THE COLLEGE OF ESTATE MANAGEMENT
Construction Planning, Tendering and Finance
ASSIGNMENT 1
SHAPOLA MUTYOKA - 1100984
2015
QUESTION 1
The managing director has asked you to write a paper giving best practice advice, for the supply
chain participants to have as guidance. The paper is to compare and contrast the use of, and
benefits from, bar charts and project network models as means of programming work awarded
under the SCM arrangements.
Write the paper, illustrating your advice with examples of best practice.
Introduction
It is important to note that supply chain management is a recognised function of successful
business management the world over and that the construction industry is no exception. It can
therefore, not be over emphasised that if our business is to enjoy future success, more effort will
have to be made at improving supply chain management.
CEM (2009: Paper 1902) describes supply chain management as:
the management and co-ordination of the whole supply chain from the supply of raw materials
through their procurement, transport, manufacturing, assembly, delivery to site and installation
to completion, commissioning and handing over to the customer on time, within budget and to
quality that is expected.
This paper is aimed at giving best practice advice, for our supply chain participants to have as
guidance when programming construction works awarded under supply chain management
arrangements.
It is worth noting that there are many methods of programming construction works but that this
paper will be restricted to the use of bar charts and project network models. The paper will
attempt to compare and contrast the use of, benefits from, bar charts and project network
models giving examples along the way. At the end, a recommendation will be given based on
the comparison of the two methods.
Bar charts
This is perhaps the most frequently used type of programme and it shows a list of those
activities required for the project. The planned start and planned finish of each activity are
shown in a time grid connected as a bar. The bar chart is also commonly known as a Gantt
Chart.
Advantages of bar charts
Bar charts are easy and quick to prepare and can be used to show estimated timing and
duration of activities or to record actual progress.
Bar charts are time-scaled (that is, the length of the activity bar represents the time
duration of the activity).
Bar charts are easy to understand.
Bar charts can be loaded with more information such as cash flow diagrams and manhours.
Bar charts are more acceptable for presentations, especially for field people and people
who are unfamiliar with network models.
Bar charts do not require computers or special software as they can be drawn easily by
hand.
The types of activities are not limited, since the bar chart is simply a diagrammatic
representation of the time characteristics of an activity.
There is no logical restriction to the number of activities that are shown against an
activity.
Disadvantages of bar charts
Bar charts do not model the inter-relationship between activities, and does not model the
consequences on expected completion if the actual duration is not met.
Bar charts are limited to monitoring progress rather than forward planning of the project
due to the absence of logic links between activities.
Bar charts do not show sufficient detail. This presents a risk of schedule slippages, time
overruns, improper decisions and contract complications. This is a major disadvantage
especially for large and complex projects.
Bar charts do not show the logical sequence of operations.
Uses of Bar charts
Can be used to plan time scale for a project.
Can be used to estimate resources required.
Ideal for use as a wall chart in the office and easy to visualise and interpret at meetings.
Helps to plan, coordinate, and track specific tasks for a project.
Good for small projects when the number of tasks or activities is small and not complex.
Compared with Network models, Bar charts have an effective weapon when it comes to
presentation owing greatly to its simplicity. Senior managers are usually not concerned with the
progress at the individual activity level of say fixing of reinforcement. They rather like to get an
overall picture of the project and main components. Therefore, instead of looking at hundreds of
activities managers would be looking at a few bars that give the overall picture of the progress
of the project.
Network models
Network model is a programme that does not only show the activities and their durations, but of
their interdependence. They represent the time characteristics of the project, not just each
individual activity. There are different types of network models but the most used models are
Critical Path Method (CPM), Program Evaluation and Review Technique (PERT), and
Precedence Network Analysis (PNA).
Each of these three techniques has a distinct model with a varying field of application.
Experience has shown that:
CPM is ideal for developing the sub-networks of sub-groups and task activities with
deterministic single time duration.
PERT is useful for project feasibility reports and sub-projects or tasks involving
uncertainties.
PNA on the other hand should be used for time planning of construction projects.
Advantages of Network Models
Unlike bar charts, network models show logic of activities.
Networks can better represent large and complicated projects.
Networks can estimate the completion date of the project.
Good communication and planning tool for time management.
Identifies interrelationship between different tasks or activities.
Disadvantages of Network Models
Networks can sometimes appear too complex and time-consuming to prepare in the first
instance.
Key uncertainties often exist when estimating the duration for activities, therefore can be
a poor prediction for elapsed time. Overly optimistic durations can result in the project
not being completed on time, whereas pessimistic durations can result in under usage
of resources.
Complexity of the diagram will increase as more activities are included.
The use of Network models
Models can be used to calculate the estimated time to complete the project.
They are a good visual communication and planning tool for effective time management.
