual method to the mechanical method. In some cases, the use of several methods of performance of an activity may give a non-linear relation between the activity time and cost, but with a view to simplify the calculations in the formulation of the project cost function, it is assumed that the portion of the curve between the normal point and the crash point is linear. The procedure for plotting the project cost-time function is: Time analyse the network and determine the critical path. Tabulate the normal and crash duration and normal and crash cost for all the activities. Estimate the activity crashing potential for each activity. Determine the rate of crashing of all the activities. Crash critical activities beginning with the activity having the least rate of crashing. Each activity is shortened until its crashing potential is exhausted or a new critical path is formed. If a new critical path is formed, reduce the combination of the critical activities having the combined lowest rate of crashing and continue till there is no more scope for crashing. 6. At each crashing, incorporate the cost implication in a table. 7. Add direct cost, indirect cost and saving for early completion, date-wise and tabulate their commutative effect. Aggregate the cumulative effects of direct and indirect costs and the savings for early completion. 8. Plot the data thus obtained by selecting a suitable scale with time along the abscissa and cost along the ordinate axis. The lowest point of the project cost curve indicates the lowest cost and the corresponding optimum completion time. 1. 2. 3. 4. 5.

E.3 Plotting Project Cost-Time Function

Appendix E

construction project management: planning, scheduling

The procedure of preparation of the least cost schedule is illustrated with the example of a simple project. The network, the activity cost data, assessed crashing costs and their crashing potential are as shown below. In the given example, the indirect cost at $500 per week and the anticipated cost for early completion is $800 per week: 1. Time analyse the network and determine the critical path.

2. Tabulate the normal and crash duration and normal and crash cost for all the activities. Estimate the activity-crashing potential for each activity.

The Assessed Crashed Costs and the Crashing Potential for a Project S. No. Activity

Duration in Weeks Normal 4

Crash 2

Cost in $

Crashing Potential

Normal Crash 4000 7000

in weeks 2

1

A

2

B

3

2

3000

4000

1

3

C

2

2

2000

2000

X

4

D

5

3

2000

5000

2

5

E

2

1

2000

4000

1

6

F

1

1

1000

1000

X

7

G

3

2

3000

8000

1

8

H

3

2

3000

5000

1

9

I

2

1

2000

3000

1

3. Determine the rate of crashing of all the activities

Appendix E

construction project management: planning, scheduling

Determination of the Rate of Crashing S. No. Activity Crashing Potential Rate of Crashing in $ 1 A 2 1500 2

B

1

1000

3

C

X

X

4

D

2

1500

5

E

1

2000

6

F

X

X

7

G

1

5000

8

H

1

2000

9

1

1

1000

4. Crash critical activities beginning with the activity having the least rate of crashing. Each activity is shortened until its crashing potential is exhausted or a new critical path is formed. If a new critical path is formed, reduce the combination of the critical activities having the combined lowest rate of crashing and continue till there is no more scope for crashing.

Activity A B

Lowest Rate of Crashing Crashing Potential Rate of Crashing in $ 2 1500 1

1000

First crashing. With the crashing by one week of Activity B, the cost of the project increases by $1,000 and the revised project duration works out to be 9 weeks.

Second crashing. Scrutiny of the network after the first crashing reveals that there are two

Appendix E

construction project management: planning, scheduling

critical paths. Further, reduction means that the sum of the durations of the critical activities along each critical path be reduced by one week. The total increase in the cost for crashing the project duration from 10 weeks to 8 weeks is $2,500, i.e. cost of crashing Activities A and B each by one week.

Third crashing. The number of critical paths increase after the second crashing. The various ways of reducing the project time during the third crashing are utilized and the revised duration of the activities for 7 weeks completion time is given in the network drawn below. Determining Course of Action of Reducing Project Time During Third Crashing Options 1

Affected Activities A&D

Cost of Crashing in $ 1500 + 1500 = 3000

1

2

E, G & J

2000 + 5000 + 1000

= 8000

2

3

E, G & H

2000 + 5000 + 2000

= 9000

3

4

A, E & G

1500 + 2000 + 5000

= 8500

4

5

D, G & J

1500 + 5000 + 1000

= 7500

5

Fourth crashing. Proceeding similarly, it can be easily verified that although all the activities are critical, there is still room for crashing. It may be noted that after the fourth crashing,

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construction project management: planning, scheduling

although activities E and H can be reduced, further crashing of all the critical paths is not possible. Therefore, the fourth crashing becomes the final crashing.

5. At each crashing, incorporate the cost implication in a table. The network, after its fourth crashing, shows the duration of the crashed activities and depicts the network plan of the least cost of the project. 6. Add direct cost, indirect cost and saving for early completion, date-wise and tabulate their commutative effect. Aggregate the cumulative effects of direct and indirect costs and the savings for early completion. Activity

Reduction Rate of Possible Crashing

Project Duration in Weeks

A

2

1500

B

1

1000

C

–

–

D

2

1500

E

1

2000

F

–

–

G

1

5000

H

1

2000

J

1

1000

Crashing Cost Per Week No First Second Third Fourth Crash Crash Crash Crash Crash 9 10 11 12 13 1500

1500

1000 1500 1500

5000 1000

Crashing cost

1000

1500

3000 7500

Cumulative crashing cost

1000

2500

5500 13000

Normal cost

22000 22000 22000 22000 22000

Indirect cost

5000 4500

Total cost

27000 27500 28500 31000 38000

4000

3500 3000

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construction project management: planning, scheduling

Gains for early completion

800

1600

2400 3200

Net financial effects

27000 26700 26900 28600 34800

Project duration in weeks

10

9

8

7

6

7. Plot the data thus obtained by selecting a suitable scale with time along the abscissa and cost along the ordinate axis. The lowest point of the project cost curve indicates the lowest cost and the corresponding optimum completion time. The optimum duration for the project under consideration comes out to be 9 weeks and its optimum cost works out to be $267,000. Time-Cost Trade-Off Function Cost in 000'$

E.4 Time Crashing The project cost curve, which shows the pattern of the cost variation with time, provides a ready reckoner for assessing the increase in cost for a given project duration. All crash points correspond to the maximum time crashing possible. The crashing cost can be determined from

Appendix E

construction project management: planning, scheduling

the project cost curves. In addition, the tabulated data gives the information regarding the corresponding critical activities and their revised duration. To quote an example, the implications of completing the project in 7 weeks are: (a) The increase in cost for the optimum completion period is given as: Estimation of economical cost for 9 weeks completion Assessed cost for 7 weeks completion Increase in cost due to crashing by 2 weeks

= $26,700.00. = $28,600,00. = $1,900,00.

(b) The revised durations of the critical activities are shown in the network drawn after third crashing and the increase in the cost of affected activities are: Critical Activity A B D G J

Increase in Cost in $ 3,000.00 1,000.00 3,000.00 5,000.00 1,000.00

c) The revised network shows that all the activities have become critical, This implies stricter control during the execution. Since all the activities are on the critical path, the optimization of resources during scheduling also becomes difficult. E.5 A Word of Caution There are many gains which can be achieved by the early completion of the project. The early project completion can yield added revenue, early release of capital and facilities and, in some cases, can save idle time expenses of machinery. The non-financial gains can be earning goodwill, boosting of reputation and raising of morale. But the technique of minimizing the cost by crashing of activities, although mathematically feasible, as explained, has a great many inherent practical difficulties. One of the main reasons is that it is not possible to predict the activity cost-time data accurately. In addition, the advantage gained by economizing the project cost is nullified by the fact that optimization of resources becomes extremely difficult, resulting in increased cost and resource wastage.

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construction project management: planning, scheduling

DECISION NETWORKS ANALYSIS Appendix F

F.1 SCOPE In a system, decision implies commitment to an action. Decision making involves defining the objective, formulating the alternate courses of action, developing the model, evaluating the alternatives and finally selecting the best course of action for implementation. Decision network is a graphic model of decision environment. It structures alternate strategic options or courses of action, where each action is followed by an outcome or a chance event termed ‘state’ resulting in conditional returns (benefits or losses), which in turn influence the next decision. The decision network is analyzed to determine the optimal strategy or course of action that best achieves the defined objective. In decision networks, it is assumed that the adjacent state is independent of how the state previous to taking action was reached. The spheres of application of the Decision Network Analysis techniques in project management are vast and varied. It includes decision relating to market strategy, investments, project selection, production planning, manpower planning, material procurement, inventory planning, vehicles and plant forecasting, equipment replacement and investment appraisals. Some of these applications are illustrated with examples in the subsequent sections. The text in this Appendix is divided as under: · Types of decision network analysis techniques. · Decision networks. · Decision tree. The rules for making decisions are covered in Appendix O. F.2 TYPES OF DECISION NETWORK ANALYSIS TECHNIQUES Decision Network is a generic term. There are two types of decision network analysis techniques. These are open–ended ‘Decision Tree’ analysis, and, the framed–structured ‘Decision Network’ where the model is developed in relation to horizontal and vertical axes. Each type of decision network analysis technique is further divided into deterministic networks and probabilistic networks.

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To quote an example, the decision network and decision tree models of a decision situation faced by a Ready–mix Concrete Company , which aims at maximizing profits, are shown in sections of this Appendix. The decision network technique and the decision tree technique, both aim at determining the optimal course of action but have different models. The decision network technique is better suited for real life complex problems than the decision tree technique. In fact, decision tree is a particular case of a simple decision evaluation problem in which the network takes the shape of a tree with a few branches. But when the branches multiply, the decision network presents a compact model. The situation under which the sequential decisions are modelled may present information, which is either deterministic or probabilistic. Deterministic decision networks represent situations where a decision maker makes the decision under assumed certainty. In these networks, there are no probabilities assigned to the state of nature. These networks have deterministic action plan, in which a decision maker can determine the outcome of his actions. In probabilistic networks, the choice of action plan is influenced by the expected values, which are determined by summing up of the products of expected outcome (or payoff) with the probability of occurrence of the outcome. When the reasonable probabilities of outcome in the judgement of the decision maker cannot be evaluated, the situation is said to be operating under uncertainty. The approach for making decision under uncertainty is covered in Appendix O. F.3 DECISION NETWORK ANALYSIS F.3.1 Elements of a Decision Network A decision network consists of circles symbolizing the events or the changing states of the system, and arrows denoting the courses of action by which these states are affected. The numerical value of the outcome of an action, termed return, is written above the action arrow. A stage represents the transitional interval between the present and the adjoining state. S.No

Element

Representation

1.

State of the system

Circle

2.

A course of action

3.

Return

4.

Stage

Arrows in forward direction. Action numbers are written inside the rectangle. Return value shown on the arrow culminating into an adjacent state. Transition interval between the present and the adjoining state.

Symbol

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The chains of action, in a decision network are connected logically with the states and the states are correlated to the stages of their occurrence and these are depicted in relation to a framework of vertical and horizontal axis representing state levels and stages in the system respectively.

The above decision sub-network shows that in the present month, the ware-house is full. Thereafter two courses of actions are open. These are :(a) Course No.1. Keep the ware-house full till next month and do not sell the stores. This will involve expenditure of 2 units. (b) Course No. 2. Sell the stores within this month. This course will result in a return of 3 units, but the ware-house will be empty next month. Notes State: A state depicts the nature of the start or termination of an action. The existing state, after an action, moves to the adjacent state, e.g. from a ware-house full with stores, if the stores are moved out after sale, it can be said that the selling of stores (an action) has resulted in changing the state of the ware-house from full to empty state. State is represented by a circle. In decision networks, the pattern of changing states of a system is always represented along vertical axis, whereas in the decision tree technique it moves from start to finish, i.e., from left to right. Action: The action changes the state and is depicted by an arrow connecting the previous state with the adjacent state. A rectangle or a square is drawn close to the tail of the action arrow. Various courses of action are labelled numerically and each action number is written inside the action rectangle /square. Stage: It is the transitional phase or an interval that marks the movement of a system from one state to the adjacent state. For example, the time interval between the two states corresponds to a stage of the system. In decision network, stage is represented along horizontal axis. Return: The return represents the yield such as profit, cost, consumption, or distance; resulting from a given action which changes the state. The return in numerical value is written above the arrow / branch, in between action rectangle /square and the adjacent state circle.

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Payoff: It denotes the benefit that accrues from a given combination of a decision alternative and the state of a system. Optimal Decision: It implies selecting the most suitable chain of course of action that aids in achieving objectives. This chain, representing the course of action, is identified by analyzing the decision networks, usually following rollback ( backward pass) method. F.3.2 Decision Network Modelling and Analysis Procedure It is as follows: (a) Define the objective of a decision process. It can maximize or minimize the effect of the decision. Example – maximize profits. (b) Develop the alternate course of action. (c) Model the decision network (process) using standard symbols. (d) Assign returns and investments to each of the branches, as applicable. (e) Analyze the decision network by rolling back (backward pass method). In succeeding Sections, the above procedure is illustrated with examples of deterministic and probabilistic networks. F.3.3 Deterministic Decision Under Assumed Certainty In deterministic decision networks, there are no probabilities assigned to the state of nature. In such cases, the decision maker is operating under conditions of assumed certainty. For example, while evaluating income from various alternatives for investment of money, a decision to purchase bonds of a Government backed “commercial bank’, in which a decision maker can assume with fair accuracy the outcome, represents a case where a decision maker has made the decision under assumed certainty. Example of maximizing return in ware-housing a product. The management is faced with a problem as to whether to keep a ware-house full or empty with a perishable product having two months life. In the present month, the ware-house is full. Thereafter following courses are open: ·

· ·

Action No.1. Do not sell the stores now and sell them next month. This will involve expenditure of 1 unit but the sale in the beginning of next month is likely to give a return of 3 units. Action No. 2. Sell the stores within this month. This course will result in a return of 2 units, but the ware-house will have to remain empty thereafter. Action No. 3. Sell now from the full state and later (during this month) buy fresh stock to keep the ware-house full for the next month’s sale. This course will result in a net return of 1 units during the first month, but the sale in the beginning of next month is likely to give a return of 3 units.

