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ENGINUITY 2018

Tutorial
Copyright Virtual Management Simulations
Introduction
All the examples in the Tutorial are FICTIONAL, and are not related
to data being used in any Enginuity Competition, or for trialling.

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Contents
INTRODUCTION
The Challenge
Forming A Business Strategy
Overview Of The Decisions To Be Made

MAKING DECISIONS ASSESSING PERFORMANCE INDUSTRY INFORMATION


Financial Decisions Key Performance Indicators Timeframe
Parameters Defining
Overhead Decisions Performance Summary
Environment
Procurement Decisions Management Consultant Report Global Economic Outlook

Job Progression Decisions Analysis Tools ENN World News


World Events
Resetting Decisions
Country information
Exporting Decisions
Client information
Exporting Information

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The Challenge

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Forming A Business Strategy
A
As
Aftersmartly
Having
GROWTH
We well
OBJECTIVE as
met designed,
the
the
a thorough
will now status
look well-executed
ofexample
review,
at an the
objectives, company,
thehave business
to
wesetting
following
of also
key strategy
develop
achieved
objectives
and a the
Navigate to
reviewing isstrategic
"Mainindispensable
strategy
are for for
set ASSESSING
the
goal
menu/Assessing
company the not
business
ASSESSING
of only
increasing
foreseeable PERFORMANCE
theto new
performance/Overhead
strategy. an
PERFORMANCE
the value
future, allof
analysis/Market 
trend"
organization’s
management
the
aimed
To business,
Efficient long-term
team
atmanagement
increase :- the
market need
improving
operating
average success,
toprofit
the look
ofturnover
share. the
turnoverHeadof but
closely
company’s the to
Office,
each its
at very
the
reputation,
business.
QHSE
period. survival.
predicted
and and Simplyeconomic
global
increasing
Measurement having
the one
company
Departments. does
environment not price
share giveinyou?
Increase the average each period through a combination of :-
a
 competitive
which
A the company
UK-based advantage. It isconstruction
is operating.
multinational the depth, quality has been and in flexibility
existence of a
forbusiness
just onestrategy that 2017
year, during
Increasing the value of the business
Identifying
(periods
COMPANY
makes the
1 to a
VALUE larger
difference.
4),  share
known as theof the new work in the market,
History.
Navigate to "Main as outlined
menu/Assessing
Navigate to "Main above
performance/Performance
menu/Assessing summary"
performance/Performance summary"
Navigate to "Main menu/Industry information/The environment in which the company is operating"
 Keeping shareholders happy
 ByExpanding the 8company’s
the end of period company value infrastructure,
had increased by known
11%. as the capital base, to support more work
A Improving
new management the company’s
teamreputation
have taken over at the beginning of period 5 (2018 Quarter 1).
Competitive
The new management bidding in our need
team targettosectors
develop toasecure more jobs or business plan to :-
clear strategy,
To Grow
be able
KEEPING theSHAREHOLDERS
tobusiness
develop and improve
an effective HAPPY its valuethe new management team need to first look at the
strategy
Keep of
PROFITABILITY
MARKETING
status shareholders
the company happywhen they took control at the end of the History.
During periods 5 to 8 the company’s share price rose by 26%
 Enhance the company’s reputation with clients
Increase
To from 1.17 to market
increase 1.48. share, and
the operating the number
profit of new jobs
of the business by: identified by :
To do this we refer to information shown in the Performance Summary.
The Increasing
value
Progressing
This of the
was influenced the
jobssize
company
by won of as
dividendthe isMarketing
measured
profitably
payments, asDepartment.
changes byin a
possiblenumber
company of assets,
by completing Market such
shareas
them on the company
or before
improved cash
schedule,
from 12% to 28%
The average capital base was
account,
allocating
value,
Primarily capital
forward base the
appropriate
profitability
targeting (infrastructure)
and personnel,
the debt
Building burden ofand investments.
& effective
the risk sector
company,
Commercial
increased from 4.07m to 4.58m
andNavigate
cost management
to to
guarantee and
a flow
"Main menu/Assessing oftargeted
new work as summary"
performance/Performance it is
and external
investments. world events.
the largest, with plenty of new work for the foreseeable future in both the UK and Overseas.
This would
 Efficient also help toofbuild
management stronger
the Head relationships
Office, QHSE andwith clients in the
Measurement Building & Commercial
departments, to ensure
OBJECTIVES
sector in the
periods hope
5 to 8 of
the securing
that the staff can cope the company’s turnover.
During Head Office,repeat
QHSE work
and in the
Measurement future.
Departments were well managed.
However, REPUTATION
COMPANY it would be risky  toprofit
put all During
the marketing
periods 5 to 8effort in one sector,
the company’s reputation sowith
a reduced
clients improved
By the
Developing end of period
an 8 the
effectivenet operating
strategy will had increased
involve ofacquiring a good understanding of :-
Therepresence
Bearing
are inwould
manymind thatbe
otherthemaintained
benchmark
areas that in
level the
was
could other
100%
significantly
be sectors.
the required
(client
considered, level to prevent
satisfaction)
and as jobsany
creating awereunderstaffing,
successfully
long-term allundertaken.
3
strategy is a
from 1.3% to 2.6%.
departments were more than adequately staffed.
The economic
 complex environment
task. Indeed, the strategy in which will the
have company is operatingreviewed, particularly as the
to be periodically
TheThe NEW WORK
economic strengths
operating and weaknesses
environment
profit improvement is
was constantly ofchanging,
achieved because the business
:- andas our it original
currentlyobjectives
stands may not have been
By
 The It
theis almost
end of impossible
period 8
job profitability (grossthe to achieve
market 100%
share of
had the required
increased
profit) improved from 4.5% to 4.8% levels
from 12% due
to to
28%.the required levels themselves not being
met.
During periods 5 to 8,The company is valued at 4.7m In line with an expected upturn in the construction industry
whole costs
 Overhead numbers, and
were hence
reduced
 The theend
By the
from
company slight
2.8%
share overstaffing
of period
to 1.6%
price did
is8 trading
thejob
of result
average
cost
at in a net loss
1.17turnover over
each the 4 had
period periods. However,
increased fromthis
8.2mis to 13.1m.
5 new
The contracts
strategy will consist of number of objectives relating
the overallto
in :-
worldwide, value of new work in the global
Thisnegligible compared
was achieved  by
To to the
:-date thefigure
companyif thehave
departments
identified had
12% been
of is understaffed.
the new work the market (market share)
ONE
The jobYEAR
were secured. LATER,
profitability improved howfor a did
number we of perform
reasons against
market
including :- the
predictedobjectives
to steadily that
increase were
from set ?392m
currently
 Identifying 
new
size work
59% ofThis
the was achieved
in different
company’s by :-
sectors eachand
infrastructure locations (UK/Overseas)
in period 5 to around 437m by the end of period 9.jobs
 Increasing the of the Marketing Department has
period. been utilised in procuring and progressing
 Excellent
Expanding project
TargetingOUTLOOK
thethemanager
Building choice
 The average turnover
& Commercial
Identifying more
in pernewperiod
particular, workto in
whichdate
the has beenfor
market
accounted 8.2m
64% of the new work identified. There was also a
 Effective
GLOBAL risk management
infrastructure of the business to achieve growth
steady presence  A gross
in other profit
 sectors, of 4.5%
in line (of
thewith cost)
the was made
original on
strategy.the work progressed
Winning
 Completing
For the UK
4new
jobsKeepwork
early
After
Construction
clicking
in
taking

a competitive
Increasing
Industryoverhead
it appears
Successfully
anywhere
costs that
bidding
company’s
and tax
there
winning newjob into
will
work
on
environment
infrastructure,
There
account
be a
the
the
period
building &overhead net
of
screen
appearsortocapital
be work base,
operating
uncertainty
commercial sector.
to
profit
during
advance
in alltosectors,
enable more
was
the 1.3%
Brexit
work to
particularly
(of
in be
theundertaken
cost)
process , but it is
Improving
 Targeted profitability
investments Theto reduce
company through
joborder
costsbook effective
looks healthy,and with a forward workload management
of 21.9m
hoped that growth will begin to improve from
 Progressing mid 2018
the work won onwards. Further afield, outside the UK, there is optimism of a
quicker global upturn for the Construction Industry.
Overview Of The Decisions To Be Made
MAKING OVERHEAD DECISIONS
LABOUR
PROJECT MANAGERS Overheads are the MAKING non-contract based support services required to
FINANCIAL DECISIONS
It is vital
INVESTMENTS to ensure the workforce
HEAD OFFICE, QHSE AND MEASUREMENT (labour) on the sites is sufficient
DEPARTMENTSenableMAKINGthe to company
progressJOBjobs in line procure
PROGRESSION
to identify, with theDECISIONS
company's
and and progressstrategy for job
work.
completion. Project managers are concerned with the overall planning and co-ordination of a project
Financial management involves :-
TheThe corestaff
business
in these of the company perform
departments from
is procuring inception
tasks andrelated toto
They consist of :- atjob
progressingcompletion
the Progressing
contracts,
company’s aimed and
a
jobs meeting
ifindone
awarded
progress the toclient's
successfully
:- requirements
the company
the company involvesand ensuring
will:-report a
A well-managed
healthy operating job willand
profit, be one
increase thecompletion
that either completes
company’s on time,However,
either
value. withinorcost
early on and
time.
there toLooking
are the required
alternative afterwaysquality
the standards. the
of increasing
shareholders’ value of the
interests
 Headsuch
company, Officeas staff deal withinbuying,
by investing accounting
other concerns, whichand may  4issues
IT or may
key departments;
Allocating
not be an Marketing, Head
appropriate
construction-related. project Office,
manager QHSEtoand Measurement
oversee the job
 QHSE staff deal with quality,
There are two types of labour that can be health & safety
A employed and
project manager 
environmental
on a job with 
Non-departmental
Allocating
:- well-matchedissues  overheads,
labour
Trying to to such
progress
increase as
the
theidle
job labour
through
value of
experience for a particular type of job will handle and
theto idle
company project
completion by
 Measurement managers BIDDING FOR A JOB
There are two waysstaff (quantity the
of increasing surveyors) ensure
available
company’s that
resources
value money
through more isefficiently,
recovered:-
investments making
from a
whilst the the
client
best
project use of the
manager withcompany’s
inappropriate assets
 The company's own labour experience will impair contract efficiency.
INVESTMENT
Subcontract
The task oflabour RETURNS,
the Overheaddepending
Manager is upon how well
to ensure thatthe The
the Overhead
investment
level A number
of is Manager
staff  Inelements
of
performing.
in each allisbusiness make
responsible
department up
areas
each foraperiod
:-bid. is ableperformance
monitoring to manage the to
company’s jobs in progress without any There deterioration
are a number in the of performance
project managers ofimprove
thethat jobs. company profitability
can be recruited with differing levels of
Planned
INVESTMENT
PAYING labour BENEFITS,
DIVIDEND
levels each that
TO period can
SHAREHOLDERS reduce
were expertise reduce
assessedin costs
during  Setting
on jobs appropriate
in progress,
ESTIMATED staffing
namely
COSTS levels
build orfor
riskeach
costs. department
eachthe estimating
market sector, stage as definedin order by tothecomplete the contracts
career profile. on time, and
theyAscan thebe used asdoes
company guidelines
more work, in setting the labour
or turnover, so levels. Directing marketing effort into
the staffing levels in the Head Office, QHSE and Measurementcannot
The estimated design, the
build 5
andmarket
site sectors
costs, which be
departments
Theneedcompany's was originally funded fromadditional
amanagers
share issue, altered.
will to be increased to cope withProject
the thatand
workload. are shareholders
employed by expect the company a return areoneither
their investment,
:- in the
form of a dividend, related to how well the company is The non-departmental overheads are the responsibility of others, and
performing.
THE CAPITAL BASE areManager
related toPool
ONCOSTS jobsawaiting
in progress.
 In the Idle Project allocation to a job
Any dividend
MAKING
MARKETING paid comes out
PROCUREMENT of thecash
DECISIONS account,
Allocated to anand reduces
ongoing Anjobthe value of theadded
additional cost business.to a bid to cover the contract costs
The capital base is the company’s investment in infrastructure over and above the design, buildetc),
(plant, equipment, buildings andand sitedetermines
costs, and includes :-
the level of work that the company can have in progress at any point in time, which limits the value of work that
The The
Each dividend
period the
Marketing paid to shareholders
company is
areoffered is one
aladder
number oftotheof key
jobsfactors
for whichthataaffects the company share price :-
bid is invited.
can be wonDepartment
on the Procurement on theScreen. winning and progressing
 Project contracts.
manager allowance

 Insufficient dividend will disappoint the shareholders and have a negative affect on the share price Contingency for risk
TheAny
Each jobs
period were
the identified
marketing bystaff
thebase
marketing
identify new department
construction in jobs
the The
previous
in the period
global depending
market, known upon the sectors into which
as prequalification, which thethe
changes
 Sufficient to thewill
dividend capital
keep the affect the
shareholders cash account.
'content', with nocapital
change base in canshare
the be :- price
marketing
company effort was directed.
 Amplemay then decide to try and win through the procurement
dividend will make the shareholders happy, and have MARK process.
a positiveUP affect on the share price
 INCREASED, reducing cash reserves, in order to supportThe further growth,
margin, and to
or mark up,secure
is themore
profit new to beworkmade on onthethe job.
There are two
Procurement types of
Screen.jobs that
There can
are be bid
limitationsfor :-
on the increase possible
All jobs belong to one of 5 market sectors: Industrial, Building and Commercial, Transport, Energy, Water and Sewage. each period, which can vary by period.
The affect on share price is determined by the % of the company's current equity value that is paid as a dividend.
 Build Only, whereincreasing
the client has already hadwhich the design The competition
produced, and for
the contractor each job comes
is for
only from
responsible a numberif the of
orfor known,
build
Thevalue
DECREASED,
and number of jobs that cash thereserves,
company can prequalify may be desirable
for
and in any if money
unknown, period rival
is governed
is needed
companies. byother
a
Each
things,
number of factors :-
The
Designcurrent
capital and equity
baseBuild, value
is notwhere is the
being the
fullynumber
contractor
utilised. ofThere
shares
has in limitations
circulation
responsibility
are for multiplied
both
on thethe ofbythe
% design the current
and
capital thebaseshare
buildthat canone
price. has their
be sold own unique
off each
 Theperiod,
size of which
the Marketing
can varyDepartment
by period. (number of company staff) profile and bidding history, and a careful assessment of them is
 In
Thebothsize
 completing
cases
Where the marketing
Keep clicking anywhere on the screen to advance
of theit global market
is assumed
effort
(value
that and number
the estimators
is directed
haveof jobs
produced required
available) an accurate to determine
assessment the margin to betoadded.
of the costs be incurred in
the job, along with planned (5 potential
labour levels sectors
for each of work)
period of the planned duration of the job.
Financial Decisions
Financial management involves :-
 Looking after the shareholders’ interests
 Trying to increase the value of the company by making the best use of the company’s assets
 In all business areas monitoring performance to improve company profitability