They also enable more effective resource planning; resources can be diverted away
from non-critical to critical activities e.g. staff could be moved from one task to another,
should problems of overrunning occur on critical activities.
They help in highlighting critical activities which must be completed within their planned
time, otherwise the elapsed time of the project will not be achieved.
Network models can arrange tasks or activities into an optimum sequence of events
allowing a project to be completed in the most efficient time possible.
Conclusion/ recommendation
As described above Bar Charts have serious and ever-recognised shortcomings when used for
the original development of project management information. The interdependence among
activities is difficult to show and often is not reflected in the data generated. Additionally, the bar
chart itself does not provide a basis for ascertaining which activities are critical and which ones
are not. Consequently, each activity receives the same consideration with no indication of where
management attention should focus. It is therefore not recommended for use as a planning and
scheduling tool because it does not portray a detailed, integrated and a complete plan of
construction operations. However, its visual clarity makes it a very valuable medium for
displaying job schedule information. It is recommended for presentation especially to people
who have no knowledge of network models. It also offers an easy and convenient way of
monitoring job progress and recording project advancement.
Network models on the other hand should be used for planning and as a diagnostic tool.
QUESTION 2
Basic resource costs of labour and materials are similar for all supply chain sub-contractors
submitting quotations for packages of work, yet the amounts quoted can be quite different.
In an essay, explain the distinguishing factors that can be the reasons why quotations
can vary across competing sub-contractors.
Basic resource costs of labour and materials are similar for all supply chain sub-contractors
submitting quotations for packages of work, yet the amounts quoted can be quite different. All
things being equal, the amount is expected to be similar. So what is the difference? Why is
there a range in prices? Each subcontractor sees the packages of work differently? Are
differences in quotations due to materials? Was there a simple mistake in getting a right price
for the right item? Or was there a mistake in estimating the quantity?
This paper explains the distinguishing factors that can be the reasons why quotations can vary
across competing sub-contractors.
It is important to note that a quotation from a sub-contractor is not only made up of basic
resource costs of labour and materials. It is made up of the net estimate, overhead budget,
baseline profit and the risk margin. It is typically a combination of these factors which make a
difference between quotations obtained from competing supply chain sub-contractors.
Net estimate includes labour, plant, materials and project overheads. Overheads are the costs
entailed in administering the company and they cover such things as rent, salaries, office
equipment, telephones, cars, stationery, lighting, insurances on office and staff, interest on
capital borrowed and so on. Baseline profit on the other hand is generally set for the year by the
firms business plan while risk margin is the contractors assessment of the special risks and/ or
the commercial attractiveness presented by this particular project. The source of material can
also to a certain degree affect the amount quoted.
Some sub-contractors have good relationships or connections with suppliers and are able to get
cheap materials. A subcontractor who owns a block making plant for example might prove to be
cheaper when quoting for block work package of work when compared with someone who
depends on purchasing all the materials required for the job.
Even though basic resource costs of labour and materials are similar for all supply chain subcontractors, other factors such as equipment can prove to be a distinguishing factor that can be
the reason why quotations can vary. Some contractors own equipment while others depend on
leasing. The amount quoted by a sub-contractor who does not own equipment is expected to be
higher than one who owns equipment as the former is expected to add a mark-up to the
operation cost of equipment charged by the hire firm.
At times, a subcontractor with better equipment can prove to be cheaper when compared with
one who has low output equipment.
As indicated above other factors that can prove to be a distinguishing factor on quoted amount
include overheads, margins, and profit.
The time allowed for can also be a distinguishing factor on the variation of quotations. It is not
un-common to have quotations from different sub-contractors each indicating a different timescale for the same work package. It must be mentioned that the cost of doing work is directly
related to time. Therefore a subcontractor with a longer time-scale is likely to have higher
overhead costs.
Another distinguishing factor is the type of crew being employed. Some sub-contractors have
more productive crews than others and are therefore, able to finish the same amount of work at
a much shorter time. This will subsequently lower the cost of doing work as it is costly to keep
the crew on site over a very long period of time.
Some sub-contractors will opt to use hired labour. This is likely to push the cost of doing work as
they are likely to add a mark-up to the actual labour cost.
The size of the organisation can also be a distinguishing factor to the variation in amounts
quoted. Bigger organisations usually tend to have higher overhead estimates than smaller
counterparts.
Estimating methods can also be one of the factors that distinguish the amounts quoted by
subcontractors. Some estimators simply look at the cost of materials and add a percentage as
mark-up while others employ cost based approach which takes into account all the costs and
only add a mark-up at the end.
A method of doing work is also one of the distinguishing factors that can be the reasons why
quotations can vary across competing sub-contractors. A contractor using an excavator for
excavation for example is likely to incur a different cost compared to one employing manual
excavation. This will therefore reflect on the quoted amount.