Management has also decided to discontinue the trading of the present product and market another product after two months. The decision network of this simple problem is given below:

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construction project management: planning, scheduling

The rollback analysis shows that the Action No. 3 followed by Action No. 1, is the most profitable option and it yields a return of 4 Units. Note that all states and actions are labelled for reference purposes. Maximizing Profit in Production Planning. A construction company is to construct buildings out of three types of houses designated as A, B and C for a property dealer. The indenter wants at least one of A type house and he wants total value of order not to exceed $ 28,000. The construction company assessment of cost and profit is shown below:-

Pay–Off Matrix Houses types A B C

Sale price ($) each 10,000 9,000 6,000

Profit ($) one each type 1100 800 400

Profit ($) two each type 2300 1700 900

Profit ($) three each type Not feasible Not feasible 1400

The various options within the budgeted cost of $28000 are:

Option 1. Build Option 2. Build Option 3. Build Option 4. Build

2A + C, A + 3C, A + 2B, A + B +C,

Value $26000 Value $28000 Value $28000 Value $25000

It is a simple problem in decision-making. By forming various combinations, the alternatives can be evaluated easily and the option which gives the maximum profit can be decided. In this example, types of houses in the decision network are shown along horizontal axis. The decision network for the situation faced by the contracting company is shown below:

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construction project management: planning, scheduling

The ordinate represents the state of supply order and abscissa shows the stage after a particular product is earmarked for supply. Stage zero of abscissa corresponds to the initial state showing zero supply. From the above, it is evident that the supply one of A and two of B’ is the most profitable one and it yields a return of 2800. This optimal decision is evaluated by finding out the longest path using roll back computation. Roll back is the backward analysis method used in decision networks to determine the optimal course of action. It involves working from the end-point to start-point in the network. Note. If the objective of the problem is to minimize a given system then shortest path analysis is determined instead of longest path analysis. Minimizing Manpower Cost. A contracting company engaged in pipe laying in a refinery project needs high precision welders. The schedule requirement of the project is as under:Month Welders

Jan

Feb

Mar

Apr

May

5

6

7

8

6

The company has 5 regular welders. The management after due appraisal has evaluated the following information:(a) The cost of moving in welders from outside to the worksite is SR. 1000 and SR. 1500 for one and two welders respectively. The transfer out of each welder from work site costs the company Rs.1000/-. It is not feasible to induct more than two welders at a time from the level existing on the previous month. (b) All transfers to the worksite generally take place on the last day of the month and the men are effective from the next day. (c) Cost of having surplus precision welder at site is SR. 500/- per month as the spare precision welder can also be used for normal welding purposes. (d) Existing welders can be put on overtime but due to precise nature of work overtime must not exceed the equivalent of one welder per day, i.e., SR. 1500/- per month.

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The company wants to evaluate the move plan in and out of work site for mobilizing welders which shall minimize the company’s total cost but at the same time assure that the requirement of welders are met. Solution In the initial stages in January, five welders present at site are adequate and hence no action is required to be taken during this month. Number of welders required from the start of February to May varies. There are number of courses open for mobilization of welders at various stages. These courses of action with implications are tabulated below: Options S. No. 1. 2. 3. 4. 5. 6.

Code

Course of Action

Expenses in SR.

N O A B C D

No additional welder required Overtime work Transfer in 1 welder Transfer in 2 welders Transfer out one welder Transfer out two welders

0 1500 1000 1500 -1000 -2000

In the decision network, the varying manpower state is scaled along vertical axis and the monthly stages are shown on horizontal axis. The decision network for various courses of action involved in the mobilization of manpower with cost involved is drawn below, shortest path is shown in bold lines and circles:

Since, the problem relates to minimizing the cost, the shortest path of the decision network

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calculated by back-pass reveals a minimum mobilization expenditure of SR. 4500/-.(shown in bold lines and circles). Decision plan for minimizing additional manpower mobilization costs works out as under: S. No.

Month

Code

Action

Expenses in SR.

1. 2.

Jan Feb

0 0-1

0 1500 +500

3.

Mar

1-4

4. 5. Total

Apr May

4-5 5-8

No additional welder required Induct two welders, utilize one. Or, induct one per month No addition welder required if two welders inducted in the beginning of February Overtime work Transfer out one welder

0

1500 1000 4500

In particular, action 0-1 entails expenditure of SR. 1500 at the start of February towards transportation of two welders and additional SR 500 is incurred as one of the welders is not fully utilized as precision welder on the ground during the month. F.3.4 Probabilistic Decision Under Risk. The decision models, where several outcomes with varying chances of occurrence, could possibly follow the selection of a particular course of action are referred to as probabilistic models. In such cases, the decision maker depending upon the extent of information available can assign the probabilities of occurrence to each possible outcome. In such cases, where reasonable probabilities can be predicted, the decisions are said to be made with a specific risk. Salient Features of a Probabilistic Decision Network In probabilistic decision network, each action has a number of transition probabilities associated with it. The method of representing of actions which takes into consideration transitional probabilities is different from those of deterministic actions:-

Figure Showing a Stage of a Probabilistic Decision Network

The salient features of a probabilistic decision network model are:(a) Return is written above the branch / arrow in between the action and the present state. (b) Each action has probability of transition to other states associated with it. These probabilities have to be assessed by the decision maker. (c) The lower portion of action rectangle is used for writing the weighted values of the adjacent states. For example, if A and B are the values of total returns at two adjacent states and p1 and p2 respectively are the transitional probabilities associated with these states resulting from a

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given action then Weighted total return or expected profit = p1 A + p2 B (d) Action identification labels are written on the upper half of the action rectangle. (e) Sum of the transitional probabilities associated with an action is always equal to one. One arrow resulting from an action implies probability of 1. (f) A probabilistic network can contain both probabilistic as well as deterministic actions. Example: Developing Market Strategy Ready-mix concrete (RMC) is a pre-mixed quality-controlled concrete. The mix has designed proportions of concreting materials. It is delivered to construction sites for ready use. An RMC plant has batching plant(s), transit mixers and storage bins for the aggregates and sand. The cement is stored in silos. For bag delivery cement, it has bag-cutting and cement-conveying equipment. Water is stored in tanks and is pumped in measured quantity to the mixer. In addition, an RMC plant usually has a laboratory and housing facility for the workers. The RMC produced is transported to the construction site in transit mixers. The mixer capacity ranges between 3cm to 6 cm usually 6 cm are universally used. These transit mixers have rotating drums with 10 to 20 revolutions per minute. At a construction site, the concrete is pumped at the place of laying. The main advantages of using RMC are that it guarantees strength, reduces life cycle costs due to longer life, reduces construction site logistic and pollution problems, increases concrete placing rate, ensures concrete quality and consistency and minimizes wastages in the use of concrete. In advanced countries, concreting using RMC is obligatory and mixing of concrete at site is not allowed, due to both pollution and quality reasons. In India, the use of RMC is fast catching-up. An RMC company is planning its market strategy for the next year. The planners, after carrying out investment appraisal on alternative strategies, assessed the profitability for the company over next 12 months as follows: · Installing new plant immediately can increase the profit by $ 1.0 m · Adding new plant gradually can result in a profit of $ 0.6 m · Continuing business with present facilities can yield a profit of $ 0.4 m. The above profitability is based on the assumption that the market with its up-trend will grow by 20 %. However the possibility of market demand remaining stable or the market falling cannot be ruled out. The expected probabilities and profit by the experts are tabulated below: MARKET OUTCOME

PROBABILITY

20% RISE STABLE 10 % FALL

0.6 0.3 0.1

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Trend Probability of change Options S1: Expand immediately by inducting new plant S2: Expand gradually S3 Maintain present capacity

PAY-OFF MATRIX Nature of Market with Probability of Growth 20 % rise Stable 10% fall 0.6 0.3 0.1 Expected Profitability $1.0m

$0.2m

0

$0.6m $0.4m

$0.3m $0.3m

$0.1m $0.1m

Solution The steps involved are: Step 1. Draw the network Step 2. Calculate pay-off for each strategy Step 3. Select the strategy which yields maximum benefit. Step 4. Calculate the risk in pay-off for each strategy. Step5. Select the dominant strategy for making a decision. Apply the rules of decision making (Appendix O) if there is no dominant strategy. Step 1. Draw the network The given situation is when the market is expected to rise, but there is a probability of its remaining stable or even falling of demand. These trends can be represented along the vertical axis and the stage showing the change in the present state to the next year’s situation can be represented along the horizontal axis. The network thus developed is shown below:

Step 2. Calculate pay-off for each strategy as follows: Pay-offs for strategy S1 FACTOR

PAY-OFF

PROBABILITY

Expected Outcome

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construction project management: planning, scheduling

Growth Stable Fall

1.0m 0.2m 0m

× × ×

0.6 0.3 0.1

Total

= = =

0.60m 0.06m 0m

=

0.66m

Similarly, the expected profits of S2 and S3 can be worked out. These are tabulated below:

Pay-offs in Expected Monitory Value (EMV) for Strategy S1, S2 and S3 STRATEGY

EMV

S1

Expand immediately by inducting new plant Expand gradually Maintain present capacity

S2 S3

$0.66m $0.46m $0.34m

Step 3. Select the strategy which yields maximum benefit. The pay-offs for various strategies reveal that S1, is the strategy that yields maximum expected profit. But degree of risk in terms of variance and standard deviation for each action must be calculated before making a decision. Step 4. Calculate the risk in pay-off for each strategy. The degree of risk is determined by calculating variance and standard deviation for each course of action. Variance and Standard deviation for strategy S1: Outcome

EMV

Deviation

D2 × Probability

1.0 0.2 0 Variance Standard deviation

0.66 0.66 0.66

+0.34 -0.46 -0.66

0.1156 x 0.6 0.2116 x 0.3 0.4356 x 0.1

Total = = = = =

0.06936 0.06348 0.04356 0.1764 0.42

Calculating similarly, the Coefficients of Variance and Standard Deviation are as under: Strategy

EMV

S1 S2 S3

$0.66m $0.46m $0.34m

Coefficient of Variation 0.1764 0.04 0.0196

Standard Deviation 0.42 0.20 0.14

Step5. Select the dominant strategy for making decision. Decision network supplies expected values for making decisions , but a decision based purely on

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expected monitory values is not enough. For example, in the Ready Mix Concrete problem solved above, each of the expected values have certain degree of risks associated with it. The higher the expected value, greater is the risk. It calls for the individuals ability to make a decision. Rules for making decisions are covered in Appendix O. F.4 DECISION TREE ANALYSIS Decision network is a graphical method of analyzing the outcome from a series of interdependent possible courses of action generated by the decision process. Decision tree is a special case of structured decision network, where the decision model is open-ended. In this model, decision points are represented by the squares, chance events or the outcome are denoted by circles and the branches indicate the courses of action and returns. Decision tree for making Ready Mix Concrete decision is given below:

Other steps for making a decision are similar to the decision network given above.

z

F.5 CONCLUSION A decision network structure a decision process. It helps the managers to generate an approach for solving the decision making problems in a systematic manner, examining all possible courses of action and the resulting outcome prior to making a decision. In particular, decision network analysis technique provides a compact model to structure decision process, whereas decision tree is easy to develop but becomes cumbersome with the increase in the number of sequential decisions. Decision network supplies expected values for making a decision , but a decision based purely on expected values is not enough. The higher the expected value, greater is the risk. It calls for the individuals ability to make a decision. Rules for making decisions are covered in Appendix O.

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Lesson 7 Appendix

construction project management: planning, scheduling

PROJECT MANAGEMENT ORGANIZATION Appendix G G.1 Project Organization Concept Organization enables a group of people working together with divided tasks and responsibilities, to co-ordinate their activities harmoniously in order to achieve a common goal. A traditional formal organization (form and structure) integrates various components of the organization by assigning tasks to individuals, defining lines of authority and responsibility through hierarchical levels, and formalizing authority, responsibility and accountability, and reporting relationship. Traditionally the organizations are based on certain classical principles such as Unity of Command, Scalar Chain of Command, the Division of Labour and the Span of Control. Excessive reliance on the 'principles' of organizations can lead to over-centralization, curbed initiative, and unnecessary bureaucratic controls, delays and interference in management. It also neglects the 'human' factor, as the people are integrated into the organization more by regulation than by commitment. The fast-changing technology and the demand for cheaper, better and faster delivery of new products, has led to new thinking towards restructuring, downsizing, and empowerment of the organizations. Project organization is a result of this new evolutionary process. Project organizational requirements differ from the traditional organization. Unlike the on-going corporate, each project is an entity in itself. It is organized to achieve its mission, within pre-determined objectives. Project is a one- time job with definable parameters and a specific lifespan. Project organization is temporary; it ceases after completion of the project. It undergoes changes in various stages of the project life-cycle to meet the project needs. The fast-changing environment imposes numerous technical, financial, legal, ethical, environmental and logistical constraints. They interact technically, economically and socially within the environment as well as with other organizations, structures and systems. Projects special attributes include its innovation capacity to overcome problems as they arise. It has to be staffed with experienced persons to respond speedily with changing situations and to speed up decision making. Its accomplishment is entrusted to a single person - the project manager who acts as the single point of responsibility. The project organization demands include: Innovation to overcome problems as they arise. Experience on which to make sound, efficient decisions. Rapid response to changing situations. Effective control of time, cost and quality objectives. With the accelerated rate of change in environment , management of multi-discipline, multi-dimensional, multi-location multi-national project tasks need organization different from the traditional, functional organizational structures. Corporate have high stakes in the projects undertaken by them. Delay in the projects invite high penalty, cost overruns; and can even mar the very existence of the firm. In general, large construction corporate create special organization to handle a project. But there are no tailor-made project organization forms and structures to meet all situations in all projects, and there are no two projects which are alike. Organisational forms and structures are dictated by many parameters. These include project size, objectives, people relationship, technology, complexity , administrative component, specialization, span of control, need for delegation, decision levels, organization culture, and the emotional stability of the people. Therefore, organizational form and structural design in each project need to be customized.