Making Financial Decisions

Company value
Cash account

Overdraft limit
Gearing ratio
Capital base
Calculating capital employed
Investments
Corporation tax
Profit definitions
Dividend
Factors affecting share price
Making Financial Decisions
Apart from paying dividend, each
Navigate to "Main period the
menu/Making
Finding Financial Manager
decisions/Financial
an investment opportunity
In addition
The value that
oftothe
the could
decisions/Assessing
offers
current
good
Company choose
financial
investments,
returns
at any tois
and
time leave
performance/Share
there
benefits the
price
areis
measured also
notbyrest
its of
analysis"
aalways
the financial structure of the companypossible, unchanged,
and often keyassets, The
and and
decisions
selection dividend
simply
ofhave
other
the to payment
hope
companies
otherbemain
made comes out
toresponsibility
earn some
balancing
that can of
beof the
risk cash
interest
invested
theand account,
from
reward.
in, and
Financial
these and
can the
be value
viewed of the
using company
the Add is reduced
new by
investment 117,000.
option.
a credit balance in the cash account.
INVESTMENTS Manager is to make the best use of the assets to try and
The core business of the company is procuring For example, an investment
and progressing increase opportunity
contracts, the and company may
if done arise
value. that offers the
successfully substantial
company build
will cost
report
savings in the Building and KEY
Commercial POINTS sector, in which the company are very active.
a healthy operating profit, and beincrease the company’ssince value. there However, there are alternative ofways of increasing the value
However, this would short-sighted, However, the investment Afterreturns are
Because
paying may other
not
dividenddividend
be ways
very payments
good. manipulating
the assets consist of :- reduce company the value, aof
the company, such
company’s assets to improve the company’s value, involvingas by investing in other concerns, which may or may not be construction-related.
the transfer of funds between
careful balance has to be struck between paying the
cash
INVESTMENTS account,
There are two THAT capital
ways CEASE base
of increasing TRADING and investments.
In this scenario,
the company’s valuethe through Financial
CASH dividend
Manager
investmentsIN THE :- levels
must decide
BANK to keepifshareholders
(-349,040) the net gain from happy, cost whilst not
Investment concerns that are reductions outweighs the This riskcan compromising
thateither the investment the
be in credit may financial
or in run stability of
into difficulty,
overdraft, the
when itand business.
is cease
 Investment returns; thatperforming
change the badly value can of the investments
Since period 1 the company has paid dividendtrading, of 2% of
a decision equity every
that could period
impact (8%
a on per
the annum), and this has kept the
Although
go bust,
INVESTMENT and cease
 Investment these changes
trading.
benefits;
BENEFITS that reduce do not costsimmediately
on jobs in progresschange consideredthe value of profitability
liability. the company, of the company. by the end of
shareholders content, as we can see from the Management consultants The overdraft report. limit is defined in the Industry information.
the As
DIVIDEND period the affects of the changes will have been felt, including, amongst others
well as investing in other companies to yield a better return than can be obtained from the bank, there :-
is potentially an
How even do
We can we
more know
examine
lucrativeif one
each of
reason our
of the for investments
company’s
investing may
Dividends
In period 5are we? taxable
will continue payments to pay declared
dividend bycurrent
in company's
otherinvestments
ata this
concerns. by directors
level. board of
using theand Display givendetails option.
to its shareholders, normally quarterly.
cease
CAPITAL trading
BASE CAPTAL BASE (4,173,998)
They Capital provideBase an incentive affecting to own the stock value in stable of jobs companies thateven canThis ifbetheysecured
isby
are not experiencing
thethe company’s during the much bidding
growth. process
TheIflevel enough of futuremoney workload
is invested (turnover)in particular that can be undertaken
concerns, costs may is limited be reduced sizework
on of the ininvestment
company’s
progress incapital
in plant, equipment,
specific base,
sectors. as shown facilities,
on

The
the
AnKEYInvestment
clues POINTS
increase
Procurement lie in in the It changes
company
isinformation
period value
5, yielding
and for can be
investors,
the returns,
achieved
Financial which in
Manager and
several increasing
needs ways. to buildings
review operating
theetc (infrastructure),
financial profit
structure through
which
of the cost
determines reductions
the level of
The dividend expectations
Shareholder paidScreen. to shareholders can change is one asof the theoperating
key factors that affectsofthe company share price :- may be higher or lower than
should There beare carefully
two monitored
company,
types of cost and eachdecide
reductions period upon :-for signs
any changesperformancethat need work to be the
that made. company
the company changes,
can undertake.and
All
MAKING
thethe the
History financial
EFFECTIVE
level.may decisions
Thisbe will
USE have an affect on the cash that needs to be paid to keep them happy. may already be in overdraft
account, and it may go into overdraft, or it
The
that
The  from long-term
Insufficient
capital company base dividend
of 4,173,998 inaffect
objectives
will
OF THE
trouble.
disappoint
can
the level
support
COMPANY’S
of the
of dividend
the
up Financial
shareholders
to
ASSETS
41,739,980 andofthe Manager
reduce
workload. the share
Since are theto
price look
current after
forward the interests
workload is only 21,872,190 of
 Build
A number the cost last One are
period.
of choices reductions; of available
the thesemain :- responsibilities
are earned by investingof in businesses Financial that supplyManager is
commodities to look that are used directly in the
the shareholders, and make effective decisions INVESTMENTS to (892,066)
ismanipulate theare company’s inassets
(the
SomeSufficient
value of dividend
work
benefits ofafter
additional still
points towillbe
the
to keep
completed
interests
note the
about shareholders
on ofthe
investments theJob content,
Progression
company’s
:-large with no change
Screen),
shareholders. in
there the isshare
still price
scope for winning more work.
IfThe
Consider
INVESTMENT
an investment
constructionthe example
RETURNS
investing
concern
phase, such
ofmake
in
ceases
Stressed
the
as Zenor
trading
materials
Out
Group,
Plc.,and a %plantof
Investors
a the e.g., sized
current
investing supplier
investment
The in an ofasphalt
construction
company’s recovered, company
cash materials,
as defined
would
investment in reductions
in the
reduce other Industry
build costs
concerns, build
for any may
which

and
The Using
Ample
This is cash
improve
Company dividend
not a to
was
great increase
will
the
originally
concern the
value ifCapital
thefunded
the shareholders
of
money Base
the
from from and
acompany.
sharesupport
very
the happy,
(equity)
cash further
and
issue
account growth.
increase
isof 5,000,000
used the share
productively shares price inof value
other 1,
areas, with but an equity
there is value
an of
overdraft
Cash
costs
information.
On
Any Transport
closereturns
in
increases the worktransport
vary
investigationor each
being
reductions sector.
period
undertaken.
of all the in depending
This
current
investments is clear upon
investmentsfrom the
affectwhich the
theperformance
phrase
the following
cash in
account, theof company’s
an
decisions investment,
but are
since profile
made
money and thateither
states
:-is being increase
“....
moved specialising
or reduce
between in
the
assets, value the
were
WithKEY Selling
thesent
POINTSsizea
off letter
a
of %the about
of the
capital the
Capital company’s
base Base
as it to
is, deteriorating
raise
19,867,790 cash, of new may
work be can not
required
bebewon. construction-related.
if the cash
However, account
once has
the exceeded
company’s the overdraft
procurement limit,
5,000,000.
limit,
of an
supplying as defined
investment.materials in theand Industry
plant to information.
contractors working in the transport sector of the construction industry.”
value
performance
 or
decisions
The  Risk
The ifaffect
the ofcost
larger the
onin
Capital
have the company
period
reductions;
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are
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Quit
Company Value
The value of the company at any time is measured by its assets and liabilities, which consist of :-

CASH IN THE BANK CAPITAL BASE INVESTMENTS


The cash balance can be :- The company’s investment in The company’s cash
 In credit (an asset) + plant, equipment, buildings + investment in other concerns,
 In overdraft (a liability) etc, which determine the level which may not necessarily be
of work that the company can construction-related.
There is an overdraft limit. undertake.

 Generating an operating profit (into the cash account)


INCREASED BY  Good investments

 Dividend payments to shareholders (from cash account)


REDUCED BY  Making an operating loss (from cash account)
 Depreciation of the capital base
 Poor investments
Cash Account
The company has one UK bank account, known as the cash account, which can be :-
 In credit, when it is considered an asset
 In overdraft, when it is considered a liability

Interest is earned/paid on the cash account balance at the beginning of the period. The
prevalent interest rates each period are defined in the Industry information.

CREDIT INTEREST
OVERDRAFT LIMIT If the cash account is in credit, interest is
The cash account can be overdrawn earned at the annual rate shown.
up to the overdraft limit. If this is
exceeded steps need to be taken to OVERDRAFT INTEREST
try and reduce the overdraft. If the cash account is overdrawn, interest is
paid at the annual rate shown.

 The company generating an operating profit


INCREASED BY  Selling off a % of the capital base
 Selling investments

 The company making an operating loss


REDUCED BY  Dividend payments to shareholders
 Increasing the capital base or investments
Overdraft Limit
The amount of money that can be borrowed from the bankThe warning
isConsider
not themessage
unlimited. following has now
example.
The current disappeared,
overdraft limit, and the
imposed by the bank depending upon the economic climate, cash account
is shown in balance is below
the Industry the overdraft limit.
information.
Its period 9, and after decisions were processed last
What happens if the overdraft limit is exceeded ? KEYperiodPOINTS
the company’s overdraft has reached 787,649. This
 has
If allexceeded
possible measures
the limit ofhave beenand
700,000, taken, as aand the acash
result
KEY POINTS account
warning balance
message still
is exceeds
displayed. the overdraft limit, then
The ‘base’ overdraft limit imposed by the bank is normally the no same
furtherforaction needs to be
all companies. taken, and
However, the user is not
it may
be reduced even further for a specific company if the company’s prevented
As soon currentfrom
as the moving
Financial
share to another
Decisions
price falls screen.
too farScreen
relativeis closed a
critical warning message
to the price at the start of the History. This will be reported in the Management consultants report. appears. The message informs
 the
TheFinancial
cash accountManagercan that
exceed the overdraft
all possible measureslimit when
need to
decisions
be taken to are processed,
reduce but during
the overdraft the following
to below the limit.period
all possible measures need to be taken to reduce the
balance to below
The Financial the overdraft
Manager decideslimit.
the best action to take is
to reduce some of the company’s investments.

Keep clicking anywhere on the screen to advance

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Gearing Ratio

The gearing ratio is the ratio of the company’s liabilities, when the
cash account is overdrawn, to its assets, and indicates the debt burden
of the company.
Liabilities
Investments
Capital Base
 0 indicates no liabilities
 1 indicates serious debt problems

In the example shown, the gearing ratio is the :-

Absolute value of the Cash Account / (Capital Base +


Investments)
930,607 / (5,105,360 + 896,487)
= 0.155

The company will be viewed as being vulnerable to both interest rate rises,
INCREASES and its ability to service its debts from its future profit flows. Consequently,
this will have a depressing affect on the company share price.

Conversely, if the gearing ratio decreases then the company will be viewed as
REDUCES
being more financially sound, and the company share price will increase.
Capital Base
The capital base is the company’s investment in plant, equipment, buildings etc, and
determines the level of work that the company can undertake.

One of the key company performance indicators is capital employed, which measures how well
the capital base is being utilised over a period of time.

Changes to the capital base are the responsibility of the Financial Manager, and the Industry
information shows factors that affect the capital base.

It can be increased, reducing cash reserves, in order to support further


growth. There are limitations on the increase possible each period. The
INCREASED BY Company based Restrictions on the Procurement screen gives an
indication of when an increase may be necessary.

It can be reduced, increasing cash reserves, which may be desirable if money


REDUCED BY is needed for other things, or it is not being fully utilised. There are limitations
on the % of the capital base that can be sold off each period.

DEPRECIATION
Each period the capital base
WRITING DOWN depreciates by a %, reducing the
Any increases in the capital base can be overall value of the company. This
used to reduce the company’s tax occurs at the end of the period.
burden, known as capital writing down.
Calculating Capital Employed
The company’s capital employedAtmeasures
the Navigate how
to much
"Main4
start of period of theperformance/Financial
menu/Assessing
the company’s company’s
initial capital base
analysis/Financial
forward workload was (plant,
performance"
15,963,660. This
equipment, buildings etc) is being was
utilised.
based on the turnover still to be completed on the 4 jobs in progress at the
start of the period.
Not utilising the capital base is a waste of resources that could be directed elsewhere, and can
5 jobs were bid for, and 3 were secured, which took the cumulative forward
hinder growth. workload post-bidding to 25,951,610.

Consider the following example where a company


The capital employedismeasures
in periodhow5, and
much of the financialpotential
the company’s performance
workload is
being reviewed for period 4. (42,540,260), based on the capital base, was actually being utilised i.e.,

(25,951,610 / 42,540,260) * 100 = 61 %

Navigate to "Main menu/Assessing performance/Procurement analysis/Analysis of all previous bids"

For Period 4 the company’s capital employed was 61 %, indicating that the
capital case was being reasonably well utilised.

But how was the capital employed % determined ?

The answer can be found by looking at the Procurement Analysis for period 4.

Keep clicking anywhere on the screen to advance

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Investments
The core business of the company is procuring and progressing contracts, and if done successfully the company will
report a healthy operating profit, and increase the company’s value.

However, there are alternative ways of increasing the value of the company, such as by investing in other
concerns, which may or may not be construction-related. Such investments can :-
 Offer a better return than can be obtained from the bank
 Provide benefits for work in progress, in the form of reductions in build and risk costs

Each period a number of new investment opportunities may arise, adding to the list of available investments, and
for each one some key information is given to help in making investment decisions :-
 The investment profile describes the concern.
 The Past Performance gives the % return given in previous periods to all investors, and details any money the
company invested, and any build cost savings gained.

The Industry information shows factors that affect investments. BENEFITS


Depending upon the size of the
concern, there is a minimum level of
investment required to gain the
benefits.

INCREASING INVESTMENTS
The increase in a single
investment each period cannot
exceed a given amount,
depending upon the size of the
investment concern.