Other sub-contractors have through experience come to appreciate how much it actually cost to
do a job. At times in-experienced contractors may submit a quotation that does not reflect the
actual cost of doing work. This also is one of the distinguishing factors that can be the reasons
why quotations can vary across competing sub-contractors.
Knowledge of the scope of work can also be a distinguishing factor in the amount quoted as the
sub-contractor with enough knowledge is likely to have a more accurate quotation.
Subletting of work with a mark-up on top of mark-up can also be a reason why amount s quoted
can be quite different.
It can be concluded that much as basic resource costs of labour and materials are similar for all
supply chain sub-contractors submitting quotations for packages of work, the difference in the
amounts quoted can be largely attributed to the above highlighted distinguishing factors.
QUESTION 3
The firm finds it difficult, at times, deciding whether to tender for projects in competition with
other tenderers, when work is forthcoming on a collaborative basis from the frameworks with its
regular clients.
In an essay, consider the implications of such difficulty and justify decisions to decline
offers of work, whether to new clients or regular clients.
In the construction industry, a considerable number of projects are let by competitive tender.
This simply means that a number of contractors are invited to tender and only one will be
accepted to carry out the work, so there will be others who will be unsuccessful.
The firm must therefore think carefully about whether or not to prepare and submit a tender. It
is an expensive and time consuming process and this must be weighed up against the likelihood
of being successful in being appointed to execute the works.
It is therefore not surprising that the firm finds it difficult at times deciding whether to tender for
projects especially when work is forthcoming on a collaborative basis from the frameworks with
regular clients. I t must be mentioned, however, that before making a decision to either accept
or decline offers of work a number of factors must be considered as this can have both positive
and negative implications on the firms business. A decision to decline offers of work must only
be made with justified reasons.
When an invitation has been received, the first decision to be made is whether or not to bid.
Under normal circumstances, the firm would tend towards acceptance of an invitation unless
there are good reasons for not doing so. Not bidding for a project could result in losing a good
business opportunity to make profit for the firm, improve the firms strength in the construction
industry, gain relation with a new client, maintain an existing relationship with a regular client,
and more. However, accepting inappropriate projects may result in large losses or the
consumption of time and resources that could have been channelled to more viable projects.
This can ultimately lead to financial failure of the firm.
As indicated above, deciding not to accept offers of work will present both positive and negative
implications. Positive implications of declining to tender include the following:
The firm will save time and money spent on bids with little chance of winning.
The firm will keep proposal win rate high by being selective in tendering.
Firms morale and enthusiasm will be maintained by having more wins and saying no to
bad bids
This will require less administration resources
On the other hand, the negative implications of declining offers of work will include;
Declining an offer of work will remove the possibility of securing that contract, revenue
and profit.
Deciding not to tender will also remove the possibility of commissions and bonuses from
that contract.
This may also remove the firm from future client bids for that location. Where the client is
influential in the industry or has a regular programme of work, the firm may prejudice its
chances of future invitations to tender if it rejects a tender invitation outright. To avoid
this, the firm may consider submitting a high price which is unlikely to be accepted,
rather than declining the invitation to tender.
Justification for decisions to decline offers of work.
As indicated earlier, a decision to decline offers of work, whether to new clients or regular clients
is not a straight forward one and must only be considered using justified reasons. One of the
reasons that can be used by the firm to decline offers of work is the workload of the company at
the time of receiving an invitation. The firm must always ask how much work is currently being
undertaken and whether it has enough capacity to take on extra work. If the workload is too
much the company can decline an offer instead of accepting and failing to deliver.
Another reason that can justify the firms decision to decline offers of work is the composition of
the design team. The firm may simply not want to work with certain architect or consultants. If
the firm notices that the design team comprise members that are not easy to work with, it can
opt to decline an offer. It must be mentioned that the success of every project is dependent on
how integrated a design team is and that a fragmented team will not result in a successful
project.
The type of client may also be a reason to justify a decision not to accept offers of work. The
firm can decide not to be working for certain type of clients.
Location of the site can influence the decision to decline offers of work. A firm might decide not
to be accepting works in certain localities. Weather conditions can also be a justification for a
firm to decline offers of work. For example, it might decide not to be accepting earthworks jobs
during the rainy season due to difficulties in executing the works.
The firm can also decide to limit its scope of work and therefore decline any other offer that
comes outside of its scope.
It must be mentioned however, that any decision to decline an offer of work either from regular
or new clients must be done with tact and respect. To avoid being removed from upcoming bids
by a regular client, the firm should consider notifying the client in writing as soon as possible to
inform them on the decision not to tender. This will give the client enough time to consider other
bidders. It is also a good idea to call the client and let them know promptly on the decision not to
tender. This will help in maintaining the personal and professional relationship healthy.
Word length = 2981 words
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