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G.2 Project Organization Structure Organizational structures are designed using the principles of organization, to specify pattern of inter-relationship of various components of the organization. Organisation chart shows the graphical representation of the organizational structure. The organization manual lays down the charter of position, roles, responsibilities, functions, duties and authority of each member of the organization. Organizational structures are dictated by such factors as technology, complexity, resource availability, competition and decision making requirements. The guidelines for designing of the project organizational structure include the following: Organizational groups are designed to generally conform to the project work breakdown structure. Each group is assigned responsibilities and allocated resources to meet the assigned tasks. The size and structure of the organization is changed due to alternation in requirements. However, the core project team continues till the end. Project groups are suitably structured with emphasis on teamwork and informal relationship. Organizational structure is kept flat to avoid bureaucratic tendencies and reduce channels of communication with the project manager The functional heads constitutes the project management and planning chief, is assigned the responsibility of the co-ordination function. The project hierarchy or pyramid of positions is developed to co-ordinate and control project activities. To quote example, outline of the organizational structure of 2000 Housing units construction project at Baghdad, Iraq is shown in Illustration G1. The staffing of the organization describes the role and the involvement of the staff in each phase. This must clarify and indicate part-time or full-time employment of an individual. This will ensure that there is no uncertainty in an individuals mind about his role in each phase of the project, and has a clear idea as to when he finally reverts to his parent department. To ensure economy of effort, and to avoid any wastage in any 'idle' capacity having been created, a "Responsibility Assignment Matrix" (RAM) is included in supporting details to the organizational chart, lying down 'time' and 'degree' of "participation" and "accountability" of each member during various phases of the project. The RAM will also indicate as to when, an individual's role may be 'reviewed' or when he 'signs off' from a phase, when not required. G.3 Project Responsibility Centres Project objectives are linked with the performance of a number of result -oriented organizational units. These units are structured according to their task-responsiblity-reporting relationship, as can be seen in Illustration G1 depicting the organizational chart of the housing units project. The number of organizational units depends upon the magnitude and complexity of the project. A simple project may have only a few organizational units whereas a large number of interacting organizational units are required for a large complex project. In a major project, each organizational unit is usually headed by a manager and it is referred to as a 'responsibility centre'. In construction projects, responsibility centres can be broadly divided into three categories viz. construction (or production) centres, support service centres, management and administration centres. See Illustration G2. Construction/Production Centres: A construction centre consists of one or more work centres. A

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work centre is entrusted with the execution of a group of activities constituting one or more work-packages. The work-packages in a work centre are identifiable, measurable and costable units. This concept makes it possible to express the input resources and expected performance of each work centre in physical and monetary terms. Service Centres: Service centres support construction centres with technical, material, manpower equipment and general services like accommodation and temporary utility services. Examples of such investment-oriented centres are ready-mix concrete production plant, steel reinforcement fabrication workshop, GRC elements manufacturing factory, metallic doors and windows fabrication unit, and plant and machinery operation and maintenance establishment. Administration Centre: This includes the project management, staff, workers and all types of resources needed for setting up and operating the project office which supports the project management. G.4 Project Organizational Forms An organizational form is a configuration of authority given to a body of people to provide direction. Organization forms vary from centralized functional form on one extreme and a highly decentralized pure product/project form on the other end; there are many matrix- types organizational forms in-between these two extremes. Centralised Functional Organisation: Traditionally the corporate is organized on centralized functional forms. These are characterized by center of power and co-ordination being concentrated at the top with the chief executive. Its departments are arranged by functions such as marketing, engineering, production, contract, resource procurement, finance, HRD; each headed by a director/specialist manager. Functional organizational form has its advantages and limitations. Traditional functional organizational form provides stable environments unified command, better technical control, quick reaction capability, economical utilization of specialists, excellent co-ordination within functions, and requires fewer inter-personal skills. The main limitations of traditional form are that no one person is accountable for achieving the organizational goals, the communication is poor across functional departments, co-ordination is difficult, response time to external changes is slow and it fails to encourage innovation and creativity. Pure Product (or Project) Form: Pure product /project organization is a division of the corporate organization, but it operates independent of the parent organization. It has dedicated multi-discipline resources assigned to accomplish the specified product goals. A product organization is headed by a programme director / manager, who maintains complete line authority over the product. The main advantage of product organization is that one person is accountable for achieving the organizational goals, there are strong communication channels, co-ordination is easy, response time to external changes is speedier, and it encourages innovation and creativity. The main limitations are that it is temporary. Matrix Form. In the project management matrix structure, the key staff is derived from their respective parent departments in a corporate office and their interfaces and communication links are clearly defined. A typical matrix structure of project management staffing is shown in Illustration G3. It has a single project manager accountable for the whole project. Project management, working as a team, performs basic management functions of planning, organizing, staffing, directing, controlling and co-ordinating the project work. All managers owe their allegiance to the project manager and not to their parent departmental heads.

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construction project management: planning, scheduling

Depending upon the nature of the project and the corporate policy, the project management organization matrix pattern can vary from a highly centralized functional organization to a dedicated project team with fully decentralized authority. The matrix organization of project management lies in between these two extreme organizational concepts. The factors affecting designing of matrix organization is reproduced below: Project Characteristics

Functional Organization

Matrix Organization Weak Matrix

Balanced Matrix

Strong Matrix

Projectized Organization

Project Manager's Authority

Little or None

Limited

Low to Moderate

Moderate to High

High to Almost Total

Per cent of Performing Organization's Personnel Assigned Full-time to Project Work

Virtually None

0 – 25%

15 – 60%

50 – 95%

85 – 100%

Part-Time

Full-Time

Full-Time

Full-Time

Project Part-Time Manager's Role

Common Titles Project Project Project Project Project for Project Coordinator/Project Coordinator/Project Manager/Project Manager/Program Manager/Program Manager's Role Leader Leader Officer Manager Manager Project Management Administrative Staff

Part-time

Part-time

Part-time

Full-time

Full-time

In a weak 'matrix' organization, the project manager's role is that of a co-ordinator or an expeditor. Whereas in a strong 'matrix' organization, the project manager has a collaborative role. In the projectized organization, with a weak matrix, authority for decision making and direction rests with the project manager. Whereas in a strong 'matrix' structure, information sharing is mandatory and decision-making rests with the task-oriented teams. G.5 Strengths and Weaknesses of the Project Management Matrix Organization The matrix structure is viewed as a temporary organization with reduced vertical hierarchy so as to respond speedily in a changing complex situation for achieving the specified performance objectives. The managers in a project team are charged with the responsibility of their respective areas of activity. In this way, communication and co-ordination between top management and project management is improved. Following are the advantages of the matrix structure: (a) It has a single project manager accountable for the whole project. The project management, working as a team, performs the basic management functions of planning, organizing, staffing , directing, controlling and co-ordinating the project work. (b) All managers owe their allegiance to the project manager, and not to their parent departmental heads.

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construction project management: planning, scheduling

(c) Personal commitment to objectives is the key note of matrix organization. It provides a climate for motivation, effectiveness and personal development. (d) The specialist staff is employed effectively. The matrix organization balances their conflicting objectives by reducing the communication gap. (e) The top management is freed from making routine decisions, as the decision-making machinery forms an integral part of the matrix structure. (f) It provides enough flexibility to meet uncertain and changing situations by establishing a project planning and control system at site to monitor the input flow of resources and the performance output. However, if not properly conceived and directed, the matrix organization can result in increased conflicts, lack of co-ordination, low productivity, and enhanced costs. G.6 Conclusion Corporate world is undergoing silent revolution in the organizational changes. The emerging organizations have many forms. These include grouping of activities by functions; products; processes; location,, countries, or a combination of these. There is no such thing as ideal organization that can meet all situations. No doubt the principles of organizational theories have universal application, but they need to be modified to suit the situation. In the fast changing environments and technology, each project organization will have to be tailored to the meet the requirement by adopting the correct 'martrix' which will put 'authority', 'responsibility' and ' accountability' in the right perspective. An project organization can be responsive to change in environment, if it is provided with inbuilt flexibility and the necessary delegation of power to the project manager. A good organization does not necessarily produce good performance, but a poor organization even with competent people, invariably results in poor performance.

Lesson 8 Appendix

construction project management: planning, scheduling

RESOURCES ALLOCATION USING LINEAR PROGRAMMING Appendix H

H.1 INTRODUCTION AND SCOPE Resources allocation aims at apportioning of limited resources such as men, materials, machinery and money, among number of competing organizations or groups, within specified constraints. In resources allocation problems, we determine that allocation which optimizes the total effectiveness. The resources allocation problem has certain common features. These are characterized by the presence of a number of variables, each of which can assume values within a specified range. These variables have certain associated constraints. The main objective of solving resources allocation problems is to determine that allocation which optimizes the total effectiveness such as maximizing profit/contribution or minimizing costs while allocating resources. Solution of the each of the allocation problem involves the following steps: (a) (b) (c)

Formulation of the problem. Construction of mathematical model. Determination of optimum solution of the model.

The analysis of allocation situations, which can be formulated in terms of linear algebraic equations, is called Linear Programming. This technique is applicable to problems in which the total effectiveness is expressible as linear functions of individual allocation and the limitations of resources constraints. This enables conversion of objectives to a linear decision variable and the constraints to linear inequalities. The problem thus reduces to maximizing or minimizing a linear function subject to a number of linear inequalities. Some linear programming problems have typical simple structures and these can be solved by using transportation and assignment techniques (not covered in this Appendix). The basic approach in solving the Linear Programming problems is explained with simple examples. H.2 SOLUTION OF LINEAR PROGRAMMING PROBLEMS BY GRAPHICAL METHOD Linear Programming problems with two decision variables can be solved graphically. Graphical technique is illustrated with an example. Simplex method, explained in Section H.3, is used to solve problems with two and more decision variables. H.2.1 Formulation of the Problem. The first step in solving Linear Programming problems is to formulate the problem. Consider a sand and gravel company that operates two pits producing different mixes of sand and gravel. After computing the output, it is separated into three grades. A construction company has entered into a contract with the sand and gravel company to take 120 tons of fine, 80 tons of medium and 240 tons of coarse grade per week. Its cost sand and gravel company $20 per hour to operate one pit and $25 per hour to operate the other. In 8 hours operation, the first pit produces

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construction project management: planning, scheduling

20 tons fine, 20 tons medium and 120 tons coarse material. The second pit produces 60 tons of fine, 20 tons of medium and 40 tons of coarse material. For how many hours should each pit be operated to meet the requirements most economically, that is, to minimize the operating cost of aggregate pits? H.2.2 Construction of mathematical model. It involves development of the objective function and translation the specified constraints into algebraic equations. Developing Objective Function. Let the two pits be named as A and B, and let x1 and x2 be the operating times in hours per week respectively. The weekly operation cost of these pits can be worked out as under:Name of pit Pit A Pit B

Hourly production cost $ 20 per hour $ 25 per hour

Weekly production time

Weekly production cost

x1 hours x2 hours

20x1 25x2

Therefore, the total cost of operations per week for both the pits is equal to 20x1+25x2 Let Z be the objective function. Hence, to economize on operation cost of pits, we must aim at Minimizing Z=20x1+25x2, where x1 and x2 are the decision variables. Setting up technical specifications. In this case, the sand and gravel company has undertaken to supply 120 tons of fine grade, 80 tons of medium and 240 tons of coarse grade per week. Since it is a contractual requirement, the supply must not be less than this quality. a. Fine grade requirement. The operation of pit yields the following quantities of fine grade. Name of pit Pit A Pit B

Rate of production per 8 hours $ 20 per hour $ 60 per hour

No of hours run per week x1 x2

Production per week 20/8 x1 60/8 x2

Therefore, total production of fine grade per week is 20/8 x1+60/8 x2. Since the supply to be made is 120 tons, and it is a contractual requirement, the production must not be less than 120 tons, it can be equal to or more than this subject to optimization of operation time. This constraint can be expressed algebraically as 20/8 x1+60/8 x2 > = 120, or For fine grade x1+ 3x2 > 48 b.

Medium and coarse grades. Proceeding similarly, we can express the constraints on medium and coarse grade production in the form of the following inequalities:-

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construction project management: planning, scheduling

For medium grade x1 + x2 > 32 For coarse grade 3x1+x2 >48 c.

Operating time. Each pit can be operated for 8 hours per day. Assuming that there are maximum 6 working days in a week and no overtime is permissible, then the total operating time per pit can be expressed as:For pit A 0 < x1 = 32 3x1+x2 >= 48 0 < x1 = 32 3x1+x2 >= 48 0 < x1 12 x1 => 0 x2 => 0 Solution: The primal of the problem is derived while analyzing the basic facts of the situation. For every primal problem, there is a relative dual problem. The dual problem can be easily set up from the primal problem by using the following steps:

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construction project management: planning, scheduling

a. Choose new variables, one of each constraint of the primal. b. Construct the dual matrix. c. Write the dual inequalities from the dual matrix. The above steps are illustrated from the given problem. The optimum solution to the dual problem, in terms of the evaluation of the objective function, is identical to that of the primal problem. Further, if the optimum solution of the dual is known/obtained, then the optimum value of the ith primal variable is equal to the negative simplex value of the ith slack variable in the final simplex tableau representing the dual linear programming solution. Minimize Z = 150 x1 + 108 x2 Such that x1 + x2 => 8 3x1 + x2 => 12 x1 => 0 x2 => 0 Setting up dual problem from the primal: a) Primal Problem. Minimize Z = 150 x1 + 108 x2 Such that x1 + x2 => 8 3x1 + x2 => 12 x1 => 0 x2 => 0 b) Dual Problem i) Choose new variables y1 and y2 (equal in number of constraints of the primal) ii) Construct dual coefficient matrix Dual y1 y2 Primal Objective

x1 1 3 150

x1 1 1 100

c) Write dual objective function and inequalities from the above matrix. Maximize Z’ = 8 y1 + 12 y2 Such that y1+ 3 y2 from mean Table 0.42 0.92 1.75 0.39 0.89 1.17 0.34 0.84 1.14

Base Expected cost cost

Variance Standard Contingency % deviation

9613 9986 1103 1144 522 543

431399 6963 1328

656.8 83.4 36.4

1523 138.56 62.74

15.8 12.5 12.0

Contingency Allocation. For allocation purposes, the contingency or the risk cost in a project, is divided into the site–controlled contingency and client–controlled project reserve. ‘Site–controlled contingency’ covers the risks that can be managed at site by the project manager. The amount assessed for unmanageable risks generally forms a part of the 'project reserve'. Project reserve is earmarked to cover special uncertainties, currency exchange rate fluctuations, abnormal changes in the market prices, cost of major losses, unforeseen environmental changes etc. Project reserve are funds in addition to the site contingency. The project reserve does not form a part of control

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construction project management: planning, scheduling

estimates, as it is the client reserve for the total project.cost target cost (the budgeted cost) Project contingency = Site–controlled contingency + Project reserve Target Cost or the budgeted cost = Base Estimate + site–controlled contingencies Estimate + Project Reserves In practice, the targeted cost is generally taken as 90% confidence level of the maximum risk cost. It is shown graphically below;

RISK CONTINGENCY PROFILE Target Cost = Base Estimate + 50/50 Contingencies Estimate + Project Reserves The allocation for controlling cost, can then be made as under: Contingency Control Responsibility Contingency Category Responsibility Project reserve = Mean + 40 % confidence level The owner Site contingency = 50% confidence level Project Manager Base + 10% confidence level Delegated to respective project team members .

O.4 HOW IS RISK RESPONSE PLAN DEVELOPED? O.4.1 Risk planning strategy In construction projects, both the client and the contractor face risky situations. Both aim to

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construction project management: planning, scheduling

minimize their risks. Both prepare contingency plans to handle risks, if circumstance may arise in the future. A client may resort to a lump–sum type contract to overcome resource fluctuations, cost inflation and quantity variation risks. The client may also opt for a turnkey contract approach to prevent design risks and incorporate penalty clauses in the contract to compensate for damages resulting from time delay risks. Similarly, a contractor may decide to go in for insurance to quantify safety and security risks, book forward supplies of costly materials in the stock market, enter into back–to–back agreements with his sub–contractor and suppliers, and incorporate suitable escalations and other safeguards as part of the contract agreement. Despite various strategies of the client and the contractor to prevent risks, risks are unavoidable. These vary from project to project. In business, risks are considered , they are priced and the risk response is planned to control the risks. Risk mitigation measures aim at minimizing the loss, damage or disruption in a project due to unforeseen events. These mitigation measures are described as follows: (a) Risk Transfer: Project risks can be transferred to someone who is more capable of dealing with such problems, such as specialist sub–contractor or by passing the risk to insurance firms monetarily. Risk can be transferred : · To contractor or designer by the client. · To sub–contractor by the contractor. · To insurance by the client, contractor and sub– contractor. (b) Risk Deferred: Certain project risks can be deferred by time by moving the activities to a later date in the project when the adverse effects of events is minimized or reduced. For example, postponing road bitumen paving scheduled during the rainy season to a different period of time in the year. © Risk Reduction: Project risk reduction aims either to reduce the probability of risk occurrence or reduction of the adverse impact on the project or a combination of both. For example, a client may cover the risk of unknown underground soil conditions by suitably wording the contract.Risks can be reduced by: · · · · · · · · · ·

Well–defined Specifications. Detailed site survey. Detailed design. Completing design before execution. Minimizing client variation. Showing implication of changes. Determining logical cost contingency. Determining logical float Early involvement of owner’s project group Appropriate responsibility matrix

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(d) Risk Acceptance: Once the risks have been identified and their adverse effects are assessed, a contingency plan to encounter them have to be planned, developed and implemented as a good risk management strategy. a.