NUMBER OF INVESTMENTS CEASE TRADING


There is a limit on the number of investments Poorly performing investments can cease trading, in which
that can be held at any one time. case a % of any investment is recovered..
Corporation Tax
Corporation Tax is a tax on a company's taxable profit, which is defined as :-
Operating Profit Before Interest & Tax

Taxable Profit = Gross Profit - Overheads - Capital Allowances

If the company makes a operating loss before interest and tax no corporation tax is paid, and any
capital allowances are carried forward to future periods.

Capital Allowances are acquired by investing in the company’s capital base, and are calculated
on a ‘written down’ basis; the rate of writing down allowances is shown in the Industry information.

Capital writing down


rate per annum.

The corporation tax rate is shown


in the Industry information.
Calculating Corporation Tax
Calculating Corporation Tax
Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance"
A Corporation tax rate of 20% was levied on the taxable profit of 317,748 to give Corporation Tax of 63,550.

The tax burden was offset by the Capital Allowances of 19,841.

Capital Allowances are acquired by investing Consider


in the company’s infrastructure
the following example (capital
where abase), andisare
company calculated
in period 5, and the
on a ‘written down’ basis; the rate of writing down allowances is given in the Industry information.
Financial Details are being reviewed for period 4.
We can use the drill-down to see exactly how the
For 19,841
Period wascan
4 we calculated.
see that the company’s Operating Profit before tax &
interest was :-

Gross Profit: 468,589


Less
Overheads: 131,000
-------
Operating Profit Before Interest & Tax: 337,589
The Capital Allowances to be written off is adjusted each period as follows :-

The Operating
 Increased/reduced by changes in the company’s capital base Profit Before Interest & Tax was then subject to Corporation
Tax of off
 Reduced by using up capital allowances that are written 63,550. How
by 25% perwas this calculated
annum (6.25% per?period)

Weiscan
Capital allowances are not used if an operating loss use the drill-down to investigate further.
made.

In period 4 an operating profit before interest & tax of 337,589 was made, and as a result capital allowances were used.
These amounted to 6.25% of 317,449, the amount still to be written off, giving the figure of 19,841.

Keep clicking anywhere on the screen to advance


Profit Definitions
COMPANY GROSS PROFIT
In any period, the gross profit of the company is a measure of how profitable the jobs in
progress have been.

Monies IN Monies OUT

-
 Measured value across jobs progressed  Retentions held from jobs progressed
Gross Profit =  Retentions repaid from completed jobs  Costs across all jobs progressed
 Early completion bonuses

COMPANY OPERATING PROFIT


In any period, the operating profit of the company is a measure of the overall profitability of
the company.

Monies IN Monies OUT


Operating
-
 Gross profit  Company overhead costs
Profit =  Credit interest (cash account)  Overdraft interest (cash account)
 Corporation Tax
Dividend

The dividend paid to shareholders each period is one of the key factors that affects the share price of the
company.

The dividend paid is a sum of money.

The equity of the company at any time is the overall share value.
EQUITY = NUMBER OF SHARES x CURRENT SHARE PRICE

The dividend paid is expressed as a % of the equity of the company, or the earnings per share. This can be :-
 Insufficient to satisfy the shareholders, which will reduce the share price
 Sufficient to satisfy the shareholders, which will have a no effect on the share price
 More than sufficient to satisfy the shareholders, which increase the share price If the cash account is in credit,
interest is earned at the annual rate shown.
Factors That Affect Share Price
The company’s
Consider share
the following price
example, is one
where of the
a company key
isNavigate
in performance
period indicators
5. menu/Industry
to "Main in measuring
information/World events that have the success
affected the company"
or failure of the company, with a rising share price signifying increasing industry confidence in
Since period 1 the
the fortunes ofshare price has fluctuated, with periods of improvement (2 and 3), and
the Company.
periods of deterioration (1 and 4).
The share
We will price
now look is influenced
in more by has
detail at why this internal
been thefactors,
case. related to the company’s decisions :-

DIVIDEND
The level
COMPANY
GEARING
PAYMENTS
VALUE
RATIO of dividend paid to the shareholders Navigate to "Main menu/Assessing performance/Financial analysis/Share price analysis"
FUTURE
Dividends PROFITABILITY
are taxable payments declared by a company's board ofaffect
directors and given
 Changes
Changes
The final in the in
internal theof
value
factor value
the
that ofthe
company
affects the company
from
share periodis to period also the share price.to its shareholders, normally quarterly.
Another
They factoranthat
provide affects
incentive the
to share
own price
stock is price
in stable changes
the changes
companies in the
ineven
the futuregearing
if they ratio.
profitability
are not (forward much
experiencing margin) of the company, which is
growth.
 Changes
based upon the in the
company’s future profitability of the company
IfDividend
The thegearing payments
company value
ratio is are
falls
the in awork
based
ratio of theincompany’s
upon
period, progress.
the current
it will have share price.
a depressing
liabilities (cash effect on
account share price
overdraft) as shareholder
to its assets and industry
(capital base confidence
and investments, and
falls.Changes
Conversely, inif the
the debt
value burden
increases of
then the Company
confidence will improve, and the share price will increase.
indicates
At the theofdebt
end burden of the company. Ifwas there are established,
no liabilities,there
the gearing noratio is 0.
The equity of period
the company 1, whilst atthe
anycompany
time is the overall being share value i.e., thewere
number ongoing
of sharesjobs, and hencemultiplied
in circulation no forward
by margin.
the
As However,
can be during
seen the periods
trend 2
hasto 4 when
been some
mixed, work
with was
adverse secured,
affects forward
on share margin
price fluctuated,
in periods increasing
1-3,rate rises, and its ability to3,service
then a in periods
positive 2 and
affect during but
and
If external
the gearing
current price ratio
per share.factorsthe
increases (world
companyevents),
will be viewed outside
as beingofvulnerable
the company’s control.
to both interest
falling
period 4 back
which in period
would 4,
havebut overall
helped tohaving
boost a
thepositive
share affect
price. on the share price, as reflected in
its debts from its future profit flows. Consequently, this will have a depressing effect on share price. Conversely, if the gearing comments in the Management
consultant's
ratio
There is a levelreport.
decreases then the company
of dividend, measuredwill be asviewed
a % of as thebeing more
equity, financially
at which sound,
the share priceanddoes
the share price will
not change. increase.
Paying more than the
Comments in the Management consultant's report provide further evidence of the affects
‘equilibrium’ level will cause the share price to rise, but paying less will be not be well received by the shareholders, of the company value changes.
and the
As can be seen,
price will fall. the cash account was overdrawn in periods 3 and 4, when the increasing gearing ratio had a negative affect on
the share price, albeit a slight one as can be seen from the Management consultant's report.
Dividend payments of 2% of equity have been made each period, and the affect has been “Shareholders are content with
IN SUMMARY
the level of dividend paid”, implying no change to the share price.
Both internal and external factors have different levels of impact upon the company share price. It may be, for example, that the
share price rises even though most of the factors have negative affects, but the positive affect of one factor has the greatest
If dividend has had little affect on the share price, what about other factors ?
impact.

Careful examination is needed of the company data to determine which factors have had which affects, and to what level :-
EXTERNAL FACTORS
External factors1that
During period affect the
the share company’s
price fall was down sharetoprice
a dropareincaused
company byvalue.
world events outside the control of the company’s
management
Even though team.
company value fell further during period 2, this was
All the world events that affect the company can be viewed in the more thanIndustry
offset by ainformation.
rapidly improving forward profitability and
external world events, and the share price rose.
For example,
During
price
factors
by were
just over
Keep clicking anywhere on the screen to advance
periodin3period 3 missile
the company
offset
2%.
testing
value by North
fell further, Korea
and therecaused jitters
external across
events hadworld markets,
a negative
by a rapidly improving forward profitability, and the share price rose again.
andonreduced
affect the company
share price, but againshare
these

 During period 4 company value improved, but this was offset by an increasing gearing ratio, and falling forward profitability, and
the share price fell slightly. Quit
Overhead Decisions
Overheads are the support services required to enable the company to procure and progress work and consist of :-
 4 key departments; Marketing, Head Office, QHSE and Measurement
 Non-departmental overheads, such as idle labour and idle project managers

The Overhead Manager is responsible for :-


 Setting appropriate staffing levels for each department
 Directing marketing effort into the 5 market sectors

The non-departmental overheads are the responsibility of others, and are related to jobs in progress.

Making Marketing Decisions

Making Head Office, QHSE


& Measurement Decisions

Departmental overhead staff


Idle staff
Non departmental overheads
Forming client relationships
Making Marketing Decisions
The
Marketing
CLIENT Marketing is a The
RELATIONSHIP Department
complex
Asadditional
well
AND as area,
There are
areand
targeting
marketing athe
PREQUALIFICATION
Based numberfirst
subject
marketing
staffonwill
the step
ofeffort
have
tools into
informationon
toAssessing
the
little
availablethe
about ladder
availability
sectors
affect based
ifthe
they
tooverhead
analyse upon
likelytonot
doof
the winning
work,
the
direct
market work
composition some
their
split and
available,
in progressing
marketing
efforts
of
period
the strategically
into
marketthein
5, and market
also contracts.
strategies
there
greater sectors
looking may
detail :-in
be
to the
The performance/Marketing Performance option
that
EachJOBmay
Client bethe
relationships adopted
SIZE PREFERENCE
period which
playotherathere
marketing roleinclude
reasons
in new staff:-
is prequalifying
for
work.
targeting
long-term, particular
for work
identify theshowsoverhead
in two
new sectors.
theways
%manager
For example
of:-the overall
construction decides :-to :- in the global market, known
jobs
market that the company has prequalified for in
JOB
When SIZE PREFERENCE
setting the job size preference  By number :- of jobs previous periods.
as prequalification, which the company
 more
Leave the may
effort then decide to
thetry and win through the procurement
InIfdeciding upon the
the relationship is job
To an size
determine
There preference,
improving By
tends
where toone,
be
the
client a number
new
and atwork
work
leastof
inisatthea by
factors
use sector
can
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the &unchanged
influence
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certain level,Commercial
the overhead
companyforsector,
now,
choice :- but reassess
performance/Market
may but this canfor
prequalify thea situation
mean jobmore
trend each period
that competition
option,
would which
have for
 Targeting a variety of sectors
process.  to widen
Continue to show theno country
preference and
to client
country or base
job of jobs identified.
size.

been unattainable,
If “Target
set thelarge shows the
aslevel,
jobs” the
shownwork.
is and 
company’s
inBy
chosen thelocation forecast
Management
then (UK
large of the
or overseas)
jobs global
consultants
are market
the primary report. trend for the next year. The accuracy of the forecast
Having
Although staffing
this may increase directed the the marketing
choice ofeffort
jobs into thechoice,
that can beand bidassuming
for, it may also
and reduce the
Based upon last year, the marketing effort was directed
The smaller
followed by the job
medium :-

depends There
then upon
is
small a lot
the
jobsof size
work
as of
the in the
the marketing
Transport
secondary Sector,
choice.department.
with again plenty of competition, the jobs can be labour
different job sectors, and indicated country and job size preferences,
into sectors inparticular
which there clients,
was somewhich new work, the be
company was able to
chance
 Ifcompany of building long
aintensive, term
which relationships
can then
befor)costly with with
is a the may vital in
the the relationship
will be isable deteriorating
KEY
to identify one,
POINTS
(prequalify there
a number
prequalify oftraining
chance
jobs
for the of
only
newwill
client
between
labour, subcontractor
not10allow
and 14% of
premium
prequalification,
the overall
etc. However,
regardless
market of the
with 2
All
that securing
Ifjobs
effort
The belong
quicker
being
“Target
come onto work
the
put into
medium
the tothe
job
The
marketifjobs”
economic
one
finishes,
Transport
overall of
particular 5jobs
which
value
isAnalysing
in the chosenjob
current conditions
market
can
of
canthe
sector.
the
then
period. sectors
improve
market
medium deteriorate.
less client
bemarket risky.
isjobs
in :-
relationships
expected
detailareis
marketing staff. essential
the quicker,
toprimary
steadily grow
because andfromhence
not 392m
only is in period
the 5 to 437m
marketing effort in
to period
be 9.
directed
more of them.
choice,  There
with large and smalltends to be less
by sector,
jobs given but work
within
equal in the sector
each
weighting Energy sector, can
as thechoices but equally
secondary be made less
by rival competition
country for the
and job size jobs, but the
preference.
 TheIndustrial
larger % margin can be earned e.g., progressing 3 smaller
In choice.
Targeting
addition,
Building
 value
In terms
ofjobs
a particular
the value
and work
Commercial
of
canwhere
carry the
more
sector
prequalified work risk.
is,
where
for However,
there
can be appears
there
The
they
influenced
company’sajobs
is are
to beless
lot that
new
of
strategy
are the
labour
contracts
work same
intensive,
is forto
inlook
all which
steady
sectors can
for be
to build
growth,
theless
and long
foreseeable
costly
term
to achieve
in terms
future,ofwith
this more
as 1 larger each
job can be more
training
sector of newprofitable.
maintaining
labour,its subcontractor
share of the overall
premiumglobal
etc.market.
relationships
by other
 Transport
factors :- with specific clients, andworkperhaps
will needtarget particular
to be identified, so wesized jobs.
will need The risk
to increase thehere inlevel
staffing
If “Target small jobs” is chosen then small jobs are themaximum
primary choice,
putting
 IfHowever,
Energy
followed the
byallmedium
‘your
larger the eggs :-in jobs
joblarge
then oneasbasket’
the is that
secondary
by the there may be more competition for the work.
choice.
allowed, 2 (the limit is shown in the Industry
the company are experts in a particular sector(s) information).
Water
The and Sewage
relationship with contract clients
The
For
The nowcompany
less management
the company may andlook
has no to find
resources
particular job‘niche’
tend to
size markets,
bepreference.
needed in which
e.g., you only
KEY POINTS
need 1 there
project is less competition for work,
managerup forgood
doing arelationships
large job, but would need 3 project managers for
ofthe equivalent
Webuild
will now look at each one in turn. with a smaller No matternumberhow large clients,
the marketing which size could then
is, and how improve
well the
the marketing
number
KEY of smaller jobs.
POINTSof future bidding success.
The chances
value and number of EXPERTS effortINisAdirected,
SECTOR
are,jobs that thehave
company can prequalify fornot in any
Depending the company will never be period is governed
able to identify 100% of the by a
Generally the
uponless risky the
where theymarketingsincehasyoubeenonly a
directed
If the company’sfew
by risks
sector,toand
average worrytheabout,effort
marketing and in a sector exceeds a particular %,
number market.
many forof
composition
HOW MUCH thefactors
ofequivalent
the work
NEW WORK
:-available,
number ofitsmaller
may be
CAN BE IDENTIFIED jobs.
thatAlso
shown IN if a risk
no jobs
in PERIOD can occurs
the Industry for a larger
be identified from job, and
5 ? information, then the company are deemed to be experts in
Consider
delays it,the
youfollowing
have timesituation.
PREFERENCES
to recover, which you do not necessarily Although
get the adecisions
with smaller are made about which sectors to direct
job.
the
 The primary choice,
size of the
The company’s and secondary
Marketing
forecast indicated choice
Department
that jobs
therethe are
is 392mindentified
(number
sector, ofand
new instead.
work
will of company
available
prequalify during
for staff)
more period
work 5.
inthethe sector than anticipated.
Whatever marketing Where they are
decisions both set the
areManagercountry
madeneeds preference
have an
the marketing takes
importantpriority
effortthe inover
bearing
intostaffing
period 5,job
the size
on preference.
the future
% change in each
It is the beginning of period 5, and the
 The size of the global market (value and number Overhead to decide upon level for the
sector ofis jobs available)
limited, as defined in the Industry information, so
success
Marketing
Let us of the
Department,
suppose, for company,
and intothat
example, which since the
sectors
increasing failing
the staff’s
number to of identify
efforts are to bestaff
marketing any
directed.
to new
4 has work can
increased the ultimately
market share to lead
25%.
 Where the marketing effort ifis“Prefer
For example, directed (5 potential
UK jobs“ Targetsectors
andwholesale large jobs”
changes ofcannot
work)
are chosen,
be made then in the
oneidentification
period. of In
to the
practice demise
are this means of
that the business.
potentially the company can identify 98m effort
of new work intheperiod 5 (25% of 392m).
 There
Whether currently
or not 2 marketing
the
jobs staff,
company andare
is prioritised thefollows
as split of
experts :-the marketing
in a particular between
sector 5 market sectors is
 presently
The
Taking
as shown, with effort being directed into all sectors, The
relationship
the Building &with contract
Commercial sector clients
as an example, the
and in particular
change
company have
the Building
limitation makes and
allocated 33% of
Commercial
it imperative
the
that sector.
marketing
as well as the
effort to this
1.Large UK jobs The short-term,
Marketing effort the(by
long-term
sector) is considered
indicates period when
by reviewing
period in
sector. This should enable them toUK
2. Medium identify
jobs 32m of work in the sector during period 5 (33% of 98m).
marketing strategy.
green the sectors in which the company is considered an expert.
3. Small UK jobs
Any jobs indentified in periodoverseas
4.Large 5 will bejobs
Number available for the company to bid for on the Procurement Screen in period 6.
Where
Size of Value of
of
5.Medium overseas jobs marketing Other
global new work
KEY POINTS
market Keep clicking anywhere on the screen to advance
marketing
6.Small overseas jobs
staff
effort is
directed
factors
The above analysis is based on the assumption that there is enough new work in the sectors where the marketing effort has
identified
been directed.
Quit
Making Head Office, QHSE And Measurement Decisions
The staff in
DETERMINING
Navigate these
THE
to "Main departments
EXPECTED
menu/Making perform
TURNOVER
decisions/Overhead IN THEtasks related
PERIOD
decisions/Assessing FOR to
ALLthe
overhead JOBS company’s
performance/Head
Navigate
Navigate
Navigatetoto"Main
"Main
"Main office,jobs
PROGRESSED
menu/AssessingQHSE
menu/Assessing
menu/Assessing in
andprogress
Measurement:-
performance”
performance/Performance
performance/Performance
performance/Performancesummary"
summary"
summary"

Head
On
We
Bearing inOffice
have
the Job
seen
mind the staff
that settingdeal
benchmark
Progression ofwith
adequate
screen, and buying,
staffing
3 assuming
Head Office accounting
levels inbeing
staff the current
appropriate and
period
able to
labour ITforissues
support
allocations
the Head
11.8m
have of
Office, QHSE
turnover,
been made,ifthe
and Measurement
theexpected
turnover isturnover
expectedfor
toDepartments
Consider
This thewe
beperiod
12.3m, involves
following
the number:-have
situation.
currently 3 Head
of staff Office
required staff, /all
is (12.3 are xcompany
11.8) staff and up
3 = 3.1, rounded there
to 4are no agency
staff, staff. of staff is not
since fractions
each job is staff
QHSE
allowed.
calculated
dealaswith
followsquality,
:- health & safety and environmental issues
ItHow
is thedo beginning
we knowofifperiod 3 staff5,will andbe the Overhead
enough Managerthe
to manage needs to decideturnover
company’s upon thethis staffing
periodlevels
? for the Head Office, QHSE
1. For each
Measurement department establishing the level of turnover that each person can support, known as the benchmark level,
and
(TotalMeasurement
labour on site * staff
Departments.
expected (quantity
value persurveyors)
man period) ensure that money is recovered from the client
To answer
Since which this
therecomesarequestion
from the
currently we must Office
do twostaff
3 staffing/turnover
Head things :- during
levels
employed at period 4.
the moment, an extra 1 person needs to be recruited to cover
The
the principal
slight for
shortfall,setting
and the staffing
to facilitate level applies to all 3 departments, so we will concentrate on the Head Office
1. all
For Assess
jobs thethe
in level of turnover
period this that this
equates each
to there
:- person are cantwo support
choices :-
Department.
2. Complete the labour allocations for the current period on the Job Progression Screen, and calculate the expected
The taskmore
2.Employ
Determine
turnover ofin the
thecompany Overhead
expected
the current
staff,
period.Manager
bearing
turnover in thein mind
periodthat is there
for tojobs
all ensure
is a that
limit progressed
being on the level
the number of newof staff staff
company in each
that can be
Job 4: (
employed eacheach 44 x 50,485)
period, period =
as definedis 2.2m
in able
the Industry information (3 for Head Office). jobsNew company staff also without
incur a
department to manage the company’s in progress any
Job
KEY 24:
recruitment
POINTS ( &77 x
training 60,279)
cost in =
their 4.6m
first period.
deterioration
Job
3. Use the information
47: ( 25 in54,040)
x the from performance
step 1, and the expected
= the1.4m of theturnover jobs.level in step 2 to determine the required staffing levels
The turnover
 Employ agencyof the company
staff for the
for each department in the current period. in
current period
period is
only. the amount
Agency of money
staff attract the company
a higher receives
salary from progressing
than company staff. all jobs in
Job 55: and
progress, ( 83 x 36,367)
is directly related = 3.0m
to the amount of effective labour on each site.
Since59:
Job the company
( 30 x is37,039) looking to=increase 1.1m turnover in the next year, its more cost-effective in the long run to increase
We KEY
the will POINTS
now look
company’s own at an
staff rather example
than use agency of how to so
staff, setweadequate
will employ an staffing
additional levels
1 companyfor each department.
staff, which is within the
Total: 12.3m
The benchmarks
limitations for new staff. in step 1 will not change, but the company’s expected turnover will vary each period.
Hence, the expected turnover in period 5 across all jobs being progressed is 12.3m.
OVERSTAFFING
UNDERSTAFFING
Overstaffing of the Head Office, QHSE and Measurement departments, above the required level, has no negative affects across
Understaffing
jobsWhenbeing of the Head
theprogressed,
decisions but Office,
have beenincur
does QHSE
processed andfor
unnecessary Measurement
the period,
additional departments,
and the results
overhead below the required
received,
costs. level, will have
the Performance negative affects
Summary/Overhead
across all jobs being progressed, namely :-
performance can be used to review how effective the staffing levels have been.
The example shown indicates that staffing in all 3 departments was more than sufficient i.e., well above the 100% optimum level,
 The
with Head Office, net
anoptimum
overall an increase
setting
loss. is 100% in job of coststhe (build
required costs)
level allocated.
 QHSE, an increase in job costs (build and risk costs)
 The
KEY Measurement,
net affect shows
POINTS a reduction in measured
the affect on company valueprofits
(turnover)from the staffing levels allocated. If the optimum levels are set the net
affects would is
Understaffing beto0.be avoided at all costs, and it is better to slightly overstaff if the optimum level cannot be met due to the
ASSESSING
Understaffing THEis aLEVEL OF TURNOVER
false economy. It mightTHAT reduce EACH PERSON
overhead costs,CANbut SUPPORT
will also reduce job profits, resulting in reduced
rounding of staffing levels to whole people.
Referring
operating to the
profits Head
for office,
the company. QHSE and Measurement performance option, period 4, the last period of the History, sets the
Because the required level of staffing normally has to be rounded upwards, due to not being able to have fractions of
benchmark staffing/turnover level The i.e.,staffing
the number levels of forstaff
the required
QHSE and Measurement
to support the levelDepartments
of turnover are
without impairing performance.
staff, it is almost impossible to be exactly at the 100% optimum level, but it is better to be slightly over than under, as
The example determined in the same manner, based upon
shown indicates that staffing in all 3 departments was insufficient i.e., below the 100% optimum benchmark staffing levels and level.
in the example.
We can see that 3 staff can copeanticipated with 11.8m turnover of turnover. levels.
TheWecompany
willonnot
Keep clicking anywhere on the screen to advance
The expected value (turnover) per man period is
may
look inhave
more saved
detail on overhead
Having
at what performed
happenscosts,as but
the thestaffing
reduction
necessary
if :-the in job set
calculations
levels profit
an
are(increased
extra
lower costs is
1 person and reduced
required
(understaffing) value)the
inthan is
shown
This is the the Display
benchmark job details
for affect
all future and is defined
staffing levels for the anyHead Office Department.
reflected in the overall net
required levels, or higher (overstaffing) (loss).
each Department to prevent shortfall.
(bid submitted during tendering / total man periods) Quit
Overhead Staff
Overheads are the support services required to enable the company to procure and progress
work, and consist of :-

 4 key departments; Marketing, Head Office, QHSE and Measurement


 Non-departmental overheads, such as idle labour and idle project managers

The staff in each of the key departments can be either :-


 The company’s own staff
 Agency staff (except the Marketing Department)

and are subject to costs and limitations shown in the Industry information.

STAFFING LIMITATIONS
There is a cap on the number
of new company staff that can
COSTS (PER PERSON) be employed in a period.
 Both company and agency staff incur an
annual salary, which is higher for agency
staff.
 For new company staff only, there is a
recruitment/training and payoff expressed as
a % of the annual salary.
Idle Staff

IDLE PROJECT MANAGER POOL IDLE LABOUR POOL


Contains the company’s project managers who are currently not Contains the company’s own fully-trained operatives who
allocated to a job. are not currently allocated to a job.

Project managers can reside in the pool for a number of reasons :- Labour can reside in the pool for a number of reasons :-
 They may have been deliberately recruited by the personnel  They may have been deliberately transferred there by
manager prior to being used on site, perhaps to prevent other the construction manager, and not reallocated to site.
companies from employing them (Later Years).  Own labour is automatically transferred to the pool
 Project Managers are automatically transferred to the pool upon completion of a job.
upon completion of a job.
It is always more cost-effective to keep the idle labour
pool as low as possible, using the company’s own fully-
trained staff on contracts that are in progress.
Making Non-Departmental Overhead Decisions
As
IDLE well
IDLE as theMANAGER
PROJECT
LABOUR departmental
POOL (JOB POOL overheads,
PROGRESSION
(JOB PROGRESSION
SCREEN) thereSCREEN)
are also non-departmental overheads :-
Project
The company’s
managers own employed
site-based
by thelabourers
companywho whoare arenot
notcurrently
currently allocated to a job
Idle BIDDING
in allocated
progress project
to job
are inmanagers
COST (PROCUREMENT
in progress
held the Idleare held(Job
Project the Progression
inManager SCREEN)
Idle Labour
Pool. Pool. Screen)
MANAGEMENT CONSULTANTS REPORT
Each job that the company bids for incurs a bidding Each period an external management consultant carries out
 Idle cost, labour poolupon
depending (Job theProgression
approximate value Screen)
of the
Idle labourers incur a cost whilst they are in the idle pool, so it a detailed review of the company’s activities, looking in
They can be placed
job, defined there if :-
in the Industry information.
Bidding
 makes sense to cost
either(Procurement Screen) contracts or
allocate them to appropriate particular
pay for any problem areas.
 Athem
job has just finished, and the project manager is
off, which is the responsibility of the Construction Manager. placed in the pool until the
Management
company consultant
decides what to do with him. report The review is in the form of a report, and this has to be paid
KEYproject
 The POINTS manager has been recruited from the market for use for,onthe cost being defined in the Industry information.
a future
We Sometimes andathe
will take
contract, decision
briefislook
a company made
doesat to deliberately
noteach
want to riskkeep
one. losingexcess
them to a rival.
labour in the idle pool. This may happen if the company is
expecting
Project managersto winmust
a labour-intensive
be paid their salaryjob, and its cheaper
whilst they aretoinpaythe them
idle pool, which is a
for being idle in the short-term, rather than incur
wasted cost, and it is important to try and allocate them to appropriatepotentially higher contracts,
costs for laying off and then retraining
which is the responsibility of the Personnel Manager. new staff in the future.

Navigate to "Main menu/Assessing performance/Management consultants report"


APPROXIMATE VALUE
The approximate value is the anticipated
cost of the job rounded to the nearest million.

The cost per annum of keeping one idle labourer is shown in the Industry information.

In this example the cost of keeping 1 idle labourer each period is 1,500 (6,000 / 4).
Keep clicking anywhere on the screen to advance
Hence, for 243 idle labourers the cost in the period is 243 x 1,500 = 364,500.