Risk Avoidance: Once project risks have been identified, they could be avoided in some cases such as changing designs, construction methods that may involve additional costs.

Allocation of risk among parties depends on : · · · · · · ·

Which party can best control the events that may lead to the risk occurrence. Which party can best manage the risk if it occurs. How far it is preferable for the client to retain the management of risk. Which agency / party should carry the risk. Whether premium charged is reasonable. Whether transferee is likely to be able to sustain consequences, if the risk occurs. Whether transferred risk is likely to return in a different form.

O.4.2 Typical Risk Mitigation Methodology How project risks have been mitigated determines the chances of project success and hence the project quality. Typical tools and practices that can be employed to mitigate risks by a client are given below: Nature of Risks Completion time overrun

Project cost overruns Force majeure, ecological, safety & security Political and legal Foreign exchange Resource supply risk Operation / Maintenance risk Technology risk

Some Typical Practices for Mitigating Risks Include contract clauses for penalties, liquidated damages, performance bonus, completion/performance guarantees. Select experienced turnkey contractor. Use proven technology. Adopt fixed/lump–sum contracts, earmark standby credit and contingency plan, ensure performance guarantees. Transfer risk to project insurers Transfer risk to project insurers Obtain Central bank assurances, convertibility guarantees from the host country. Negotiate long term rate–running reliable supply contracts Employ experienced operational personnel, ensure contractor liability for initial maintenance. Use proven technology, consider high damages in case of non–conformance to specifications

O.4.3 Risk Response Plan Risk plan ensures that appropriate risk warning tools are in place to handle risks efficiently. This is achieved by developing an effective warning system in the form of a contingency plan. The risk response plan, prepared after due consideration of the above factors should document the procedures that will be used to manage risks.

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construction project management: planning, scheduling

The risk events are generally recorded in the risk response ledger. This record should highlight the anticipated timing of risk and the possible responses for countering risk responses. Each risk source in this ledger should preferably contain the following information in a tabular form: · · · · · · · ·

Risk title and description. Likely causes that can trigger off –risk event. Description and quantitative range of likely impact on project objectives, where appropriate. Nature of interdependence with other risk sources. Anticipated time and probability of occurrence. Possible responses for countering risk. State of risk after effective response. Individual / department responsible for managing risk.

O.5 HOW ARE PROJECT RISKS CONTROLLED ? O.5.1 Risk Response Control Risk control aims at controlling deviations to cut down risks and maximize project value. It handles risks in a manner that achieves project objectives efficiently and effectively. It is based on pro–action and not reaction approach by having the right measures in place and improving them constantly. There are no readymade solutions to minimize risks, but the following remedial measures can assist in controlling them: (a) (b) (c) (d)

Adjust plans, scope of work and estimates to counter risk implications. Monitor risks regularly. Evolve alternate plans to manage foreseeable risks, when necessary. Make timely decisions. Keep all concerned informed about the possible risks.

O.5.2 Risk Related Decision Risk related decisions in particular are classified into three categories. They are: · Decision under certainty. · Decision under risk. · Decision under uncertainty. The difference between ‘decision under risk’ and ‘decision under uncertainty’ is that risk has assigned probabilities and its exposure can be evaluated, whereas under uncertainty the probabilities are non–existent. Decision under certainty: It implies expected pre–determined pay off (outcome) based on deterministic response strategies. Such strategies with no assigned probabilities can be represented by a pay–off matrix shown below: PAY–OFF MATRIX ( Profit in 000’s Rs.) IN A CONTRACT States of the Market Options Strong market Even market Low market

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construction project management: planning, scheduling

A– continue with existing resources and work load B– induct additional resources with present work load C–secure contract and induct additional resources

50

40

– 50

50

50

60

100

80

90

The above shows that Option C will produce maximum gain as compared with other strategies. Such a strategy is called dominant strategy. Decision under risk: In practical situation, higher profits are usually accompanied by higher risks. In the absence of a dominant strategy in such cases a probability is assigned to the occurrence of each situation. The controlling factor in decision making under risk is the assignment of probabilities to each strategy.

PAY–OFF MATRIX (Profit in 000’s Rs.) IN A CONTRACT States of the Market Strong market Even market Low market Options 0.25 probability 0.25 probability 0.50 probability A– continue with existing 50 40 90 resources B– induct additional resources 50 50 60 C–sub–contract the work

100

80

–50

The expected value for the option A, works out as (50) (0.25) + (40) (0.25) + (90) (0.50) =67.5 Decision making under uncertainty: Uncertainty implies that there is no meaningful probability and there is no dominant strategy. In such cases, there are four basic criterion for making decision and in each case the criterion will depend upon the type of project and the project manager’s tolerance to risk. (a) Maximax or Hurwicz criterion: Under this, the decision maker is always optimistic and tries to maximize profit. (b) Maximin or Wald criterion: In this case a pessimistic instead of an optimistic approach is taken by the project manager so as to minimize the maximum loss. In Wald’s criterion only the minimum pay –offs are considered. (c)

Minimax or Savage criterion: Under this the project manager is a sure loser and he attempts to minimize the maximum regrets.

(d) Equal Chance or Laplace criterion: It is an attempt to transform decision making under uncertainty to decision making under risk. This criterion makes an assumption that if the probability of state of nature is not known, then it can be assumed that each state has equal chance of occurrence.

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construction project management: planning, scheduling

O.6 HOW DOES THE HUMAN SIDE AFFECT THE MANAGEMENT OF RISK? Risk analysis cannot be mechanized, and the most important characteristic needed to analyse and manage risk is an appropriate frame of mind or the 'risk–taking' attitude of the project manager. The risk taking decision depends upon the ‘utility’ or the pleasure or displeasure one derives from the expected outcome. The 'Utility' theory explains how, not why, rational people sometimes prefer outcomes which do not necessarily have the highest monetary value. Utility theory suggests that instead of maximizing the EMV, people maximize their own expected utility or what pleases / satisfies them. The equation that describes the utility curve is the utility function. Utility functions vary from person to person. Also utility function of an individual may not be identical to the utility function of that individual's employing organization. Behavioural Scientists have classified individuals with risk tolerance characteristic into three categories, i.e., risk averter, risk neutral and risk seeker. The utility curves showing these characteristics are sketched below: Utility Risk Averter (or Avoider)

Risk Neutral

Risk Seaker (or lover)

Cost

·

Y–axis represents utility, it shows the project manager’s willingness to take decisions gladly.

· X–axis reflects the money at stake. · Shape of the decision makers tolerance curve indicates the response to alternate decision. In case of risk averters, utility rises is marginal as the slope of the curve decreases with increase in expected monetary value. In other words, a risk averter project manager is cautious and conservator as his tolerance reduces when more money is at stake, more money increases his utility only very slightly. On the other hand, risk seeker or risk lover may be willing even to pay high penalty to gain a higher uncertain outcome. A risk neutral project manager with linear utility curve, is most likely to use expected outcome as the decision criterion and will act only when the expected outcome is positive. It is important to note that the knowledge of the risk analysis tools and techniques is necessary to manage risks, but it is not sufficient in controlling risk. The final piece of the jigsaw is the human being. Achieving this involves gaining a clear understanding of human perception of project risk and uncertainties.

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construction project management: planning, scheduling

O.7 WHAT IS THE ROLE OF THE PROJECT MANAGER IN MANAGING RISKS? Project manager’s capability to accomplish the mission in a modern large size construction project is a function of the professional skills in risk management. His role in managing risks calls for the following: ·

Estimate cost and time contingency allowances, and allocate these commensurate with the identified major risks and uncertainties.

·

Regularly monitor risk response plan review these with the concerned persons regularly to reduce misunderstandings and ensure that the full spectrum of uncertainties is exposed.

·

Adopt methods for allocating the remaining risks to the various parties in a way, which will optimise project performance.

·

Recognise that the risk and reward go hand–in–hand and that the allocation of a risk to a party should be accompanied by a suitable incentive.

· Keep an open–minded approach to innovative solutions to problems. · Make appropriate timely decisions. O.8 WHAT ARE THE BENEFITS OF MANAGING PROJECT RISK? The overall awareness of the risk exposure and the mode of handling risk adds to the effectiveness and efficiency of the project management due to the following: · The risk response development process gives an insight into the project management process. Accordingly, the issues/problems of the project are clarified, understood and allowed for right from the start. ·

The pre–planned contingency plan provides clearer definitions of the specific risk associated with a project. It allows prompt, controlled and pre–evaluated response to any risk that may materialise.

· The structure and definition of the project risk are continually and objectively monitored. This in turn reduces exposure to project risks. · Risk response decisions are supported by thorough analysis of available data. · Fully documented risk management process, builds–up a profile of historical risk to allow better modelling for future projects. · It encourages problem solving and provides innovative solutions to the risk problems within a project.

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· Risk reporting framework avoids sudden risk shocks. It is sometimes argued that risk identification process induces negative and cautious attitudes among the team or the project sponsors. Contrary to this, it can also be said that the risk identification process, if developed with the project team participation, enables: · Identifying the participants who can be entrusted with management of risks. · Creating environments for managing risks efficiently and effectively among concerned people, as they become aware of the risky situations well in advance. The very process of breaking a project down into its sources of risk and systematically analysing them ensures that the managers develop a much more realistic feel for the project and its range of possible outcomes. Risk analysis supplements the professional judgement. However, the risk analysis is not a substitute for professional experience, judgement and the attitude of mind of the appropriate decision makers. Project managers can’t stop the fast changing instable risk prone environments but they must prepare themselves to manage the resulting impacts of risks to their projects. This in turn reduces exposure to project time, cost and performance risks.

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construction project management: planning, scheduling

CONSTRUCTION CONTRACTS ADMINISTRATION APPENDIX P

P.1 INTRODUCTION AND SCOPE The Indian Contract Act governs contracts concluded in India. A construction contract is an agreement with legal backing between the owner and the contractor, by which the contractor agrees to construct a facility or provide a service for the owner; for a lawful consideration for the facility or service rendered. Contract documents include General Conditions, Special Conditions, Particular Specifications, Technical Specifications and Construction Drawings. For general guidance, the major tendering organizations standardize their contract documents. Construction contractors form the backbone of the construction business as they execute most of the construction works. The contractual option for executing construction option has many advantages (Section 13.4.5). But administration of contracts is not trouble–free. It is the client team consisting of Project Manager, Contract Manager and the Engineer–in–charge–contract (called ‘Engineer’), who plays an important role in the administration of the construction contracts. This Appendix briefly describes the role of the participants, key functions in contract administration and the guidelines for smooth administration of contracts. This Appendix is divided under the following heads: · · · · · · · · · · · ·

Role of the participants. Production performance controls. Specification interpretation. Scope change control. Sub–contractor approval. Disputes, claims and their modes of settlement. Project termination. Payment control. Bonds and securities. Project close–out. Formal correspondence. Guidelines to minimize problems in the contract administration.

The legal aspect of contracts is a subject in itself and as such is not covered in this Appendix. The key terms used in contract administration are listed in the Glossary. P.2

ROLE OF THE PARTICIPANTS

Construction at the site of the contracted projects is supervised and carried out by two separate agencies. These are, the client team led by the project manager, and the contractor’s workforce managed by his construction manager. Both the teams have a common goal of completing the project on time within specified costs and quality specification. However, their roles differ. The key person who deals with contractual matters is the client Contract Administrator.

P.2.1

Role and Obligations of the Client Project Manager

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construction project management: planning, scheduling

It is the client project manager who plays the dominant role; he represents the client and acts as the boss at the site. He ensures smooth functioning at the site and makes decisions when the site faces problems. He manages the entire construction process so as to achieve the assigned project objectives. He manages the contractors employed at the site, and the site activities, with the help of his supervisory team that reports to him for decisions. It is he who is accountable to the client for the construction of the project. He, on behalf of the client, performs the following duties in discharging the main obligations under the contract. These include: · To hand over the construction site to the contractor, after the order to commence the work. · To approve nomination of contractor’s managers, sub-contractors and suppliers in time. · To comply with statutory requirements, as applicable. · To control performance of contractor and issue appropriate instructions to contractor through his representative ‘Engineer’. · To make interim and final payment to the contractor. On contractual matters, the Contract Manager / Quantity surveyor assists the Project Manager.

P.2.2 Role and Obligations of the Contractors Construction contractors form the backbone of the construction activity at project site. It is the contractor who estimates the work, plans the execution, inducts resources, executes the work under pressure, incurs costs and takes the risk of cost overruns. Contractor bears the cost of input resources employed by him for the execution of the work. These input resources and site expenses include cost of men, materials, machinery, and capital. He also incurs expenditure on interest on loans, statutory payments, insurance, depreciation and so on. In addition, like the client, he has also to control his finances to meet the cash requirements from time to time. His motto is to maximize profits by effective cost control. In fact, he is the hub around which the construction industry revolves. At site, the contractor's construction manager manages the work execution as well as the resources, and the workforce. He operates to achieve the contractor's objectives, which include optimizing profit, maintaining a cooperative and harmonious relationship with the project manager and others engaged in the construction activity at site. Despite the frequent crises during the execution of the contract and the risks at the time of procurement of work, the contractor’s obligation is to complete the contracted work to his client satisfaction, on time, within budgeted cost, conforming to quality specifications, and at the same time avoiding conflicts and disputes, as his business survival depends upon his performance. P.2.3 Role of the Client Contract Manager and Engineer There are three persons engaged by the client who deal in contract matters. These are project manager, contract manager and the client appointed engineer. The term contractor administrator is used in a broader sense to cover contract related functions performed by the project manager, the ‘engineer’ and the client contract manager.

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construction project management: planning, scheduling

It is the client appointed engineer who represent the client at site to ensure accomplishment of fit–for–use contracted work on time, within the cost and quality specifications. He assists the project manager and the contract manager to perform their contractual duties. The architects and quantity surveyors, work side by side with ‘engineer’ and assist him in discharging his responsibilities. In most of the contracts, all instructions and the correspondence of the client is sent to the contractor under the signature of the engineer. In fact at site, the engineer is the controller of the contract. Duties and powers of the ‘engineer’, are specified in the general conditions of the contract. He has a dual role to play. He acts as an agent of theemployer and as an independent person in quasi-judicial capacity. He is also required to have due consultation with employer and contractor before deciding certain matters as per the provision in the contract. To quote an example, ‘engineer’s’ duties as given in the FIDIC are tabulated below: FEDERATION INTERNATIONALE DES INGENIEURS CONSEILS (FIDIC) Conditions Of Contract For Works Of Civil Engineering Construction Part 1 General Conditions Engineer's Duties and Authority (Clause 2.1) (a) The Engineer shall carry out the duties specified in the Contract. (b) The Engineer may exercise the authority specified in or necessarily to be implied from the Contract, provided, however, that if' tile Engineer is required, under the terms of his appointment by the Employer, to obtain the specific approval of the Employer before exercising any such authority, particulars of such requirements shall be set out in Part 11 of these Conditions. Provided further that any requisite approval shall be deemed to have been given by the Employer for any such authority exercised by the Engineer. (c)Except as expressly stated in the Contract, the Engineer shall have no authority to relieve the Contractor of any of his obligations under the Contract. Engineer to Act Impartially (Clause 2. 6) Wherever, under the Contract, the Engineer is required to exercise his discretion by: (a) giving his decision, opinion or consent, (b) expressing his satisfaction or approval, (c) determining value, or (d) otherwise taking action which may affect the rights and obligations of the Employer or the Contractor, he shall exercise such discretion impartially within the terms of the Contract and having regard to all the circumstances. Any such decisions, opinion, consent; expression of satisfaction, or approval, determination of value or action may be opened up, reviewed or revised as provided in Clause 67.

P.3 PRODUCTION PERFORMANCE CONTROL As an agent of the client, the ‘Engineer’ ensures compliance by the contractor to the contract's terms and conditions, and to make sure that the end product is produced as per the requirement of the client, fit–for–desired purpose. To quote an example, performance control duties of the ‘Engineer’ in FIDIC contracts include the following:

Engineer Functions as Quality Controller Clause No.

Description of the clause

7.2

Approval of drawings submitted by contractor.

14.1

Approval of programme.

16.2

Objection and replacement of incompetent staff members.

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construction project management: planning, scheduling

19.1

Security and protection of environment.

36.1

Instructions and tests on materials.

37.2

Inspection and testing.

38.1

Examination/approval before work to be covered up.

39.1

Instruction for removal of work not compliant with requirements.

46.1

Notice to expedite work, which is slow and giving consent to extend working hours.

48.1,2

Taking over certificate, taking over of section or part.

48.3

Issue of Substantial Completion Certificate

49.2

Instruction for remedial work.

50.1

Instruction to search the cause of defective work.

In particular, Quality Assurance Plan containing complete guidelines for checking quality of materials and workmanship and responsibility of contractor engineers should be jointly finalised by the contractor and the engineer prior to the commencement of work. P. 4 SPECIFICATION INTERPRETATION Each contract is different, but there are several basic principles that govern interpretation of specifications in construction contract. These principles form the basis for the initial interpretation of the law in deciding how conflicts can be resolved. The interpretation of commonly used specifications given in the following paragraphs is in short outline form. These are based on the principles and the legal justifications have been omitted. It should be noted that a "Contract" includes the entire contract documents. These documents include the plans, specifications, and drawings P. 4.1 Ambiguity In Interpretation The ambiguity arising in the contract, which would need interpretations can be considered under two heads: those discrepancies relating to the language interpretation and those discrepancies having more than one interpretation. Language discrepancies. The language of the contract implies that it would be understood by the normally intelligent people competent in their profession, with complete knowledge of all related facts. Further, the contract document is mutually explanatory. It means that: 1. The ordinary meaning of language is given to words unless circumstances show that a different meaning is applicable. 2. Technical terms and works of art are given their technical meaning unless the context indicates a different meaning. 3. A writing is interpreted as a whole, and all writings forming a part of it are interpreted together. 4. All circumstances are taken into consideration.

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5. If the conduct of the parties defined a particular interpretation, that meaning is adopted. 6. Specific terms are given greater weightage than general language. 7. Separately negotiated or added terms are given greater weightage than standardized terms or terms that are not specifically negotiated. Following are the standard rules established through the precedents set out from court judgements: 1.

While interpreting the meaning of the document or a particular part of the document is to be sought for from the document itself.

2. 3. 4. 5.

The intention may prevail over the ambiguous words used in the documents. Technical legal term shall be given their legal meanings. The contract is to be construed as a whole. Written words shall prevail over printed words.

6. 7.

Words shall prevail over figures. Deleted words and alterations are not to be looked into while interpreting the contract.

8. 9. 10.

Specific provision shall prevail over general provision. Obvious clerical errors to be corrected to give correct meaning. Antecedent Facts or Correspondence not forming a part of the contract are not to be considered except in the case of real doubt about the contract meaning. Inconsistent or repugnant clause to be rejected and the clause which gives correct meaning is to be followed. Alternative method to perform a promise – option lies on the party who is to perform the promise. Contract to be construed according to plain grammatical and popular meaning of the words used. Express words to be followed and presumed intention of party to be rejected. Earlier clause is to be preferred to the later.

11. 12. 13. 14. 15. 16.

Interpretation, which brings harmony between different parts of the contract documents, is to be preferred.

P. 4.2 Ambiguities Resolved Against the Drafter It is a common knowledge that those drafting the contract would have had every opportunity to be sure that their intentions are clearly defined so as to allow the contractor to understand them. Further, the architects and the designers would have had sufficient time to be sure that the contract documents are clear and complete. It is unreasonable to expect a contractor to find flaws in a short time prior to the bid. Therefore, if anything is subject to more than one reasonable interpretation, the contractor has the right to choose the interpretation. If, on the other hand, the contract itself is the product of extensive negotiation, it will have at least to a great degree been "drafted" by both parties. In such a case, both parties are responsible for the ambiguity. P. 4.3 Ambiguities on Trade/ Patent Deficiencies

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Generally an ambiguity in the contract is interpreted against the party who drafted the document. However, there are some exceptions. Such exceptions are based on the principle that the contractor is expected to be knowledgeable about ordinary and normal trade or construction practices pertinent to its work. Therefore, any failure to ignore such normal trade or construction practices can go against the contractor, if he files a claim on such grounds. . Example: A building contractor’s knowledge and experience is that rebar is to be fixed with steel ties. If such details are omitted on drawings, the omission cannot absolve a contract not to price such item at the time of tendering. On the other hand, a serious omission on the part of the architect cannot be covered under the designer intent clause. Design intent will apply only if the gap being bridged is so obvious that a professional contractor would not normally overlook it. Further, the more "obvious" the design error, the more in question is the designer's competence. P.5 SCOPE CHANGE CONTROL During the execution stage, the changes involving additions and alteration is in the scope of the contract are inevitable. These changes include: · Administrative changes that do not affect the substantive rights of the parties. · Changes and modifications ordered in writing, directing the contractor for action in the terms of the contract. · Supplemental agreement requiring changes that are accomplished by mutual action of both the parties. · Constructive changes that cause a contractor to perform work differently than required by the written contract. · Effective change instructions such as acceleration of performance and ensuring cooperation in progressing works as per the contract. The scope change clause in a contract authorizes the owner to order changes in the scope of work. Typically, this change clause specifies: 1. Adjustments to the contract may only be effected by a change order. 2. The change order must be in writing, signed by both parties. 3. The change order must specify adjustments to both the contract price and the net effect on the project time. 4. The change order will be for work that is within the scope of the original contract. 5. No changed work is to be performed without a properly executed change order except in the case where the contractor must act in an emergency to prevent injury or property damage. A contractor is obliged to follow such change instructions, but he is to be reasonably compensated by the client with time extension and cost, as applicable. Extension of time for completion due to causes outside the control of contractor and for extra work

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within deviation limit is admissible. Where the extension of time is granted due to reasons attributable to Employer, such as late handing over of site, late issue of drawings/instruction/approval, suspension of work within the specified period, special risks, if delay is for limited period and delay due to adverse physical condition and artificial obstruction, contractor is entitled not only for extension of time but for extra cost and both should be determined by Engineer without delay and simultaneously to avoid cash flow problems to contractor. P.6 SUB–CONTRACTOR APPROVAL The engineer’s consent in writing is required by the contractor for engaging / employing a sub–contractor for a work. Since the prime contractor remains fully responsible for the work, the engineer normally approves the sub–contractor unless he finds him unsuitable for the job. Similarly for the removal of a sub-contractor due to unsatisfactory performance, the discretion rests with the prime contractor but the approval of the Engineer/Employer is necessary. P.7 DISPUTES, CLAIMS AND THE MODE OF SETTELEMENT P.7.1 Disputes Construction is a complex process. It involves many participants with different interests. Contract documents link the construction participants. Even with the best of intentions, no contract document can cover varying unpredictable situations in the construction process. Disputes are unavoidable. In general, dispute in a contract can arise due to a number of reasons such as: (a) Discrepancies in site data, drawings, quantities. (b) Delays in handing over of site and releasing of drawings. (c) Disagreement on specifications and extra works. (d) Inaccuracies in the contract documents. (e) Differences on the interpretation of contract terms and conditions. (f) Delay in the timely supply of client–responsibility materials and payments by the owner. (g) Unforeseen adverse situations like floods, earthquakes, changes in working conditions, accidents, political unrest etc. (h) Implications of force majeure delays, such as those resulting from strikes, severe weather, and acts of God. These delays cannot be attributed to the fault of either party to the contract. Usually, for these delays, a contractor can file for extension of contract time, but not for expenses. The owner correspondingly cannot seek actual or liquidated damages. A contract makes provision for raising claims for compensation by both the parties, that is the client and the contractor. The dispute clause provides the specific procedure for resolution of serious problems. It may detail a progressive series of steps (such as appealing to higher authorities) or may simply describe the ultimate option (arbitration). Parties to the contract must understand the Dispute Clause and always follow its instruction precisely. The succeeding paragraphs focus on claims by contractor and the similar approach is applicable in case of the clients claim on the contractor.

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P.7.2 Claims The claims can be divided into three categories, that is, Contractual Claims, Extra–Contractual Claims and Ex-gratis Claims. Contractual Claims. These are due to happening of certain events or circumstances for which contract provides express remedy. Settlement of these claims is within the powers of the project manager. Examples: Suspension of work, delay caused due to artificial obstruction, late possession of entire site, and delay in release of interim payments beyond the period specified in the contract. Extra–Contractual Claims. These arise where contract does not provide express provision and therefore these are to be based on principle of common law. Project manager does not have authority to decide these claims and he can make his recommendations to the client. Examples: Claims relating to prolongation/disruption/dislocation due to default of the client engineer, unreasonable orders, unreasonable delay in inspecting work and testing of materials, and delay caused by nominated sub-contractors. Ex-gratia Claims. These arise where no ground exists either in the contract or in common law. These claims are nothing but seeking sympathy for financial compensation from the client on account of loss which happens either due to absurd rate or due to circumstances beyond the control of the contractor but outside the responsibility of the employer. The client can consider ex-gratia payment for such claims depending upon the nature of the case.

P.7.3

Processing Claims

Registering Claims. Claim is registered by giving a notice. Contract provisions enable a contractor to give notice of his intention to claim additional payment whenever the cause for such an action arises. Failure on his part to comply with this requirement may prejudice credibility of such claims. Establishing Claims. The claims are established from the correspondence in which the fact of matter and reasons for lodging or rejecting the claim by the client are given. A claim is also supported from the record of losses suffered especially when these are in the full knowledge of the client. Claim Presentation. Formation and presentation of the claim is an important aspect of dispute resolution. A proper structure for presentation of a claim should be: - Background - Who are the participants - Project phase where claim arose - Contract terms

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- Intentions of claimant (expectations while quoting) - Actual experience - Conclusion (exact suffering) - Damage - Arguments based on records/documents Every claim has to be established based on documentation. Contractor has to foresee the possibilities of claims and keep the supporting records. As claim situation can occur at any time, these documents must always be kept up-to-date. From the owner’s side claim prevention as a management technique needs careful preparation of contract, adopting methodology to resolve construction difficulties, willingness to share risks equitably. The owner’s manager must keep his own records to verify, counter or recommend the claim for grant of equitable treatment to the contract. P.7.4

Modes of Resolving Disputes

Contract disputes can be settled in one or more of the following ways: Conciliation Through Negotiations. reasonable. In this case, both the parties willingly discuss the dispute and arrive at a settlement. During negotiations unequal bargaining power plays an important part in hastening a settlement. Capitulation can also occur when one party gives in to the other, either because it has realised the strength or reasonability of the other's stand or because it feels that the advantages to be gained by capitulation outweighs those of pressing its claims, even though they must be quite Arbitration. If conciliation/mediation fails, then the next stage is arbitration. In this case, concerned parties approach a third party to arbitrate for settlement of their disputes. Usually all contracts contain an arbitration clause, but even in the absence of one, the parties are free to refer their disputes to arbitration by mutual agreement. Arbitration presupposes that the parties agree that there are some disputes, which they are not able to settle among themselves and that they feel that a third party, in whom both have confidence, will be able to decide the disputes to their satisfaction. Arbitration agreement also specifies the mode of appointment of arbitrator(s), and also include such other provisions, which the parties may deem fit to incorporate. The decision given by the arbitrator is called an Arbitration Award. Arbitration of disputes in engineering contracts comes under the category of commercial arbitration. Neither party can unilaterally revoke the arbitration agreement. The appointment of arbitrator, conduct of arbitration, and publication and implementation of awards, is as prescribed in the Indian Arbitration Act 1996. Litigation. If the parties do not agree to refer the disputes to arbitration, then the aggrieved party can take up the dispute to the court. However, if an arbitration clause exists in the contract, the dispute cannot be contested in the court as the existence of arbitration clause acts as a barrier to litigation.

Advantage Of Arbitration over Litigation for Settling Disputes. The main advantages of arbitration over litigation are: · Speedy decision, less expensive.

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· In arbitration, both parties maintain goodwill, litigation can result in animosity. · Arbitration proceedings are private and secret, court proceeding is a public affair. ·

Arbitration proceedings can be convened at a convenient place, but in litigation the proceedings are generally held in the court.

·

Arbitration awards are generally final, whereas a court judgement can be contested in higher courts.

P.8 CONTRACT TERMINATION CONTROL A contract can come to an end by any of the methods mentioned below: · · · · · ·

By mutual agreement between the contracting parties. By completing the task and as stipulated in the contract. By breach of contract by one party. By unforeseen circumstances like bankruptcy and impossibility of task execution. By making a new contract to substitute the old. By terminating of the contract by either party.