Quit
Forming Client Relationships
Each period a number of jobs are available in the
The company canmarket.
influence The relationship
their
Navigate tocompany’s withmarketing
a client
"Main menu/Assessing effortofhistory"
in a number
performance/Client will
ways :-
determine how many of the jobs thePositively
company by identify
:- (prequalify for).
The Client History provides a detailed
 Identifying and winning jobs
analysis of the company’s current
Each job has a client, in either the public
PROCUREMENT or private
 Submitting sector,
competitive for whom
bids, even the
if jobs are not work
securedis to be carried
relationship with each client.
out.
As time passes, and depending upon economic  Managing jobs well, and completing them at least on schedule
conditions, clients may look to preferred bidders,
Negatively by :-
and if the client relationship is not strong enough
 Submitting uncompetitive (poor) bids
the client may refuse to accept the bid.
 Managing the jobs poorly, and completing late
 Not keeping jobs on schedule

In this example, the company currently have a fairly good relationship with NSW
PREQUALIFICATION Energy, based upon a number of factors.
The level of a company’s relationship with a client can determine whether or not the
company
Considerprequalifies forexample.
the following new work with the client But:- why is the client relationship so important ?
PERFORMANCE INDICATORS
The
If thecompany have prequalified
client relationship
Thehas for a relationships
company’s job with
deteriorated, NSW
‘poor’ Energy.
or worse,
with then
ALL the company
clients forms onemayof the key performance indicators
not be able to prequalify for work
upon which with a client.
the progress of the company
As the company prequalifies, tenders for and secures work withisthe
measured.
client a relationship is built up between the two parties.
The
If thecurrent
client relationship
state of thehas improved tocan
relationship a certain level, prequalification
be analysed using the Displaymay be Details option.
Client
possible even if the company’s marketing effort may not have previously identified
a job i.e., preferred bidder status with the client.

Keep clicking anywhere on the screen to advance

Quit
Procurement Decisions
Each period the company is offered a number of jobs for which a bid is
invited. These jobs were identified by the marketing department in the
previous period depending upon the sectors into which the marketing effort
was directed.

Making Procurement
Decisions

Successful Tendering

The job cycle


Job details
BIM
Job risk
Choosing a consultant designer
Consultant details
Bidding cost
Making Procurement Decisions
It
The Asisdiscussed
company
assumed earlier are
thatable the allestimators
tobids bidentered
for jobs have thatprocessed
are produced
were identified Ain
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oncostaccurate
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ismade Marketing
number
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additional order.
anSelect
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74,‘Yes’
oftodesign
added the
indicate
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aconsultant,
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that a bid
decision to bid for job Build
a Design & Build Design
job.
previous
be MARKUPincurred
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(RIVAL inBIDDERS)
completing Description each job, along with planned cover the labour
use thelevels
contract Set
costs for
theoverbid iseach
and
option
to be period
above
submitted.
to establish of the
the design, thebuild
bid price.
A consultant needs to be allocated to produce the design who has We will
appropriate
and site now
costs. look at
expertise how the
for bid
the formed
job. Only
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planned
When
MARKUPS areduration
Bids determining awarded
FROM the
KNOWN of
mark-up, the
through RIVALjob. competitive
the BIDDERS
level that may be tendering,
set by PROJECT and at the
MANAGER time a
ALLOWANCE bid is submitted
(SALARY) to the client
The likelihood of the risk occurring (risk level), classifiedThe as allowance can now be entered for the
There Design isare Cost
two types of jobs Cost that of producing
the company the candesign. bid for. :-a :-x  of
Job rival
successbidders
74 in
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being to beawarded
sized considered
job, and the very
the
bidding carefully.
contract
history of depends
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information sectionofgives factors an indication of the range
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annual salaries oncost manager,
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coversclient :-setmayas follows
impose
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of theprocurement
known rival bidders
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is filtered toofshow
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for
to have somecosts arefor
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automatically
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PROJECT MANAGER ALLOWANCE
medium
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Assuming
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BUILD PROCUREMENT
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column RESTRICTIONS
set give
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Total: 
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design, build fromUnlike
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consultants. cannot thebe changed, oncosts
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PROJECT MANAGER
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number
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manager,
MARKUP in progress.
markup of
which jobs
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all
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assuming the consultant
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% of
managersthe
that build
job vary
74 cost.
in
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duration of and
4 the the
periods
The ONCOST
 Innot remaining
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years, any elements
one time :- ? critical
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choice
decisions,
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is the
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at
manager
profit,
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to be the
cover
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made
can
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have
do lower thanthe their competition
lowest margin comes to fromdate.fictional allowance
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costs.
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individual jobs, the
suchof as
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costs e.g.,
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implications
recruiting for
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Filtered job. then
to show 30% bids
DESIGN
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and specific
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has to
history, JOBS
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careful assessment of them is recruitment
:-Using to an
cost
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is expected to be 15% of
as the for
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a project bidders manager Markup enteredsalary
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RISK
required
RISK
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determine
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reduce
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Mark-up
For
real the
allocatedworld
estimators the
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asto procurement
bids
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produce
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Salary
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more
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KEY  If
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POINTS hasrisk hits there
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can be adjusted the procurement stage depending upon :-the strategy to notbecover adopted
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SITE
about
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Each
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possible
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of markup
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aby
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1.
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approximate sector,value only ofthetheforjob
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form IsKEY
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KEY
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POINTS
impactPOINTS for
costsuch
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required e.g.,
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rival and
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areto
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not The bids
have are processed
a bidding
company history.
can bid for Ininthis
strict
all job
situation
jobs number
available, order
their but
profilethisitiscan
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lead to the decision as
be paid
decision aretorelated
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level themarkup
actual labour on issite.
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likely
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and
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Display
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Details
risk to
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POINTS Transport
and ascientific,
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in a more strategic manner based on the number
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E.g.,
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until
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progressing the job.
Conversely,
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Although
KEY POINTS
bid, and
upon if the
risk Keep clicking anywhere on the screen to advance
the risk hits it will
prevailing
contingency eat
economic
only into climate.
covers job
the profits,
cost of although this will ifbe
the risk striking, a offset by thethere
risk strikes risk may
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delaysbuilding intowhich
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have to beany mitigatinginactions
considered the labour taken to reduce
allocation the risk
when a jobcosts.
is progressed.
The list of available consultants changes each period due to some consultants being unavailable, as shown in the status
column e.g., too much workload. Quit
Successful Tendering
Based upon the company’s
COMPETING ON PRICE strategy for growth, a number of bids may be submitted in a period. Each one is
processed in strict job number order.
If the client does not immediately reject the company’s bid because of the procurement
restrictions, then through
Each bid is awarded the decision as to tendering,
competitive whether and
or not they
at the are
time awarded
a bid the job
is submitted comes
to the client down toin
success
PROCUREMENT RESTRICTIONS: BIM EXPERIENCE HIGH
competing
being awardedonthe
price against
contract rivalupon
depends bidders :- BIDDING
a number of factors.
For design & build jobs, if BIM (Building Information Modelling) is
If the company’s bid is above the rival bid, the client will reject the
being used for the job,
Highthe client
Bidding will insist that a consultant designer
company’s bid due to high bidding.
PROCUREMENT
In the early RESTRICTIONS
ischosen with some years, the competition comes from fictional rival companies, Each one has
BIM experience.
Company based
their own procurement
unique profilerestrictions
and bidding include :-
history, and a careful assessment of them is required to
 determine the for
appropriate level Designs
of margin.
In the example shown job 79 Neo Creative have been
Number of jobs in progress
chosen because of their suitability for the job, and because they
If the company has too many job commitments, CLIENT RELATIONSHIP
clients will reject a company’s bid because they feel that the
have
 In some BIM experience. Consider the following example in theteams
Early to
Years.
the later
company Years
will not Client
be ablethetocompetition
manage further Incomes from
contracts
the Later the other
efficiently.
Years, when ‘human’
the teams compete ‘Head in the
Head’ latereach
against
years, Relationship
Rival Bidwith less certainty about possible bidding
other, client strategies,
relationship becomesand hence
a factor wheresetting the markup
bids are within a % of the
 Workload The most competitive (lowest) rival bid is as shown
becomes far limitations
harder. most competitive bid. This % range depends upon the job size.
Clients will not accept a bid from the company ‘SAFE’ if theyAREA feel that the company does not have the resources
(capital base) to complete the job. If the company’s bid falls below the rival bid, but above the low bidding
Job Secured threshold,
To improve thenthe thecompany’s
jobRESTRICTIONS:
will definitely
chances be ofwon.
avoiding the
Job specific
PROCUREMENT restrictions
RESTRICTIONS: include :-
WORKLOAD PROCUREMENT PROCUREMENT
LIMITATIONS RESTRICTIONS: CLIENT RELATIONSHIP
NUMBER OF capital
JOBS IN base
PROGRESS
TheThe initial forward workload is 21,872,190, and
As if the 3 workload
bids were limitations,
to be won thethe threshold
affect would can
be be
:- raised for the current
actual value
The company’s of work
initial workload that can be won
at the is time
beginning shown.ofpasses
the The clients
clientbased
period, may
will lookato
reject
upon thepreferred
bid value ofbidders,
if the company’s
work still and
numberif the
toreserves
be ofclient
jobs infrom
completed progress
the jobs
relationship period
exceeds
is not bythe
strongusing more
limit
enoughdefined of the
the company’s
client
in the may
Industry cash
refuse information,
to accept tofeeling
the increase
bid. thatthe
the
in Client
 progress
Job 74: relationship
on 10,161,580
the Job Progression Screen, isworkload
(cumulative 21,872,190.capital 32,033,770)
base.
 KEY
As POINTS
time passes clients may look to preferred company
bidders, andis spreading
if the client its resources
relationshiptoo thinly,
is notwhich strong will enough
affect thethequality
Job 78: 5,337,804 (cumulative workload 37,371,574)
The ItJob
may81:
client
company not be
may possible
refuse
has bid for
10,109,410 to 3to win(cumulative
accept
jobs, all the
the
but the In
jobs
willbid. bid the
for,example
capital so
base
workload it of
This
any
shown
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good work from
practiceprogressed.
winning
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isleast
a decision
period
tothe
to be
7foronwards
bidadditional
made
more jobs,
on
the and
work relationship
than
the to
can towith
adding
Financial theAeropower
Decisions existing
Screen.
be
workload ?potentially won, as shown in the will
example, need
to to
offset be theat risk of ‘fairly
some good’
jobs for
being the client
lost. accept the bid.
However, the workload limitations will not enable all 3 jobs LOW BIDDING
toexample
be won, the since theiscumulative forward workload cannot exceed the
 BIM experience In this limit 10 jobs in progress.
upper threshold of 41,739,980, basedjob upon theincurs
currentIf the
The company’s
Industry
value bid
of theinformation is
capital too far
base. below the
indicates the most competitive
workload that can rivalbebid, the
supported
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For Design
Limitation bear
& inthe
onBuildmind
value thatof
jobs ifevery
BIM in bid
work(Building for
progress showsa procurement
Information
client that
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company’s
reject cost
the related
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capital
company’s to bid
base the
used size
of
on forofgrounds
the job,
the
4,173,998
the job,
can ofthe client
support
low will
future
bidding, insist
workload
Low Bidding based
With 5upon
jobs the size in
already of progress
the company’s capital
at thebidding
beginning base. of the period, shown on:-
defined
Bearing
that
of up to the inconsultant
in mindthe that
41,739,980 "Industry
jobs
(10 times Information/Environment
chosen
are bidto
the for
produce
capital in base)
strictthejobdesign
withoutnumber in
any which
has
order, the
some
problems. thecompany
BIM
following is
experience. operating",
successful
believing that the quality of the work will be undermined because the and combinations are possible
bidding for too many jobs can affect company profits. the Job Progression Screen, the company can only win up to 5 jobs
 Jobs 74 and 78 could be secured since the cumulative company
In workload cannot
the example would possibly
thenot complete
exceed
workload theexceed
41,739,980,
cannot project without
but10 then
times cutting
not the 81costs.
jobcapital base,
PRICE
The ‘future workload’ is defined as the company’s initial before
forward theworkload
number of(before
jobs limit any takes
jobs affect.
are progressed in the period), plus
 If job 74 was not secured, jobs 78 and 81 could be secured so an additional 250,440 of capital base will support 2,504,400 of further
The
the company’s
value any jobsbid
won being
in the able
period. to compete
 If neither jobs 74 or 78 were secured, then job 81 could on price against
be secured
workload. rival bidders.
This would still not be enough to support winning all 3 jobs.
KEY POINTS
We will
We willinvestigate
Successful look
bidding Keep clicking anywhere on the screen to advance
at each
of factor
further
course, what inwould
turn.happen
depends on otherif factors
we were The
other
KEY
number
to winthan
POINTSthejust of jobs that
additional
workload
can be won does not take account of any jobs
work.
that are likely to complete in the current limitations, which will be discussed shortly.
period.
Any changes to the capital base on the Financial Decisions Screen are
immediately reflected on the Procurement Decisions Screen, and active
for the current period. Quit
The Job Cycle
As period
In
Work
The
Although
has
company
started
been
the
7
6 the
demonstrated,
job
in
iscompany
period
managed
was progressed
8, put
identified
and
over
the
inthe
timeframe
ajob
from
successful
job
acycle
new
completed
timeframe
job
measured
consists
bid
forfor
in
which
periods
its
the
of
inplanned
up
periods,
job.
the8to
client
to310,
duration,
stages
which
invited
the job
represent
:-3
prequalification
periods
periods,3were
finishing
months
:-by (one
in
interested
period
quarter)
10.
inparties.
the
 Prequalification‘realThe
world’.
jobperiod
had a8planned duration of 3 periods.
Period 1 of the job was of the timeframe
Each
Period
Procurement
period
2 ofathe
number
job was
of jobs
period
will9 become available in the market which can be identified,
tendered
Period 3for
Progression
of and
the job
progressed
was period
(if won).
10
The progressing of jobs can begin in any period, and the jobs can last from 2 to 5 job periods.
It is important to grasp the concept of the job cycle, and the following example should illustrate
this key point.

Period 1 of Period 3 of
the job the job

Period
5 6 7 8 9 10 11 12

Identify Bid Submitted Progress the job


(Prequalify) (Procurement)

Keep clicking anywhere on the screen to advance

Quit
Job Details
JOB NUMBER TYPE
A unique number that identifies a job, There are two types of job :-
ranging from 1 (earliest jobs) onwards. PERIOD IDENTIFIED  BO (Build Only); traditional type of job where the client is
The period in which the company responsible for the design, if appropriate, and the contractor
identified the job through marketing effort. is only responsible for the build.
 DB (Design and Build); the contractor has responsibility for
both the design and the build.
COUNTRY/LOCATION
APPROXIMATE VALUE Where the job is located.
The anticipated cost of the job TOTAL LABOUR MANNING
rounded to the nearest million. The total number of man periods
required to complete the job.

DURATION
SIZE The planned duration of
The size is based upon the the job (2 to 5 periods.
approximate value :-
 Small (range 1m - 6m)
 Medium (range 7m - 13m)
 Large (range 14m - 25m)

DESCRIPTION
A brief description of
what the job entails.