The termination of a contract due to contractor’s fault is the most serious matter. Based on the type of contract, terms and conditions, the client has the right to terminate a contract due to contractor’s fault. Some of the reasons for termination of contract after repeated notices by client to the contractor could be due to: · Failure to observe statutory laws and rules. ·

Failure to induct resources to maintain / accelerate adequate rate of progress.

·

Failure to conform with the contract specifications.

·

Failure to obey instructions for properly co–ordinating activities with other contractors to avoid work interference.

·

Failure to pay the sub–contractors or suppliers for resources supplied to the project.

·

Filing for bankruptcy or committing other similar acts.

· Sub–letting the work without the approval of the contract administrator.

If a contract is terminated due to fault of the contractor, then the contractor may not be entitled to the compensation but the client may claim cost of completion for the balance work. The client can also terminate the contract, if he wants to discontinue the project for his convenience say due to change of need for the project or the budgetary constraints. However, in

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such cases, the client will have to suitably compensate the contractor. The contractor also has a right to terminate the contract in certain cases such as if the work is stopped by a court order and the client fails to issue certified payments. Under clause 69.1 of FIDIC, if the employer has failed to pay the amount due under the certificate of Engineer within 28 days or the time specified in the agreement or if the client is interfering with/obstructing/refusing such certificate of payment, the contractor can terminate his employment under the contractor, by giving 14 days notice. On such termination by the contractor, he shall be entitled to the payment of the work done including cost of materials delivered at site or he is legally liable to accept delivery (these will become the property of the employer) reasonable cost of removal of the plant and machinery, repatriation cost of staff and workmen, expenditure reasonably incurred in expectation of completing the whole work. The termination takes effect automatically after 14 days notice to the employer. Although the parties may negotiate the resumption of work during the notice period but is not automatic even if the default is rectified during notice period itself. It should be noted that termination of contract is a serious matter and must be considered as a last resort after taking due legal advice. P.9

INTERIM VALUATION AND PAYMENT CONTROL

The conditions of the contract provide for payment to be made to a contractor on monthly basis for the completed and in- progress work, permanent materials brought at site and other advances, as per the contract. Each contractor’s interim statement shall also include amount claimed in respect of days work and extra approved work. The interim payment bill is submitted by the contractor through the project engineer for certification and onward transmission to appropriate authorities. The engineer is responsible for interim and final settlement accounts. Every effort should be made to measure work progress jointly with the contractor’s representative in order to avoid unnecessary delays and controversies. The FIDIC contract (clause 60) provides a mechanism for payment to the contractor. Certification by the engineer is necessary before the contractor becomes entitled to the payment from the employer. The employer is contractually bound to make payment within 28 days of the delivery of the interim certificate and within 8 weeks in respect of final certificate. The employer is also liable to pay interest in case of delay. Further, if the employer fails to pay the contractor dues under the certificates mentioned above within 28 days after expiry of the time stated above, it would amount to default of the employer entitling the contractor to terminate the contract by giving a due notice. The responsibility for preparation of final account lies with the contractor. The final accounts should contain items of all payments for which the contractor considers that he is entitled. All payments shall be supported with documents. The final account shall consist of the following: · Measured account. · Provisional sum and prime cost item. · Day’s work account. · Claims account. The final accounts include liquidated damages/ penalty for delayed completion. The amount of liquidated damages are determined by the employer before tenders are invited as a reasonable

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assessment of actual damages which he would suffer in the event of delay in the completion of work. As per section 74 of the Indian Contract Act and Supreme Court decision, the liquidated damages and penalty are to treated in the same manner. The party who suffers on account of breach of other party will be entitled to such compensation as deemed reasonable with regard to all circumstances of the case subject to the limit specified in the contract. It would thus appear that even if the delay is attributable to contractor, only reasonable amount of compensation can be recovered. However, all such recoveries together shall not exceed the amount named in the agreement. P.10 Contract Bonds and Securities A bond is the guarantee of one party for the performance of another. Construction bonding is essentially a three-party contract among the contractor, the owner, and the surety. In addition to the safeguards, another purpose of a bond is to identify the actual ability of a contractor to get one. Before any surety guarantees, the performance of any contractor will be subjected to detailed investigations regarding contractor's financial strength to carry the type of work contemplated, and of its management ability to deal with all factors of production. This ability tends to separate unqualified contractors out of the process. There are mainly three main types of bonds in construction contracts. These are bid, payment, and performance bonds. Bid Bonds. A bid bond is an assurance to the owner that if selected, the contractor will actually proceed with the contract at the bid price. If the contractor does not, the bid bond becomes payable to the owner as compensation for damages sustained. Value of bid bonds is 5 percent of the amount of the bid. Performance Bonds. The performance bond protects the owner from the contractor's failure to complete the contract in accordance with the contract documents by indicating that a financially responsible party stands behind the contractor to the limit of the penal amount of the bond. Payment Bonds. Labour and Material Payment Bonds protect those who have supplied material and labour to a project, first because there may be no lien rights against public properties. The bonds also protects owners from liens or other claims made against the property on non–public projects after completion of the work, and after final payment has been made to the contractor. Typically payment bonds cover the following items: · Materials incorporated into the work and delivered at the jobsite. · Labour payments for work at or off the jobsite. · Freight and transportation costs. · Equipment rental and repair costs. · Fuel and maintenance costs. · Insurance premiums.

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· Unpaid taxes. Bonds, as per the contract are submitted by the contractor to the Engineer for check and onward transmission to the legal department. Guarantees are either of the parent company or the share holders. P.11 CLOSE–OUT For proper closing of a project: (a)

The post-completion maintenance is usually entrusted to an agency familiar with the construction. In most cases, the contractor responsible for construction is given this responsibility for one year after completion; and this aspect is included in the scope of work of the contractor.

(b) A proper record of the operating instructions and as-built drawings is maintained. (c)

The staff and workers necessary for operating and maintaining the facility are trained prior to its taking over.

(d) The site is cleared of the left-outs of the construction and unwanted materials. (e)

The client fully safeguards his interests prior to rendering the completion certificate to the contractor, and also before making the final payments.

After completion by the contractor, it is the project team of the client that hands over the project to him. The team also prepares a project completion report which includes the scope and schedule of work, the important events, the contract executed, the addresses of the suppliers of materials and equipment, the equipment maintenance manual, the as-built drawings, the costs involved, the problems encountered during execution, the lessons learned and the minor defects noticed at the time of handing over. P.12.

FORMAL CORRESPONDENCE RULES

All correspondence initiated by the Contract Administrator is for documentation purposes and it may have to be referred to at a later date. Therefore, each communication must be clear, concise and comprehensive. Each document should identify an issue, record the history and lead to an action. An effective formal correspondence, as far as practical, should conform to the following rules: · · · · · · ·

Deal each contract separately. Take up one issue or a small group of issues, in one letter. Start with background or reference or both, in brief. Preferably use a single page for each letter. Avoid unnecessary / superfluous writing. Use simple language and be factual. Adopt cause–and–effect style.

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· The last paragraph of the letter should bring out as to what you want the addressee to do.

P.13 GUIDELINES ADMINISTRATION

FOR

MINIMISING

PROBLEMS

DURING

CONTRACT

Contract administration is not trouble–free. Both the owner and contractor face problems in administering contracts. But there are ways to minimize it. P.13.1

Problems Faced by the Contractors

Generally the contractors complain that: 1.

The tender documents need be standardised for a State or the country as a whole. Present practice of each department having its own contract format, imposes too much of strain and risks on contractors. For special types of works, an additional list of conditions could be included and the rest could be as per the standard format.

2.

The conditions are loaded in favour of the owner. This situation leads to disputes and claims, and a vicious circle appears.

3.

The soil conditions, sub-soil conditions, hydrology, materials, resources, etc. are not properly investigated and proper data is not available in the tender documents.

4.

The construction material requirement and its availability are not estimated, investigated and planned by the owner, even for items of materials to be supplied by him.

5.

If there are changes in work. The resources arranged as per the earlier scope of work may become redundant.

6.

The construction drawings are never ready in time. Changes in construction drawings seem to be an accepted privilege of the owner. This situation again leads to claims and disputes.

7.

The contract conditions generally do not allow for escalation in prices.

8.

In the absence of any credit policy applicable to this industry, there is almost no opening with banks and financial institutions to serve the construction activity in the country.

9.

Financing the contract itself. Tight money conditions deprive contractors of the facility of even the short-term credits from suppliers and manufacturers of construction materials, stores and spares.

P.13.2

Problems Faced by the Client

Mostly the owners or clients have their own problems with the contractors. Some of these are as follows: 1.

Normally the private contractors – except for a few who are well–organized – have no

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organization at all, nor qualified men to manage the work. 2. Technical personnel are not employed, and the contracts have to specify the employment of technical personnel and many times enforce this. 3.

Haphazard construction practices are adopted which cause failures of structures during construction.

4.

Quality is at stake always, particularly in all concrete works and asphalt works, as the contractors do not employ qualified personnel who understand the specifications and code of practice.

5. Many contractors quote very low bids, and try to make up by bad workmanship and use of sub-standard materials. 6.

Contractors do not pay attention to the welfare of the workers, and their wages and amenities.

7.

The contractors do not treat their sub-contractors or labour contractors fairly, and the contract conditions between them are not fair. The general contractor does not passe on back–to–back benefits to his sub-contractors.

P.13.3

Guidelines for Smooth Administration of Contracts

These problems in contract administration can be minimised, if the participants follow their professional practices, and administer the contract in a proper manner with mutual confidence. The following measures for improvement in contract administration; both from employers and contractor's side can go a long way in smooth execution of construction projects eliminating time and cost overrun cases, and disputes and arbitration to a considerable extent. · · · · · · · · · · ·

Awareness of legal implications of contractual matters. Safety and welfare of workers must come first always and every time. No compromise on quality of work. Ensure site receives drawings and prompt decisions on technical matters. Jointly plan and review costs, schedule, and technical performance. Design and implement efficient contract change control system to enable prompt settlement of variations and claims. Maintain documentation of contractual correspondence and proper recording of the site data. Ensure contractor receives prompt payment of progress bills. Ensure timely procurement and control of materials. Use serviceable Construction Equipment. Appreciate problems of all the participants involved in the implementation of the contract.

The most important factor that can contribute in smooth administration of the contracts is the proper selection of the client and contractor project leaders. According the client should select project team fully committed to work, having adequate experience, good exposure on project problems and courage to give prompt and fair decision. Similarly contractor should have a

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competent site manager and other members of his team, who can plan and deployment of required resources, execute work as per planning with quality better than specified, control performance, and lead his team to implement the contract work efficiently and effectively to the satisfaction of the stakeholders. In the modern context, a project mission is considered successfully accomplished, if the project is completed: · Within the allocated time period. · Within the budgeted cost. · At the proper performance or specification level. · With acceptance by the customer/user. · When you can use the customer’s name as a reference. · With minimum or mutually agreed upon scope changes. · Without disturbing the main flow of the organization. A contract thus can be graded as having been completed successfully, if it is accomplished within time, cost and quality performance, all to the satisfaction of the client, and where the contractor can quote the client as reference for his role–model in the project.

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MANAGING PRIVATISED INFRASTRUCTURE PROJECTS Appendix Q

Q.1. INTRODUCTION AND SCOPE Infrastructure is the base on which the economy of a country is built. The infrastructure projects include services such as power, telecommunication, transport, water and gas distribution networks, and sanitation needed for the development of industry and improving the quality of life. The infrastructure projects are high-value time-bound special missions, undertaken by the government to create a unique new facilities and services within the specified time, quality and imposed constraints. Till recently infrastructure projects were entirely funded by the government. In some countries government has been able to shift a part of the burden of new infrastructure development to the private sector. The emerging trend is to build infrastructure by privatizing them, at no cost to the State, using procurement methods like BOT, BOOT, BOO and similar approaches of the BOT family. The common features of BOT projects are that they are government promoted, have identified infrastructure product with revenue forecast, are undertaken and mostly funded by the private sector, have long gestation period and encounter high risks, and finally these assets are taken over by the government after the franchise (concession ) period. The basis of a privatized infrastructure project is that the private sector company undertaking the project can finance, develop, construct and operate the developed service / facility, by charging some toll / fee at pre–determined rate from the public using the facility, for a pre-arranged period. During the agreed concession period, the development is regulated by the government and at the end of the concession period, the facility is handed over to the government. The success of a BOT project primarily depends upon the construction cost estimate, the realistic revenue projections, the finance engineering, the risk management, and the leadership of the project manager to get the project completed before the specified completion period within the budgeted cost and with superior quality than specified so as to extend the toll collection period without teething operational problems. This Appendix briefly describes the stakeholders of the privatized infrastructure, the role of the government in designing and implementing the concessions, the contractors project management processes and the key factors for successfully accomplishing the project mission by the concessionaire. In the end, it brings out the pre–requisites, benefits and drawbacks of the privatized infrastructure projects. Q.2

STAKEHOLDERS

In infrastructure projects, the promoters are those agencies that identify the project. It is mostly the government that identifies the infrastructure project. In some cases, the contactor or financer also locate and promote a project. The private group / company formed to accept the franchise and to manage the BOT project is called the concessionaire.

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The privatized infrastructure projects the stakeholders include the government who promotes the project, the private group/ companies (concessionaire) who accept the franchise, lenders who loans the funds, the investors who contribute equity, contractors who undertake turnkey construction, suppliers who provide input resources, insurer who cover risks, the public customers who pays the toll / fee to use the service; and the project leader with his team, lawyers and consultants who are entrusted with the task of accomplishing the mission . Q.3 ROLE OF GOVERNMENT IN DESIGNING AND IMPLEMENTING THE CONCESSION The government uses the concession instrument to procure the infrastructure, practically free of cost. A concession is a legal arrangement in which the government offers a firm to construct a facility/ service and gives it the legal rights to operate at a pre-determined tariff rate for an agreed period. Concession defines the rights and obligations of the government and the private firm. The formulation of the concession by the government involves number of issues. These include political, legal, social, financial, risk, environmental, technical and regulatory issues The design and implementation of concessions comprises of number of processes. The processes for formulating concessions are detailed in the World Bank Technical Paper No. 399. These are outlined below: 3.1

Role of the Government in Identification and Analysis of the Project

Identifying and prioritizing projects amenable to concessions. Selecting a specific project. Determining the form of the government support to the project. Hiring advisers. Performing a preliminary review of the costs and benefits of the project. Determining support measures including legal provisions to enable the granting of concessions. Establishing or identifying regulatory authorities. Managing public support to infrastructure projects. Determining concessionaire selection criteria. Granting permission for the project to go ahead . Setting a time-table for the project.

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3.2 Role of the Government in Designing of the Concession Arrangement Choosing legal instruments. Allocating responsibilities. Choosing and designing pricing rules and performance targets. Determining bonuses and penalties. Determining duration and termination. Designing adaptation mechanisms to new or unforeseen circumstances. Choosing and designing a dispute settlement mechanism. 3.3 Role of the Government in Awarding Concession Choosing the method of the award. Making decisions regarding shortlisting of competitors. Reviewing legal and regulatory issues. Determining bid structuring methods . Determining bidding rules and procedures. Proceeding with the bidding. Negotiating. Awarding contract. 3.4 Role of the Government in Implementing Regulatory Measures During Execution Phase Implementing regulatory terms. Supervising and monitoring development. Enforcing rules for toll collection. 4 CONCESSIONAIRE PROJECT MANAGEMENT PROCESSES. 4.1 Project Phases Each infrastructure project has a pre-determined duration with a definite beginning and an identifiable end. A typical infrastructure project life cycle can be divided into three phases for management control. These are pre-construction development phase, construction phase, and facility operational phase. These phases are composed of one or more processes. A process involves series of actions to achieve desired results. Each process is fed with inputs, these inputs are processed using appropriate skills to produce outputs. An output is a tangible, verifiable work product. In BOT fast-track approach, sequential phases and processes overlap. The project manager (from the time of resuming the charge ) becomes the key participant in all these phases and acts as a catalyst who motivates the participants for achieving the stage objectives. Typical infrastructure project management phases and processes are outlined in succeeding paragraphs. 4.2 Project Development Phase. It aims at formulation of project scope and implementation strategy, if the project is approved for implementation. Development phase commences with government inviting proposal for BOT infrastructure development project through advertisement and issuing of a project brief to the interested parties. Generally a lead contractor, who decides to compete for the project, tries to identify his potential partners and become their sponsor. The newly formed joint venture team

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starts to prepare the proposal and submits it to the government by due date . The processes involved from the receipt of the government project brief till issue of project directive by the successful bidder (joint venture sponsor) are outlined below: Government project-brief legal analysis. It involves scrutiny of government offers relating to legal provisions, statutory measures concessions, regulatory measures, revenue stream analysis, and economic assessment of the commercial viability. Project feasibility study. It includes analysis of market, cash flow, finance, logistics , engineering, costs, time, and risks; to enable the perspective concessionaire (sponsors) to formulate his proposal. Bankers and investors use the financial indicators like Return on Investment (ROI), Return on Equity (ROE), Net Present Value (after taxes) (NPV), Payback Period (PP), and. Debt Service Coverage (DSC) models to determine the expected financial performance. BOT concession agreement finalisation. The government scrutinizes the proposal and it is followed up with negotiations, if the government considers proposal reasonable. It includes contract agreement, scope of work, design features with typical design and drawings, guarantee bonds, environmental permits and approvals, toll rates structure, maintenance bonds, insurance during construction and operation etc. 4.3 Construction Phase It includes three sub-phases, i.e., design and planning, execution, and performance control. Construction Design and Planning Sub-Phase—its objective is to develop a workable plan to accomplish the project mission. . Major contracts are finalised by the end of this phase. The processes involved in this phase include: Basic designs and drawings planning. Construction method statement preparations. Drawing up of Integrated Master Plan including time schedule , resource procurement plan, cost plan and budget, communications plan, quality management plan, organizational plan, risk management plan, and schedule of tendering. Execution Sub-Phase — it addresses to co-ordinating, leading people and managing resources to carry out the plan. The processes includes organizing and mobilising project site, developing team, energising people, managing safety, deploying resources, assuring quality , distributing information. Controlling Sub-Phase—it involves tracking of progress and taking corrective action ,when necessary, for accomplishing project objectives. The processes include scope change control, resources control, schedule control, cost control, quality control, risk response control and contract administration. 4.4 Facility/ Service Operational Phase This constitutes the longer period of time in the project life cycle. In addition to collecting revenue, it also maintains the facility as the transfer of assets in the BOT formula specifies as to the condition in which the assets created under BOT agreement are to be handed over to the government. The three main processes in this phase are tariff management, maintenance

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construction project management: planning, scheduling

management and administration of the establishment. Depending upon the tariff management complexity basis, BOT projects can be broadly categorised as under: Basis of Tarrif Multiple collection centres Collection at toll stations Single customer collection

Types of Infrastructure Projects Airports, Telecom networks Roads, Ports, Railways Public waste management, Maintenance facilities, Power stations, Water management, Sewage disposal

5 KEY FACTORS IN MANAGEMENT OF PRIVATISED INFRASTRUCTURE PROJECTS 5.1 The Key Factors Infrastructure Projects, inherit all the characteristics and the problems faced in construction projects. The peculiar nature of the BOT projects adds to complications. There is no single blueprint that can provide solutions to these problems. But the understanding of the typical key factors which affect the concessionaires management can go a long way to solve the complicated issues encountered in the privatized infrastructure projects. The key factors affecting the concessionaires management are listed below: Forecasting revenue and estimating life cycle cost. Engineering finance. Safeguarding legal issues. Managing risks. Leadership makes all the difference. 5.2 Forecasting Revenue and Estimating Life Cycle Cost The crux of the problem is quantification of income over the concession period. Quantifying revenues from toll collection involves extensive studies to identify the needs, establish a feasible toll data and quantify the risks. The estimates of toll collection and construction costs enable calculation of the likely return on investment. For a BOT project to be viable, it is essential that: Return on investment (ROI) should be sufficiently high, say around eight to ten points above prime borrowing rate. Return on Equity ( ROE) should be at least ten points above the prime rate. Net Present Value (NPV) after tax is positive and yields higher return than the ROI on other alternatives. Payback Period (PP) should be as short as possible, particularly if the political risks are high. 5.3

Engineering Financing

Most of the companies undertaking large-sized BOT projects employ a financial advisor, normally a merchant or an investment bank, to assist them in the financial packaging in their proposal.

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Usually the financial advisor are assigned the task of actual raising the necessary debt and equity for the project. The success of the BOT project financing depends upon the cash flow and the structuring of the debt and equity. A common approach is to utilize as much debt as the cash flow permits with least equity of the sponsors. However, lesser the equity in a project the greater is the threat to the project cash flow. Similarly, lenders to BOT project would like sponsors to put more equity in their project. The World Bank paper ( August 1990) states that equity investments range from 10% to 30% of the total cost. 5.4 Safeguarding Legal Issues For any privatize infrastructure to succeed, it is a must that legal relationship among the participants is well defined. This is necessary to establish their rights and obligations. For this reason, it is desirable that the legal consultant is appointed in the initial stage of the development of the project. 5.5 Risk Management Project risk is a key element of the infrastructure approach. The success and failures in performance, to a great extent, depends upon the effective management of risks. Most of the formal communications with stakeholders and management of project change revolves around risk management. Typical tools and practices that can be employed to manage risks are tabulated below: Nature of Risks Completion delays

Cost overruns

Force majeure Political risk Infrastructure Revenue forecast Performance Operation/ maintenance Use flexible price formula

Tools & Practices for Mitigating Risks Make provision for penalties, liquidated damages, performance bonus Ensure completion/ performance guaranteed through select experienced turnkey contractor Use proven technology Adopt Fixed/lump-sum contracts Earmark stand-by credit Increase equity Insurance Government indemnities Insurance Export credit agency cover Government assurances Analyse market and tariff growth Ensure performance guarantees Involve contractors in equity Involve contractor/licensor in equity Employ reliable and experienced operator / sub-contractor Obtain Central Bank assurances Obtain convertibility guarantees from the host country

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Other contingencies

Seek government support

Leadership Makes All the Difference Effective leadership is an essential requirement for successful accomplishment of all management activities, but it does assume far greater significance in the infrastructure construction projects, at all levels of management. Project leader functions include developing project vision, energising people, enabling people to work harmoniously and enthusiastically, managing change and the conflict, filling in gaps in incomplete organisational design and delivering product and service that satisfies the customer. Therefore selecting the leader is the most important step in the initial stages of the project. 6 CONCLUSION Most of the countries are experiencing BOT revolution. According to the World Bank, during the period 1990-95, there were 361 BOT projects valued over US$ 150 billion, and an average BOT projects were completed 3% under budget. Some of the projects were completed before the specified completion time and this increased the toll recovery period. Delays resulted where there were difficulties in resolving risk allocation among project participants. Privatization of infrastructure is a policy decision. It has political and social implications. These projects have certain merits and can create problems if not properly conceived. The main benefits to the government include: Relieves government of the financial and administrative burden of investing, developing and maintaining the much-needed infrastructure. Provides additional financial resources to the government for massive investment projects. Improves economic efficiency and productivity by reducing bureaucratic practices. Accelerates the rate of growth of the economy and encourages adaptation of new technology by involving the private sector. Provides better and faster service to the public as the builders cost benefit lies in it. Transfers the risks of finance, construction and operation to the private sector. The main drawbacks of the infrastructure privatization are: Financing budget deficits by overlooking public interests, is not a sound strategy for balancing the budget. Negotiation secrecy prior to award of the concession, promotes corrupt practices Awarding concession without competitive bedding increases costs to the public. People pay for the infrastructure facility instead of the government. Awarding concession raises political issues, which can threaten the development of the project. The success of a privatized infrastructure BOT project depends upon many factors which vary from project to project. These include government proper design and implementation of the concessions; and the sponsor’s realistic revenue predictions, early completion within the budget and quality specifications, funding with interest rates lower than estimated and efficient operation of the created facility within the franchised period. The key factors that determine the outcome of a project are timely selection and early induction of the project leader, legal adviser, facility designer, and finance consultant and project management team. The project management team

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efficiency and effectiveness, to a great extent, depends upon their professional skills, and it is a must that these skills be kept continuously updated with the help of mentors, consultants and the universities/management institutes. The skills upgradation methodology is covered in Appendix R.

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construction project management: planning, scheduling

UPGRADING TOTAL PROJECT MANAGEMENT SKILLS Appendix R

NEED OF THE HOUR, BUT HOW TO DO IT ? R.1 INTRODUCTION AND SCOPE

Project management is the art and science of converting a vision into reality. The British Standard BS 6079: 1996, defines project management as the planning, monitoring and controlling of all aspects of a project and the motivation of all those involved in it to achieve the projective objectives on time and to the specified cost, quality and performance. Project Management Institute of the USA, describes project management as the application of knowledge, skills, tools and techniques to project activities in order to meet or exceed stakeholder needs and expectations from a project. Construction Industry Project Management Guide of Australia advocates project management as the process of integrating everything that needs to be done (typically utilizing a number of special management tools and techniques) as the project evolves through its life cycle from concept definition to handover) in order to insure that its (the project) objectives are achieved. Construction projects, are risky by definition. These are managed by individuals, whose work delivers product or services, which is the life blood of construction industry and the construction corporate. It is the project manager and the project team, who skillfully leads the multi-disciplinary, multi-functional team of managers, to accomplish the assigned mission. Project team is a ‘mix’ of brainpower, varying with the nature of project wisdom. The ‘facts of life’ in project work (crises, uncertainties, risks, pitfalls) continually test the mettle of these managers. Clearly this is not the field for the timid and the untrained. The success of a project hinges on the competency of the project team. In today’s dynamic environment the rate of obsolescence of knowledge is very high. With the fast emerging new knowledge and the rapidly changing technology, the organization needs mechanism to react faster than their competitors. This has made updating of knowledge and skills a continuous process. Challenge for organizations is to make learning available to its member, faster than competitors, when and where the need arises. It is particularly important in the highly competitive construction field. This Appendix highlights the knowledge areas needed to develop the skills, it describes the mode of development of a PM Education and Training model, and it outlines the various modes of conducting education and training to upgrade skills in PM. R.2 KNOWLEDGE AREAS NEEDED FOR MANAGING CONSTRUCTION PROJECTS In the last few years, the common knowledge areas needed to provide a direction to the project and upgrade skills required to form a common basis of understanding among the managers, have changed from its original emphasis on time and cost management of sixties to the total project management. Total Project Management( TPM) approach links it with the TQM philosophy, it has similarities as well as differences with the TQM (refers to Appendix M). TQM is at the core of TPM. Total Project Management Objectives Interdependence

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Commendable work on the development of the global body of knowledge for managing modern projects has been done by the Project Management Institute (PMI) of USA, Association for Project Management in the United Kingdom(APM), and project management related bodies in Australia, France, Germany and many other countries and institutions. ‘The Guide to the Project Management Body of Knowledge (PMBOK), published in 1996 (now under revision), by the PMI of USA has nine subjects. These knowledge areas are shown in Table R.1.

1.

2. 3.

4. 5. 6. 7.

8. 9.

Table R.1: Construction Project Management Knowledge Areas Knowledge Areas Components Project Integration management project plan development, project plan execution, overall project plan development, and execution, overall change control Project Scope Management initiation, scope planning, scope definition, scope verification, scope change control Project Time Management activity definition, activity sequencing, activity duration estimation, schedule development, schedule control Project Cost Management resource planning, cost estimation, cost budgeting, cost controls Project Quality Management quality planning, quality assurance, quality control Project Human Resource Management organization planning, staff acquisition, team development Project Communications Management communications planning, information distribution, performance reporting, administrative closure Project Risk Management risk identification, risk quantification, risk response development, risk response control Project Procurement Management procurement planning, solicitation planning, solicitation, source selection, contract administration, contract close-out

PMBOK of the PMI has practically become a global standard. The ISO 10006:97, ‘Guidelines to Quality in Project Management’, of the International Standard Organization includes processes covered in PMBOK. But the ‘Total Project Management’ includes many more processes than those listed in PMBOK and ISO 10006, and obviously, these processes will vary with projects and the organization. PMBOK of the PMI clearly states that their guide deals with the core subject of project management and it does not cover disciplines in General Management and Technology Management. The International Project Management Association (IPMA) guide covers the totality of the Project Management. The IPMA Competence Baseline includes 42 disciplines (UMIST study of APM, defines 44 topics on the knowledge and skills used and needed in project management). .