BIM SECTOR RISK REGISTER


Indication of whether or not BIM Each job falls into one of 5 Possible problems that may occur
(Building Information Modelling) is sectors :- during the progression of the job.
being used for the job.  Industrial CLIENT
 Building and Commercial The public or private-sector organisation
 Transport for whom the job is being carried out.
 Energy
 Water and Sewage
BIM
OVERVIEW OF BIM
BENEFITS Navigate to "Main menu/Assessing
Navigate performance/Job analysis/Risk
to "Main menu/Assessing analysis for all jobs history"
performance/Consultant won"

BIM offers
BIM is an enormous
acronym for gains Building
in saving Information
in cost and time, Modelling.
much greater accuracy in
For Design and Build (DB) jobs using a BIM model,
estimation, and the avoidance of error, alterations and rework the consultant’s BIM experience canto
due have a major affect on the quality
information
BIM The
MODEL BIM status
AFFECT column indicates
WHEN BIDDING if a job is using a BIM model.
Itof describes
the BIM model produced, which can then impact upon the build costs when the job is progressed.
loss. the process of designing a building collaboratively using one coherent
system
For
For KEY
Design 79,of
job POINTS computer
& aBuild jobs,and
Building models
at the bidding rather
Commercial stage than
a consultant
contract, as needs
the Harper separateto setshave
Partnership of drawings, which
been chosen due is expertise over many
to their
the
To
be achieve
traditional
Both inBuild
allocated
years all the
Only
thetoBuilding
producemethod.
(BO) benefits
and
the
and Design
design,
Commercial BIM
and if aoffers,
& Build
sector, jobs
BIM model
and everyone
(DB) can
is
since theuse
jobais
being in the BIM,
BIM
using architecture, engineering
their significant BIM experience.
andmodel
used construction
for the .job, such asindustries willclient
with job 79, the have toinsist
will learn thattoa work in fundamentally new ways.
It
Theisrisk
a digital
consultant
‘structuralrepresentation
designer is chosen with some ofBIM
defects’ struck in period physical
3, but theand
experience. functional characteristics of a facility,
use of the BIM model reduced the impact cost by 22%, a significant
and saving.
cost a shared knowledge resource for information about a facility forming a
reliable
We will basis
If job now
79 is for
takedecisions
secured, aandlook
thenduring
at howitsBIM
progressed, life-cycle;
we canis used
use thedefined
within asEnginuity.
Consultant existing from
history option earliest if our choice of
to determine
conception
KEY POINTS
the Harper to demolition.
Partnership is justified.
The cost reductions are graded depending upon the particular risk, and the reductions to date across all jobs can be found in
the Main menu/Assessing the performance/Job analysis/Risk analysis forexperience
all jobs won.
At theClearly we made
technical core right
of BIMchoice as thesoftware
is the Harper Partnership’s
that BIM
enables has helped
3D modelling andto reduce build costs by
2.38%, a significant saving.
information management. Extensive use of the software eventually leads to a
more complete understanding of the technical core.
If a consultant is allocated to a Design & Build job using a BIM model
who does not have any BIM experience, the client will reject the bid
due to “Consultant had no BIM experience”, as shown.
BIM MODEL AFFECTS ON RISK COSTS

If the job is using BIM (Building Information Modelling), there may be an opportunity to reduce the impact cost if the risk occurs.

For example, for job 3 there is the risk of ‘structural defects’, and these may be identified in the BIM model, and the threat
mitigated.

Keep clicking anywhere on the screen to advance

Quit
Job Risk Glossary

TARGETED
Navigate Navigate
"Main to "Main
INVESTMENTS
toNavigate
menu/Assessing
to "Main menu/Making
menu/Making decisions/Procurement
performance/Job
decisions/Procurement decisions/Set
analysis/Risk analysis
decisions/Display the
for all jobs
jobbid”
won"
details”
Target investments on the Financial Decisions Screen into risk
management
If the decision is made to bid for the job, what mitigating consultants
actions can to the Construction Industry can reduce any risk
be taken to deal with each risk, and the potentialcosts
costincurred.
incurred ?

The action taken depends upon each risk element. The profile of Phoenix Horizons shows that they appear to be an ideal
company to invest SCENARIOin for reducing3: ‘SENSIBLE’ risk costsRISK on Transport
CONINGENCY contracts, providing
that we are undertaking If a sensible jobs in the
level Transport sector.
of contingency is added the bid will still be
competitive, and the company have partly covered themselves
Although thereSCENARIO inarecasea number
the risk2: of risk RISK
occurs.
FULL management CONTINGENCY companies, many
As well as targeted investments, risk costs incurredmanagement can be reduced SCENARIO by employing1:doof NO a good
RISK project manager, who will be notable
consultants
If the full cost notthe risk CONTINGENCY
specialiseis added in this
then area,
there and would
is less chance reduce
of
to identify and address the potential effects of the risk. risk costs on job If no risk
scompanycontingency
undertaken. is
The clues added then there is a good chance of the
Since
the there iswinninga 40-50% thechancejobalways
since lie
theinrisk
of their theoccurring,
bid investment
would profile.
based
probably be
company
less winning the
uponcompetitive
probability it isjob
than theirsince
reasonable rivalstheirto bid
who covercould
may 45%
havebeoffar more
the
includedrisk some,
cost, or
Conversely, risk costs may be increased if the project manager
The Industry but is inadequate,
competitive
information than or if
theirthe QHSE
rivals who Department
would is
probably understaffed.
have included
74,250.not the fullshows the reductions possible.
risk contingency.
some risk contingency.
In addition, where BIM (Building Information Modelling) KEY POINTS has been If the used
riskon a job, the some risk costs may to be reducing by 55%
usingof
However, ifoccurs,
the contract company
is secured has and find
the theriskother
occurs the
the BIM model, but this will not apply to all risks. If the company However,
arerisk
the if
already the
cost, contract
investing
orwill 90,750, is
in an secured,
whichappropriate and
eats into the
riskthe risk occurs,
consultant
margin. e.g.,the
If the
additional cost have been covered, and will not affect
BIM REDUCTION
that serves IN additional
theIMPACT
sector
risk does cost
COST
of a
not job could
being
occur seriously
bid
then for,
the thenaffect
74,250the the
risk
is job profits,
contingency
additional and
may
margin. be
MITIGATING
The Risk Analysis LIKELIHOOD
for allACTIONS
jobsOFwon OCCURRING
TO REDUCE
and progressed COSTS a the
RISK displays job margin. If the risk does not occur the margin would
detailed risk analysis for all jobs progressed, covering both
No action reduced adversely affect the cash flow of the company.
costs incurred As we The
and have
likelihood
delaysseen, setting
of the risk
to jobs. ‘sensible’
occurring,levels orneeds
level
of risk to
below
of be be taken
the
contingency
risk, ‘sensible’
as inthea cost
issignificantly level.
bid reductions
can This
keepwould
improved. aremake
a bid madethe chances
competitive in of securing
relation toIMPACT
classifiedrivalasbids,
eitherandHigh,
cover automatically
the company
Medium the jobif the
even risk better,
occurs, in the
and knowledge
BIM
or Low.for a proportion of the risk cost if a risk occurs. is being that
used should
on the any
job. of the job risks
LIKELIHOOD
BIM MODEL AND
AFFECTS COST strike,
The nature of the potential No construction
risks, particularlyproject the riskthey
islikelihood free,will and
and bewhenreduced
impact a job
cost,by the
mayinvestment
is identified be some ofmade.
the estimators the deciding
make an factors in
IfFor
the each
job risk
is
determining in
using the
BIM
whether risk register
(Building the bid
Informationitself contains
Modelling), a contingency
there may
IMPACT be for
an
COST the likelihood
opportunity to of
reduce the risk
the occurring,
impact cost andif the
the potential
risk occurs.
impact cost. In addition,
The % chanceifor
a not
assessment
job the
is company
ofsecured
each ofand
levelthe
bids
potential
for progressed,
happening
being a job, risks
is along
thatwith
defined could
the
in thefactors
impactarisecosts
such
on a of as
job, the
any whichjob sector,
risks are stored
incurred location,
in abe
can risk
size,register.
client etc.
The impact cost is the cost incurred if the risk occurs.
ForKEY example,reduced
if there byistaking
Industry the a number
information.
risk of of mitigating
structural defects, actions.
these may be identified in the BIM model, and the threat mitigated.
POINTS We will take a closer look at the features of each risk.
The company are bidding for a job that has a risk register consisting of 3 potential risks. in a % reduction in the effectiveness
If a job isWewon,will
If and
the being
examine
risks progressed,
occur
possible
they any
mitigating
only risk
occur that
actions
once strikes
further.
during can
the delay
planned the job, resulting
KEY POINTS
of the labour duration
on site inofthe period when the risk strikes.
One of the identified risks the
is contract.
‘Structural defects’, which is classifiedrisk, as thehaving
The cost reductions are graded depending upon the particular and aallocated
the reductions Medium toto likelihood
date of the
occurring, and
be this implies
Action can be taken to deal with potential job delays by adjusting labour siteacross
when all jobs
job is can being found in the
a progressed,
Main40-50% chance
menu/Assessing the risk will occur
performance/Job at some point
analysis/Risk during the progressing
analysis for all of
jobs the job,
won. as shown in the Industry information.
and
KEYisPOINTS
discussed in a separate topic.
If the risk strikes If athere
job iswillcompleted
be an impact early cost
thereof is 165,000.
a possibility of avoiding risks
Keep clicking anywhere on the screen to advance
that may occur towards the end of the job.
There are 3 possible scenarios for determining the risk contingency, and we will investigate each one in turn.
Choosing A Consultant Designer
One of the key decisions when bidding for a design & build
Navigatejob is menu/Assessing
to "Main the choice performance/Consultant
of the consultant to
history"
produce the design.

But why is the decision so important ?

The choice of consultant can have a significant impact on the build costs. Consultants with
appropriate expertise and BIM experience produce designs that reduce the expected build cost
when a job is progressed, which improves the profit margin on the job.

There are a Ifnumber of consultants


job 79 is secured, available,weand
and then progressed, there
can use the is no restriction
Consultant on tothe
history option number
determine if of
design & build
our jobs
choiceaofparticular consultant
the Harper Partnership can work on at any one time, but finding the most
is justified.
suitable consultant is not always easy.
Clearly we made the right choice as the Harper Partnership’s expertise in the Building & Commercial
sector, and BIM experience, has helped to reduce build costs by 2.38%, a significant saving.
Consider the following example.
KEY POINTS
The The
Unlike project managers,
Harper
company
for design
Partnership
is submitting have
consultant abeing
bid forbeen chosen
job 79,
based
to design
a large
in one
produce
country & the
does
design.
build Building
not inhibit their& Commercial
contract
performance on jobs otherincompany
in Their the UK.
countries.profile indicates that they have vast experience in the
OneBuilding and Commercial
of the restrictions imposedsector,
by theand significant
client, BIM experience,
South Wales in
County Council, is that because
line with the client’s wishes, and they appear to be an ideal choice.
the job is using BIM (Building Information Modelling), the consultant designer chosen
must have some BIM experience.

Keep clicking anywhere on the screen to advance

Quit
Consultant Details
EXPERTISE
The consultant’s profile
highlights the sectors of
expertise of the consultant.

Expertise is graded behind


the scenes between 1 and 5.

BIM EXPERIENCE
The consultant’s BIM (Building Information Modelling) is
graded from ‘none’ through to ‘significant’.

CHOICE OF CONSULANT
The choice of consultant for a Design & Build job can have a significant
impact on the build costs when a job is progressed.

Consultants with appropriate expertise and BIM experience produce


designs that reduce the expected build cost.
Cost of Bidding

Each job that the company bids for incurs a bidding


cost, depending upon the approximate value of the
job, defined in the Industry information.

Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance [Performance (By Period) tab]"

The bidding cost incurred each


period across all jobs is recorded
as a non-departmental overhead.
Job Progression Decisions
Progressing jobs that have been won involves :-
 Allocating appropriate project managers to oversee the jobs.
 Allocating labour to progress the jobs in line with the company’s strategy for job completion.

Making Project Manager


Decisions

Making Labour Decisions

Key Points For Progressing


Jobs

Job profit
Project manager information
Project manager performance
Measured value (turnover)
% of a job completed
Job costs
Labour costs
Retention
Job completion bonus
Forward workload and margin
Project Manager Decisions
Project managers are concerned
GordonWe withneed
Simcoe’s
now the
profile
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PROJECT MANAGER to. just started
RECRUITMENT AGENCY.
manager,
KEY both
POINTS
working on which have
a particular job is below:-a certain level may resign because they
A project manager with well-matched InThe Project
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 Job 58, a
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off a project again &
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information.
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experience
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will help to lesson the by usingof
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may be a price be available
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Each
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managers is
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inhas guarantee
nothing.
theaagency. they will
project manager allocated. be available again in the following period.
Project managers resign from As a job at the end of the period,
well as relevant experience, job and project providing that the
But Allocated
how do weto
Project managers a
knowspecific
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forprogress.
different job is
levels
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bonus have on performance
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in thelocation is one have of thea other factors
“New” status of “Yes”. that affects project manager performance.
 They
The may
clues liebe off work
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Managerreasons,
History,such KEY
which asshows
illness.
POINTS the level of bonus paid There foriseach period aimpact
an adverse project on manager has
performance if
 If theyfor
worked have
thepreviously
company (on resigned fromthe
site), and theaffects.
company,
Project or have
managersbeen never paid off,
resignthey in their first period on a job.
the project manager is not based where the job
Decisions
may bear aneed grudgeto bebemade
and unwillingabout
to work:-for the company again for a while. is, although this is only a minor consideration
KEY POINTS
We will try and boost the performance of Gordon Simcoe considerably
Although we have now allocated by paying in arelation
6% bonus,
appropriate to thedouble the
expertise
project previous
managers amount paid
of thetoproject
thatWhich
produced idle project
a small managers
improvement to payoff.
in performance. the jobs that did not already have manager. one, it may be worth using the
 Allocating suitable project managersDisplay to jobs in progress, especially
details option for the jobs that already those have that
project don’t currently
Wehavewill also
one,review the
orperiod
haveperformance
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performing project managers,
one. toThe
managers and
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determine pay appropriate
if theymanager
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option to
come boost
is usedfrom
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forthe
to choose
ones idleand
theFraser. pool,
At the start
keep them happy. of 5 the company employs the following project managers :-
another job or from the market (a list of available ones who have registered with the
jobs. If not, they could be replaced.
 Gordon Simcoe in the idle pool KEY POINTS
KEY recruitment
POINTS agency).
 Craig Wooten on job 10 The list of project managers signed up to the
 If too
 Sidmuch
Arklebonus is paid
on job 17 it, it may be money down the drain, because there comes Projecta Manager point when the performance
Agency is dynamic,does and not
can
improve no matter how
 Harry Mitcham on job 29 much bonus is paid; the trick is to find the level. change from period to period.
Keep clicking anywhere on the screen to advance
 The affects of bonus payments are the same for all project managers.

Quit
Labour Decisions
The Construction
LABOUR
Navigate to "MainManager
SHORTAGE menu/Making now Due looksto the
decisions/Job to set
requirements
the labour
progression Navigate
of
levels
eachfor
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theitManager
other
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Setting labour levels grows a problem
that aimdeciding
to the
Ancomplete
overallConstruction to
the strategy
labour jobs enable
Manager
either
shortfall them could
on to face
time, progress is one
orcompleting
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line
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shortage.
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Job 10arehas now a planned When
84 idle labourers
duration available
of 4 upon
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and the
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3rd period have
of thenow jobs
job. been there made are fora number of ’sensible’
all the company’s jobs in
Consider the following situation. options It
new
:- is the
recruits start of
into period
the 5,
company’s and the owncompany
workforce has or6 jobs in
subcontractors progress. may have to be taken on.
idle
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These own labour, which the Construction Manager feels is more cost effective in
TheA number
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Summary
the company’s
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at the end
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be used
of the last period, and ahead of
nottheassigned
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to
currently using
a job. ahead of schedule,
subcontractors. labour
and we will surplus
see
of just if ithow is possible
well thetojobs complete
were progressed
it in period this 5. Ifperiod.
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The 
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determine jobs
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to aim behind
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current labour;
schedule, but
duration
status available
of attempt
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can
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job :- bein
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them
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back
2 periods) site
early, before its planned duration, this earn a bonus fromatthe earlyclientcompletion,
defined inorthe labourdefined have
the Industry released.
information.
schedule in later periods. TryThis can adversely on
affect Subcontract
client labour being used on site
relationships.
IfJobpossible,
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itslabour inthe
3rd period, andhas
idle
and complete
labour poolallshould
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of schedule from the jobs will be added to the
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recruits required
 Ainto tothe
the company’s
mixture of complete
above the
own1,500 job
workforce, is 69 who man eachperiods.
incur aSince
training therecostisin39.7% of the
their first job left
period with tothe
complete,
company. in
site,
manpower since each idle labourer costs an additional each
company’s periodcash account at the end of period. Hopefully, overall there will
Job
We
Use 17
can isusein its
termsthe3rd
subcontractors, period,
Display
this is whojob
39.7% and
incur has
details
of the
an atotal
planned
optionlabour
additional to duration
investigate
of 69,
premium ofeach
or 4further.
27.39 periods.men,
period Itrounded
is ahead
they are up ofto
with schedule
the28 men
company. because fractions
Subcontractor of people
premiums are not
vary
(6,000
allowed.
Job 29peris annum),
in its 2ndas and shown
final in the Industry
planned period, information.
and be a be
must profit that will help
completed this toperiod.
increase It isthe company’s
ahead of schedulevalue.
between The planned
countries, allocation
which
In allcancases is 41
themen,
influence which
where
Construction although
they are used.
Manager guaranteeing
needs to assess to completethe labour the job, would
requirements complete each theperiod
job farfortoo early
each
inJobthe 52 was won
period, which last period,
would have and had is the
in itsfollowing
first period detrimental affects :-
jobusebased upon the strategy being used.
We Themay
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Job choice
53 be able
Performance
was wontolast
between make
new
Summary
period, offor
recruits
and theand
the
job
is idle
in17itslabour
subcontractors
job shows
shows on
first periodthatjobs
that theis52,
the job
job 53isisand
discussed 58,
in the
currently
currently 76%Keycomplete,
69.2% points
complete, section.
and andwell well
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ahead of the
of the of the
of the 55%55%
which
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plannedwe is
havestill
completion retained
yet to until
consider. the end of the period, incurring additional labour costs (ineffective labour)
 Job 58 was won lastafter period,twoand periods.
is in its first period
 Labour
Having could set the belabour
utilisedPlanned
otherfor
levels jobs,
labour
each wherelevels
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were
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needs be thesureestimators
that the labour in order
levels forset
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to complete
job
are within
There is 24% 30.8%the permitted
ofof thethejobon
job time,
left
left
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overmanning they
complete,
complete, can
limit. ororbe
This
24% used
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30.8% as
be
of the guidelines
checked
of thetotaltotal labour in
using
labour setting
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required the
Effective
required labour
for thefor the levels
labour
job (149job (104 for
limitswhichever
manman for jobs
periods),
periods), strategy
in progress
equating
equatingis adopted.
to 35.76
to
KEY POINTS
option.
32.03
men (.24
men x 149).
(.308 Rounding
x 104). Roundingup givesupa gives labourarequirement
labour requirement of 36 effective
of 33 effectivemen needed men needed on site on to complete
site to completethe job athe period
job a
The strategy
period
early, and
early, asadopted
and
efficiently above
Toascomplete
as efficiently willas
possible work ainwell
job
possible early
periodunless
in 5. it is
periodother
possible
5. factors to affect
overman the above
effectiveness
the planned of thelevels.
labourOvermanning
allocated, such limits
as delays
are shown
caused
Clearly by the riskseffective
striking,inlabour
which
the Industry
ison discussed
site information,
in thethe
is within Key andPoints
effectiveare sector-based.
section.
limits.

We
We SURPLUS
There have
have now
is nonowLABOUR
harddetermined
and fast that
determined rule only
that 33
28
36 labourers
for deciding
only upon the
labourers are needed
areorderneeded for on
on jobjob 29
determining 10
17 toto complete
the labourititrequirements,
complete as
as efficiently
efficiently as and
as possible in
in period
period 5.
the Construction
possible 5.
Job After
Manager 52 making
is decides
a the
2-period labour
to Transportallocation
concentrate decisions
first onalso
contract, job 29,for
in each
asfirst
its job,
must be completed in the current period, and is a priority. If this is the
thisperiod. there may be a surplus of labour left in the idle pool.
Job
case, At53 the isend
there a 3-period Energy contract, also in its first period.
Job 58 is a are of
3-periodathe
numberlast period,
Building of options and :-
& Commercial available atwhich
thewhom
contract, beginning
The also in its
all bonus of period
first
for 5,
jobthere
period.
early are
completion :- is defined in
At
At the
the moment
Period moment
5 is the there
there
second
are 39
61 labourers
41
areperiod labourers
of the job,
on
on site,
andof
site, all
all of
its of whom
final planned
are
41
areare the
the company’s
the company’s
company’s
period. There are
own
own ownoperatives,
operatives,
operatives,
currently
with
withand
41 labourers nothe
no noneIndustry
subcontractors information,
are subcontractors
subcontractors
on site, all are the
Even  40 labourers
allowing for in the
over idle menu/Making
labour pool decisions/Job and be is a % of the tender (bid) progression
value, which varies by jobstatus size.of jobs in progress”
company’s
It isdecided ownNavigate
toin labour,
over to manning,
man and
"Main jobthe 2-period
53 planned
by theperiod, jobs can18%
requirement
permitted never
progressiontry completed
istolikely
also 41.
and in 1itperiod.
decisions/Assessing
complete in 2job periods, andperformance/The
earn a bonus from the client for

ItLeave
ItIt isis decided them
141 labourers
more cost to the
over
effective pool
man
on jobs; to for
job use
58
all are
keep thenext
by the
the permitted
company’s
company’s if they
own 35%
own are
fully to try
operatives,
trained to
and be required.
complete
none areon
operatives it in 2
site,periods,
subcontractors
as and earn
subcontractors a bonus
incur from
an the client for
additional
is
early more
 Use completion. cost
theeach“Number effective to to keep
layoff” the
to levelcompany’s
layoff as much ownof fully
the trained
surplus operatives
asallocate
possible on site, as subcontractors incur an additional
Normally,
early
premium
Since
premium If we
allocating
completion.
job 52
take
each period
cannot
theperiod
the
be
combined
planned
(variable
completed
(variable idle by
by
each
country),
a period
labour
country),and
period
as
early, shown
site-based
as shownit is
is sufficient
KEY
in the
decided
inlabour,
the POINTStoto
Industry
the
Industry
complete
company theprior
information.job to
a planned
has
information.
onany
a
time,labour
labour
current
allocations.
providing
level
workforce ofa85 good project manager has
of labourers.
 Instead
been of transferring
allocated to oversee men thetojob,the andidle all
labour pool from
the labour is site,
fully pay
effective. them straight off
Completing a job early means completing before the from site using the “Paid off” column
planned duration e.g.,
Since 181. the planned labour for job 53 in its first period is 10 labourers, the required labour level is 12 labourers (10 x 1.18).
To instead
Sincereduce
do the of
the
this :-the transferring
plannedlabour labour
from themfor
39
41 to
job
to the
33
2858 weidle
in itslabour
will first
transfer pool.
period 6
13 is
men 17
completing labourers,
to
labourers the a
idle
to the the
5-period
labour
idlerequired
job
pool
labour in labour
4
usingperiods,
pool the level
using or
“To is
the a
ILP” 23
“To labourers
4-period
column.
ILP” job (17
in
column. 3 x 1.35). etc.
periods
To However,
reduce since labourthisfrom is the 61final
to 36planned period of
we will transfer 25 the menjob we should
to the idle labour take a closer
pool using the look“To at how
ILP” the job has progressed
column.
to
Since date,
KEY since
POINTS
there is no other
spare factors
idle labourmay have contributed
it is decided to taketoonthe thejob12being
labourers behind needed or ahead
as new ofrecruits
schedule, into and we need to
the company’s
KEY
Since POINTS
there is no spare idle labour it is decided to taken on the 23 labourers needed as new recruits
KEY 84
allocate POINTS
men are transferred
sufficient tolabour to site
to the from
complete the idle
theforlabour
job pool
asprogress by
efficiently entering
areas 84 into
possible. the “From ILP” column. period. bycompany’s
into the
KEY
The
The 1
into
The
workforce
Unnecessary
workforce
new
default
POINTS
surplus,
in order
in full
recruit
However,
surplus,
the “New” theKeep clicking anywhere on the screen to advance
Idle
order
is
labour
labour
to build
trained
taken
default
full column.
trained on
allocations
build
own
up
costs
uplabour
into
levels
own
the
the
are
labour
for each
workforce
money,
workforce
is
company’sas
unlikely
shown
transferred
is transferred
jobthe
for
to be
in
thein
to
workforcethe
future,
Industry
future,
the idle
in
required
to the idle
rather
pool
order
pool
the
than
information,
rather than
for
to
ones
levels
use
from the end of This
use subcontractors.
and
reallocation
build
for up
the
for reallocation the is
currentto an
subcontractors. overhead
other
workforce
period.
to more/less
the last
This
jobs.
for
other jobs.labourIf
the
is achieved
that
isthey can
achieved
future,
If theythan are adversely
not
rather
are not
by
entering
needed affect
entering
needed on other
than on
use
12
23
other
Due
company
into
jobs to a
the “New”
they number
operating of
column. factors
profit forthethe job may
period. be behind/ahead of schedule, and require planned.
jobs they may
subcontractors. may be paid
beThispaidis off instead.
offachieved
instead. by entering 1 into the “New” column.
We can use the Display job details option to investigate further.
Quit
Key Points For Progressing Jobs
Progressing jobs to completion is often a complex task, and the The labour used to
decisions that have to be made are often the result of the progress a job
strategies adopted in other areas.
Overmanning to try and
For example, if the company has an aggressive tendering policy, complete jobs early
and secures a large number of profitable new contracts in a
particular period, this can cause problems when it comes to What happens if a
adequately resourcing the new and existing jobs. job over runs

More work normally means more labour, and the company may
Handling job delays
have a significant shortfall of its own fully-trained labour. This
would then require decisions on how to overcome the shortfall, by
taking on new recruits into the company’s own direct workforce, Using new recruits or
or using subcontractors. An alternative policy may even be to subcontractors
deliberately delay jobs in the short-term, but this can affect the
relationship with the clients. Labour relations

Some of the key issues are dealt with in the demos.


Labour Used To Progress A Job
The labour used to progress a job isEFFECTIVE
classifiedLABOUR
in a number
LIMIT of ways :-
The
Theplanned labour
Job details can be
shows theexceeded each period
labour breakdown upperiod
each to a point known
between theas the
 Planned labour effective labour limit.
different classifications, and the costs incurred.
 Effective labour limit
The
TOTALovermanning
LABOURlimits ON SITE are sector based, and shown in the Industry information.
 Total labour allocated
The total labour allocated contributes to the site costs.
 Effective labour KEY POINTS
 Ineffective labour It would beINEFFECTIVE
EFFECTIVE necessary LABOUR DUE TO OVERMANNING
LABOUR to over man a job to complete it early e.g., to complete a
Effective jobAfter
5-periodPLANNED
labour
allowing
in 4contributes
periods,
LABOUR
for delaysjob
4-period theinlabour
to the build
ABOVE
3 periods
costs. etc. the effective labour limit is
 2-periodThe classed
jobs can as
never ineffective
be completedlabour due to
in 1period overmanning, and does not
period.was estimated when
The following example should demonstrate the classifications.
planned labour level for each
contribute to progressing the job.
As a roughtheguide,
job was identified
if the effectivein order
labourtoiscomplete
30% of thea contract on time.
total labour required to
Effective Labour Limit
complete EFFECTIVE
a job, 30% ofLABOUR the job’s total build costs will be incurred.
The cost of ineffective labour is shown in the Industry information,
After allowing for delays the labour BELOW the effective labour limit
LABOUR ALLOCATED TO SITE
INEFFECTIVE is classed
LABOURas the effective labour on site, and contributes to
The Construction Manager determines the total labour to allocate to
Ineffective progressing
labour costs the
arejob.
shown in the additional labour costs.
Planned Labour Level site in the period depending upon the requirements of the job.
Only effective labour generates value, or money from the client.
The total labour level is adjusted by affect of any delays to leave
the ‘potential’ effective labour on site.
As a rough guide, if the effective labour on site is 30% of the total
labour required to complete a job, 30% of the job’s value (original bid)
The labour lost by delays is classed as ‘ineffective’ labour.
should be earned from the client.
KEY POINTS
However, there are numerous other factors that can affect the
The total labour level allocated may be higher than the anticipated
measured value recovered, including :-
required level to compensate for any delays to the job that may occur.
 The quality of the project manager on the site
 Morale of the company’s own labour
 Measurement effort across the company