Table R.2: IJPM BoK A A1 A2 A3 A4 A5 A6

General Implementing Strategy Managing Programmes Managing Projects Success and Strategy Processes, Procedures Systems, Project Office

D D1 D2 D3 D4 D5 D6

Life-Cycle Integration Life Cycle Start-up Proposal and Feasibility Design and Appraisal Implementation Progress

G G1 G2 G3 G4 G5 G6

People Management Structure Teams Individuals Managing and Leading Stakeholder Competence

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A7 A8 B B1 B2 B3 B4 C C1 C2 C3 C4 C5 C6 C7 C8 C9

construction project management: planning, scheduling

Audits, Health Checks Systems Approach External Context PEST Legal Environmental Value, Benefit, Finance Implementation Functionality, Value Configuration Scope of Work Organization Resources Quality Cost Time Risk Safety and Health

D7 E E1 E2 E3 E4 E5 F F1 F2 F3 F4 F5 F6 F7 F8 F9

Commissioning and Close-out Commercial Value and Benefit Finance Cash Flow Management Taxation Insurance Contractual Organization Design Partnerships, Alliance Procurement Bidding Contract Administration Materials, Purchasing & Supply Commercial Law Claims International Projects

G7 G8 G9 H H1 H2 H3 H4 H5 H6 H7

Culture Ethics Change General Management Human Resource Management Marketing Operations Information Technology Finance & Accounting Strategy Technology, Innovation

R.3 SKILLS DEVELOPMENT MODEL To manage construction projects, mere knowledge of the project management discipline is not enough. What is needed are the skills to apply this knowledge. These skills are acquired with knowledge and experience. Fortune 500, project manager’s competency model is depicted below. In the fast changing technology, project management skills up-gradation is a continuous process. Skills needed for managing construction projects covered in the Lesson Section 1.10, are tabulated below:

Source: pm Network: The official magazine of the Project Management Institute, July 1998

S. No 1.

Skills Category Managerial skills

Knowledge Areas Project Management tools and techniques · Project Scope Management · Project Time Management · Project Resources Management ·

Project Cost Management

·

Project Information Management

·

Analytical Decision–Making Techniques

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2.

Leadership skills

Leadership Effectiveness Project Site Organization & Management Project Human Resources Management Project Communications Management

3.

Technical skills

Construction Management practices · Construction Technology Management · Project Quality Management

4.

Conceptual skills

· Project Contract Management Project Integration Management Project Risk Management

The skill development model for a given project or accomplishing organizations goals, can be developed by considering the processes to be handled for achieving the objectives and linking these with the knowledge areas. To example, a matrix showing the project management training model developed for a reputed public sector financing and construction company to meet its stated needs is shown below: PROJECT MANAGEMENT SKILLS UPGRADE Based on ISO 10006 and PMBOK (PMI Standard of USA) Designed for a reputed Public Sector Company Project Processes

Project Management Knowledge Areas Scope

Project Formulation Project Management basics Feasibility study Appraisal Cost estimation

Time

Resc.

Cost

Qlty.

Cont.

Risk

Ldr.

4 4

4 4 4

4 4 4 4

Manpower Planning Material planning

4

Equipment planning

4

4

Cost Planning Budgeting. Quality Planning

4 4 4

Org. Planning Risk Planning Contracts Procurement Communication. Planning Project Execution Leadership motivation Site organization &layout Safety management Quality. assurance Team management

Intg. 4

Project report writing Project Planning Design / Drawings system Work breakdown Activity networking Time scheduling

Comn.

4 44 4

4 4 4 –

4 4 4

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Communication Contract law & admn. Project Control Scope Control

4 44 4

Resource Control Cost Control

4 4

Time Control Quality control

4 44

Risk control PMIS

4 4

Project Close-up Admn. Close Contract. Claims/Arbt. Project close-up Report Contact period ( hours) Tutorial exercises( hours)

4 4 4 6

6

6

6

6

3

3

6

6

6

6

6

6

Note. Above excludes training in project management software.

R.4

SKILLS UP-GRADATION METHODOLOGY

‘Education is the organized and sustained instructions designed to communicate a combination of knowledge, skills, and understanding valuable for all the activities of life, developing both a depth and breadth of knowledge and understanding’. Training focuses on the development of narrow competencies or skills that will be applied to a particular task or in a particular context. The methods of education and training have undergone a sea change, as is evident from the table given below: How do people learn best? Traditional approach

Modern approach

Lecture Individual learning Student as listener Instructor as source Stable content Homogeneity Evaluation and test

Facilitation Team learning Student as collaborator Instructor as source Dynamic content Diversity Performance

The education and training for the development of the Total Project Management processes can be divided into the following categories: · Academia-directed project management education: In–institute or distant learning approach. · Corporate-directed project management training: In–house seminars conducted by experts or online distant learning teaching ending up with contact seminars. ·

Individual–directed self–learning education and training: Own time self study using

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published literature. · Distance learning in virtual classroom to speed up delivery. R.5 ACADEMIA–DIRECTED PROJECT MANAGEMENT EDUCATION Project management education is the organized and sustained instructions, designed to communicate a combination of knowledge, skills, and understanding valuable for all the project activities. Academia-directed project management educational program for individual and corporate are conducted by universities and technical institutes. To quote example, such program are now available at post-graduate and doctoral levels in the following universities in the USA. Some Project Management Degree Programme in the USA S. No 1. 2. 3.

University / Institute George Washington University www.sbpm.gwu.edu/programs/mspm University of Quebec University of Phoenix

M Sc, Ph D B Sc

4.

University of Calgary

M Sc, Ph D

5.

Western Carolina University www.cess.wcu.edu/cobmpm. Northwestern University

MPM

Boston University www.butrain.bu.edu

-

6. 7.

Degree M Sc, Ph D

MPM

Remarks Since 1996. Both Campus and Distanct options. M Sc since 1976. Largest provider of distance learning-based degrees. Eligibility minimum 5–year experience in the industry. Includes specialization in construction project management. All instructions conducted on internet. These are for qualified civil engineers. Training project management teams.

Source : PM Network May 1998.

Most of the above universities base their curriculum on ‘Guide to project Management Body of Knowledge (PMBOK)’, standard of the Project Management Institute of USA. The project management knowledge areas included in PMBOK are tabulated in Table R1. Education in project management can also be conducted in ‘modules’, ‘packages’ as well as for the total knowledge areas. Project management education package can be divided as under:

·

About one-month duration course for each module, at one time. These modules include scope, time, resources, cost, quality, procurement ( contract), leadership, communication and risk management. · Four -month duration ‘Construction Project Management Techniques Course (CPMT)’. · Nine to twelve months duration ‘Total Construction Project Management (TCPM)’. This training can bring the student at the educational level of the universities in USA. Each of the knowledge areas can be made a project management training module. To quote an example, the contents of a Project Time Management and Project Risk Management modules can

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include the following: Project Time Management: Tools and Techniques Processes

Tools and Techniques

Output

Activities Identification

Project Work Breakdown

Activity List

Activity Duration Estimation

Estimation Method

Activity Database

Activities Networking

Project Network Analysis

Critical Activities Floats of Non-Critical Activities Project Completion Time

Project Schedule Development

Simple Project Scheduling

Bar Chart

Complex Network-based scheduling

Time-Limited Schedule Resource-Limited Schedule

Project Time Control

Repetitive Projects

Line-Of-Balance (LOB) Schedule

Time Updating Techniques

Completion Time Plan

Time Crashing Techniques

Project Review Report

What–if Analysis

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Project Risk Management: Tools and Techniques Processes Risk Identification

Risk Assessment

Tools and Techniques Information source analysis Management process analysis System flow analysis Work breakdown analysis Check list scrutiny Brain storming Risk quantification techniques Risk ranking techniques

Risk Response Planning

Risk mitigation methods

Risk Response Control

Monitoring risks Risk status reporting

Output Sources of risks Potential risk events

Risk categorization Risk response strategy Contingency plan Risk- related corrective action

On campus vs distance learning approach. Academia directed education can be conducted within campus as well as through distance learning media. On-campus educational institutions have some advantages over the institutions conducting distance learning. On-campus institutions provide access to information and instruction infrastructure like libraries, laboratories, research and experiences beyond what instructor teaches. On-campus environments encourage socialization and formal and informal out-of-the-class interaction. But distance learning online education and training methodology, conducted in virtual class rooms and ending up with on–campus seminars, can outsmart the on-campus as well as distance learning correspondence methodology (Section R.8 of this Appendix). R.6 CORPORATE-DIRECTED PROJECT MANAGEMENT TRAINING In today’s dynamic environments with fast changing technology, the organization needs mechanism to react faster than their competitors. This has made in-house updating of knowledge and skills a continuous process. Therefore, the organization will have to make knowledge available to its members and to train them, when and where the need arises. In–house corporate directed training focuses on the development of narrow competencies or skills that will be applied to a particular task or in a particular context. In the in-house training, organization decides on the members to be trained for achieving the desired goals. The in–house training can be conducted through seminars, workshops, courses, consultants / mentors and online distance learning programme. One of the ways to speedily enhance knowledge and skills in project management in a construction organization, is to have a project management “mentor”. The mentor is an individual retained by an organization to play the role of an advisor and knowledge promoter. A mentor must be a seasoned project manager who has "been there, done that, faced it up and lived to learn from the experience." Mentor is not a consultation firm. Mentor can identify and help in the development of knowledge, skills and experiences needed by the upcoming leaders of the organization. A mentor can conduct classes, conferences, workshops,

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and recommend books and publications to help in the project management practices. The mentor needs to be accessible to the organization and their project managers during the crucial periods such as the development of new systems, planning, tracking, re-planning exercises, and crises. In most cases, face-to-face contact of one to three days per month should be adequate as long as telephonic access is available within 24 hours. Mentors can help the organizations in assisting their project managers while they are at work. By this way, the project manager can avoid learning from their mistakes from project to project. Mistakes will happen at project sites, even with the best of managers and mentors, but with the active mentors there is bound to be continuous improvements. On the whole, the time and cost invested in acquiring a mentor is small compared to the benefits that can be gained. A mentor can also conduct training in a virtual classroom. This mode of training is explained in the subsequent section. R.7 INDIVIDUAL–DIRECTED SELF–LEARNING Traditionally professional books, journals and other printed material has been the main source of learning. But the technology now is changing rapidly. Due to the economic reasons, the hard–copy print media cannot keep pace with these rapid changes. The rapid growth in the information technology, has ushered in the multimedia approach to learn faster with updated knowledge and continuously updated skills. The learning material in project management is now available on CD–ROM. Authors and publishers claim that their CD–ROM is easy to use by saying that it is fully menu driven and it provides on-line helps. Therefore, an intelligent person, with technical background can easily go–through the subject. There are online project management CD–ROM teaching aids being used in some of the institutes in the advanced countries. Project Management Institute of USA has produced a CD-ROM on world-renowned Guide to Project Management Book of Knowledge. Further, the interactive CD of PMBOK is also included as instructional manual in the ‘Primavera Project Planner’ software. Dr. H Kerzner, an authority on project management, has produced an interactive CD-ROM to supplement his book on Project Management for training managers. There are a number of project management educational enterprises, which are running courses on the Internet on project management. In the field of project management techniques with construction application, the CD-ROM promoted by Tata McGraw-Hill, New Delhi, titled ‘CPMT’ (Construction Project Management Techniques), is probably the first of its kind in the world, specially as it is fully supported with the text book on “ Construction Project Management: Planning, Scheduling and Controlling”. It is a complete package for Skills Upgrading, Training and Implementing practices in Construction Project Management Techniques. The CD-ROM contains 18 lessons. Each lesson is in question-answer form, and provides the near summary of the material covered in each chapter of the book. Each lesson is supported with self-assessment objective- type questionnaire (SAQ), review exercises, real-life illustrations, with interactive data presentation, for online rapid-learning of construction project management techniques. The main drawback of the individual directed self–education learning technique is that face-to-face

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contact with the trainer and the colleagues is missing. Virtual classroom learning environment overcomes this drawback with many additional features. R.8 DISTANCE LEARNING DELIVERY

IN A VIRTUAL CLASSROOM TO SPEED UP

Learning faster than competitors – through distance learning process- is one of the hottest topic in education and training. With the rapid developments in digital, multimedia, and telecommunications technologies, the move to integrate the Internet in teaching and learning is rapidly gaining momentum. There are number of institutes and universities in the world, imparting education and training on the Internet. The educational process of learning over the Internet without having face-to-face contact is known as virtual learning. Learning can be individualized through virtual classes on the Internet. Students retrieve information via telephone, modem, and computer from anywhere in the world. A virtual class is not limited by geographical location, time, or space. Learners learn at their own speed, at times convenient to the learner, either from work place or from home. The Internet replaces conventional lecture halls and classrooms, creating new opportunities and challenges for teachers and learners. To quote an example, the World Bank’s African Virtual University is bringing knowledge to an undereducated continent( Africa) – via satellite. Launched in 1997, this university enables students in African countries to take courses taught by professors from universities around the world. Harvard Business Review ( September–October 1999) calls it as the ‘best practice’. Further, there is a virtual university in Malaysia. The rapidly changing technology demands that both the teacher and the learner need to use the Internet to continuously upgrade their knowledge. The Internet places the learning environment of the whole world in a learner’s PC, with enormous learning opportunities. Internet employs different media for learning such as e-mail, web pages, web bulletin boards, chat, and online courses. Internet's instructional opportunities do not require much of skills in the personal computer. There is no need to suddenly learn HTML programming for the Web. It uses everything from e-mail to slide shows on the Internet. Even the power–shortage cannot pose serious problems in online environments. The online education and training methodology, conducted in virtual classrooms outsmarts the on-campus instructional methodology. Internet based distance learning approach provides the means to continuously update knowledge and skills, better than the traditional classroom approach that often repeats the text-book recorded past events. It delivers knowledge, when and where needed, at faster rate, to upgrade the skills, using most appropriate technology. At the clicking of a mouse, it enables access to the knowledge stored in the world libraries. R.9

CONCLUSION

The unprecedented rate of emergence of new technology calls for continuous updating of managerial skills. The construction projects thus will have to resort to outsourcing to just-in-time

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training rather than live with just-in-case-a- situation-arises type of education. The emerging trend is to develop managers competencies based on corporate goals. Training performance are subject to return-on-investment analysis, and not just on the "reaction sheets" compiled at the end of a training workshop. The various methods that can be employed for upgrading skills in project management are:Re-engineer corporate heavily-staffed training centres ( where existing) by changing their role as "training co-ordination centre" and conducting job-related training by employing expert consultants /monitor who possess know-how. Use online electronic media delivery methods such as the Internet, teleconferencing and CD-ROM. These enables access to up-to-date knowledge, as and when required, rather than waiting for several weeks for a new training session to begin. Encourage self-initiated learning practices in managers using distance learning programmes, specially during non-traditional delivery hours such as evening / week-end classes. This will help them in gaining new insights, skills and tools needed to keep the competitive edge in the fast-paced global market for shaping their future career. In turn organizations also gain from their acquired knowledge. Corporate firms can adopt construction management training institutions /consultants to provide customized state-of-the-art knowledge and know-how, and act as mentors to managers as the project grows. Colleges and universities should impart customized training to managers on construction related subjects at post graduate level, as and when required. In addition, universities can conduct specialised courses, like the 'Master in Science in Project Management' being conducted with in-campus and distance learning options by the George Washington University. It is the virtual classroom Internet based education and training system that enables imparting knowledge speedily. It provides the win-win environment for all the participants. It maintains consistency in education in the whole organization. For the learner, e-mail based online distance learning reduces travel times, unproductive costs, enables delivery at home, with no disturbance in job assignments. It can provide training to more people in more subjects, in a much more cost effective way than ever before. The trainer can impart job required training to more people at less cost and learners get training at cheaper rates.