Keep clicking anywhere on the screen to advance

Quit
Overmanning To Complete Jobs Early
Trying
But
It is what
unlikely
to complete
happens
that any
aif job
the
jobearly
Construction
will has
be progressed
a number
Manager
Navigate of
exactly
to benefits
attempts
"Main in line
toto
Ifthe
menu/Making with
complete
company,
the progression
decisions/Job
the planned planned
theof
level including
job progress,
early, :-hadjob
16decisions/Display
labourers even if that
details”
been
overmanning
is the intention.
in some periods, but is still not able to complete allocated,thethejob
jobearly
would ?have completed very early
in the period, as shown in the Management
 The client may pay a bonus for early completion (see below). consultant's report.
This
There may
are occur for a reasons
numerous number for
of reasons
this, :-
including :-
 The company’s own labour that was being used on the completed job can be used on other
Delays
sites, to the jobthe
Job delays
preventing reduce
needthe
to effectiveness of the labour
take on new recruits, on would
or having
This site.
to use
have subcontractors.
resulted in :-
The Construction Manager needs to allocate less than the planned level of 16 labourers in
Using the
An company’s
Changes previous
overallin‘own’ 4-period
anticipated Water
labour productivity
shortage, & Sewage
finaland contract
levels as an
a reluctance
due to example,
theto to the
expertise
use job was
subcontractors,indeed
atofthethe overmanned
project may managerinwas
mean its first
the 3 job
on the
 The the job’s period to enable the job An
complete increase in
end costs
of itsas labour
final period. retained until
periods, and was capital
well aheadassets
of schedule,(plant,
and onbuildings etc)
course to complete being
a the
periodusedearly. on the job can be
end of period, incurring 81,900 additional labour diverted
is not overmanned enough.
site
elsewhere.
 A If the full 16 labourers are allocated, the jobcosts, and a significant
will complete well before amount
the end of unnecessary
of the period,site
A job
poor may
choice
However, have
job of been
delaysproject
in theovermanned
manager
job’s third, and to try and
reduces
anticipated the
finalcomplete
productivity
period, it early,
resulted of
in the
the making
labour
effective the
on
labour planned
site.
being reduced progress
from
 ToCash flows are improved. and additional labour costs will be incurred administration
until the period costs
end.
figures
complete redundant
32 to 30a labourers,
job early theandConstruction
the job was Manager needs toatrefer
98.6% complete the endto theof sector-based
the period, andovermanning
just failed to limits in
complete. the
 Inefficient use of labour that could have been used Industry
information. Early completion elsewhere
ofout
a jobof means completing at least oneof the
In this scenario, the job would Since enter
there is its
onlyfinal
1.4% planned
of the job left period
to complete, the step
labour with
level the completion
required is 1.4%
Bearing KEY
schedule.
For example,this
POINTS
In in
allmind,
consider if a&job
probability
a Water it is
total likely
labour
would
Sewage tohas
job (104),
still
that complete
or a1.46
be ahead period in
operatives,
planned of the
before current
ofthe
which
schedule,
duration 4 is end period,
of and
rounded
because
periods, the great
upplanned
toit
that 2can
labourers,
has be care
duration
been has
well
overmanned e.g., to
short be
if by
the
of theto
up
taken The Construction
in setting Manager should have allocated more labour during the third period, and anticipated final period, to
25% each
overmanned, period. the thecorrect level level
planned of labour
of 16. to ensure that the job finishes as near to the end of
planned duration is 4 periods, it must be completed in 3 periods
compensatebut Construction
for potential delays, and theManager
job may then musthave
or less be tovery
obtaincareful
completed. topicabout
Theclient
the of handling
bonus. setting the labour
job delays is
the period
level,discussed as
since the possible.
planned level cannot be relied upon.
in the Key Points section.
KEY
If the Construction Manager follows the POINTS
overmanning guidelines, and the labour allocated to site is fully effective, with no
delays, the completion schedule should The strategy adopted above
be as follows. The willbonus paid unless
work well by the other
client factors
varies depending
once moreupon affectthe thejob
Wea will
If job now
finishes examine
too earlyhowin thetheConstruction
period
effectiveness :- labour
of the Manager
size.
allocated, sets
suchthe correct
as delays causedlabour by risks level to complete
striking, which is
the
 The jobworkforce
as efficiently
<----------- as possible.
Labour
is retained
discussed in the Key Points section.
Allocation
until the end-------
of the period, incurring unnecessary additional costs
Period Planned Overmanning Actual Cumulative
 Excess labour is being used on the site that could have been utilised elsewhere
1 26 25 % 32 32
2 31 25 % 38 70
In the 3 anticipated
31 final period of
34 a job, you can ignore the planned labour level, and
104
concentrate
4 16instead on the % of the job left to complete.
---
104

The job should complete a period early, securing a bonus from the client.

KEY POINTS Keep clicking anywhere on the screen to advance


Overmanning above the effective labour limits results in ineffective labour that does not contribute to the progress of the job,
but incurs labour costs.
Quit
What Happens If A Job Overruns
Ideally all jobs progressed will be completed
Navigate either
to "Main
Navigate early or decisions/Job
menu/Making
to "Main ondecisions/Job
menu/Making time. progression decisions/Display
progression job details”
decisions/Display job details”

However, this is not always the case, and if a job overruns beyond its planned duration there
are a number of affects :-

 AThe
penalty will be
Performance incurred
Summary from
for the the client
job shows that thefor
job late completion,
is currently expressed
99.5% complete, and hasas a % of the tender
overrun.
value for each period the job overruns. This can have a severe affect on the company’s cash
There is 0.5%
account, andofcompany
the job left tovalue.
complete, or 0.5% of the total labour required for the job (212 man periods), equating
to 1.06 labourers (.005 x 212). To ensure that the job completes 2 effective labourer should be allocated to the job.
 Additional resources will be needed to complete the job (labour, project manager),
diverting them you
If a job overruns from
canelsewhere.
allocate as much labour as is required to complete the job, and the normal
overmanning rules do not apply, since there is no planned labour as a guide.
 It reflects badly on the industry’s perception of the company, reflected in the ‘contract
completion’
KEY POINTS and ‘clientIfsatisfaction’
the actual labourkey performance
on site of 90 labourersindicators used to
had been allocated, themeasure the progress
job would have completed
ofDelays
the company.
caused by risks occurring are not
very early in an
theissue when
period, asjobs overrun,
shown in the since risks will consultant's
Management only strike during the planned
report.
duration of a job.
Once the period has been completed, the Job Details
If a job overruns, it is imperative thatresulted
This would have the Construction
in :- Manager allocates enough labour to
shows the penalty incurred for late completion.
complete the job in its first overrunning
 A massive increaseperiod.
in costs as labour was retained until the end of period, incurring 500,661
additional labour costs, and a significant
Theamount
penalty of
forunnecessary
completing asite
jobadministration costs
late is a % of the tender
 Inefficient use of labour that could have been used elsewhere
value per period, as defined in the Industry information.

Consider the following example.


The relationship with the client will be affected by the late completion of the job.
Job 52, planned to be a 2-period job, has overrun into its third period.
In this particular example, the ‘considerable deterioration’ in relationship with the client,
East Midlands
There County90
are currently Council, as a result of
of the company’s thelabour
own job completing late
on site, but has
with nobeen the labour
planned
overriding
Keep clicking anywhere on the screen to advance
factor in the current ‘poor’ client relationship.
as a guide, what level of labour is required to complete the job this period ?

This may now affect trying to procure any further work with the client in the future.
Quit
Handling Job Delays
The effectiveness of labour
Navigate allocated
to "Main menu/Making to Navigate
Navigateatojob
decisions/Job
"Mainby
to the
progression Construction
decisions/Display
menu/Making
"Main decisions/Job
menu/Making Manager
jobprogression
details/Job
decisions/Job can be adversely
information/Risk
decisions/Display
progression and
job delay
jobanalysis”
details”
decisions/Display details”
Navigate to "Main menu/Making decisions/Job progression decisions/Display job details/Job information/Risk and delay analysis”
affected by a number of factors, such as :-
The adjusted labour level of 93 labourers should compensate if the risk ‘personnel issues’ strikes, and
The expertise
enable of theonproject
the job to complete time. manager on the site
 Labour relations
OfOvermanning
course, if the risk of
‘sitethe
contractor
site co-ordination issues’ occurs this could prevent the job completing,
but it was a ‘low’ risk, and the Construction Manager decides to take a chance this will not occur.

There
KEY POINTSis also another key factor that the Construction Manager needs to take into account, and
Consider the following example.
that
If the is delays
delays tooccur
do not the the
job.
job will complete earlier than the end of the period, and as all labour is
retained on site until the end
Theof Risk
the period when a job completes,
and6,delay there will be additional
there arelabour
2 riskscosts
Job 52 should have completed in period when analysis for job
90 labourers were52 reveals
allocated that
to site. that have not yet struck :-
due to the ineffective labour. However, at least the job will have completed.
We will at how the Construction Manager can mitigate against the consequences of job delays.
However, the effective level of‘Personnel
labour was issues’,
reduced whichby has a ‘high’
2.5 men duechance of occurring
to delays. This
 ‘Site contractor co-ordination issues’,
resulted in the job being 99.5% complete at the end of period 6, and not quite which has a ‘low’ chance of occurring
completing.
DELAYS
Although bothAREThe CAUSED
risks DELAYS BY and
could strike,
SO RISKS (ALLSTRIKING.
FARpotentiallyJOBS)delay job 52that
reveals in period 6, it is
‘personnel decided
issues’ havethat the
already
threatat
We will now look in more detail ofwhat
‘personnel
causedissues’
causes is
of most
the delays,
delays andlikely,
between 2.7 and
what action
and the
2.9% Construction
could
on other jobs,Manager
and this decides to take
is a good action
guide to
have been taken to mitigate Thethis
in case
against Risk and
happens.
their delay
affect. analysis for job 52 reveals that the
the likely affect if ‘personnel issues strikes on job 52. delays were caused by the risk
‘Personnel issues’ striking in period 6, the second period of the job.
However, howOf much is the
course, current issues’
‘personnel labour maylevelnot of 90
havelabourers
caused any to be increased
problems by on
so far to other
offsetjobs,
any KEY POINTS
potential delay ?
and in this case the Construction Manager would have to make an educated guess on
 More than one risk can strike in any period of a job, but they only occur during the planned
the likely affect. As time goes by the potential delays can be more accurately assessed
duration asof a job,risks
more and occur.
not if it overruns.
 Completing a job at least one period early Allcan
labour on site
prevent incurs
risks site in
striking cost, including
future periods.
ineffective labour, and hence the cost of any
Delays that occur in the periods before aJob job is
52due to complete
currently has 90are not such
labourers onasite,
concern,
and theapart from the additional
Construction site cost. to
delays is incorporated into the Manager
site costdecides
for the
HOWEVER, delays that occur in the period a job a
assume is 3%
duereduction
to complete maycan be
beperiod.costly because
possible, and adjuststheythe
can prevent
labour a job
to 93 from
labourers.
completing, with associated late completion penalties, and a waste of resources in terms of the further labour and a project
manager to complete the job.

Keep clicking anywhere on the screen to advance


Gong back to the previous period, how could the Construction Manager adjust the labour on site for job 52 to
mitigate against the affect of any potential delays ?

Quit
New Recruits v Subcontract Labour
In
Comparing
progressing thejobs
training
it is cost
alwaysof newmore recruits
cost-effective
Navigate versus
to "Main subcontractor
to
menu/Industry
Navigate to use
"Main the environment
information/The company’s
premium
menu/Industry in aown
information/Country
in which period,
the fullyisitoperating”
information”
company would
trained
appear that labourers,
subcontractors
rather than
are the usingcheaper
subcontractors.
option. However, it must be remembered that the
new
Whererecruit
there is training cost is
an overall labour a one-off
shortfall in the cost, whereas subcontractor premiums have to be paid
Subcontractors
every
period, period.
the decision:-as to whether to employ
new recruits or use subcontractors is further
NEWCostRECRUITS
more
complicated by than own
the limit labour
on the number of
The new
Each decision
recruit as
thatto whether
is taken on intoto
theemploy
company’s new
ownrecruits
workforce orhasuse
to besubcontractors
trained in their first may come down to
new
period recruitson
Reliance thatsubcontractors
can be taken on in acan period,
affect the morale of the company’s own labour
the jobs where
with
as defined
the they may
company.
in the Industry
This is a be needed,
one-off
information.
cost and there are other factors
allocated to
The SUBCONTRACTORS
the job they are placed on. that may affect the
company’s strategy
limit can vary each period.:- Subcontractors do not need to be trained, and are fully effective from day one.
The training is assumed to take place where the company is based, and does not vary between
countries. Hence,
However, no matter
if there is anwhich job a new
overall recruit
labour is allocated
shortfall
However, to incur
theythat
do the
thetraining cost is the
Construction
an additional same.
Manager
subcontract needseach
premium to address,
period,
 The
two limit on
options arethe number:-of new recruits
available shown inthat can beinformation,
the Industry employed. which varies between countries.
The training cost for each new recruit is shown in the Industry information.
The anticipated
 Take-on durationadding
new recruits, of a contract,
to the which can own affect how many periods subcontractors
KEY company’s
POINTS labour
need to be employed for.
 Use subcontractors Subcontractor cost variations between countries can have a crucial bearing
 The affect of using subcontractors upon on the morale
which jobs theyofare
the company’s
used on. own labour, which is
Butcovered
whichinoptionanother is demo.
now the most cost effective ?
 Eventually own labour may need to be paid off when work dries up, incurring additional
Tolabour
answerpayoff
this question
charges.we
The
need
laying
to compare
off of ownthe
labour
costsmay
involved
then in
impact
taking
onon
labour
one new
relations,
recruit
against
affecting
one the
subcontractor.
morale and productivity of the workforce across the company.

It is certainly worth taking the time to determine the most cost-effective approach, as this can
have a significant bearing on the profitability of the company.

Keep clicking anywhere on the screen to advance

Quit
Labour Relations
Theany
In most
period
cost-effective
a company’sEXAMPLE
EXAMPLE
way 2: 1:
totaloflabour POOR
managingGOOD
force LABOUR
the LABOUR
consists
labour
Navigate
RELATIONS
:-RELATIONS
offorce
to "Main is to use
menu/Assessing the company’sconsultants
performance/Management own fully report"
38 men38 werewere
men available in thein
available
trained labour, rather than subcontractors. idle labour pool, but all of them
the idle labour pool. None
For example, if 50 men are transferred to the idle labour pool from job A, then they
werewere
laid off are
laidwhen theyallcould
off, and were
immediately used onLabour
job B.in No training is required,
Labour no have
on men are laid off, and the been
used utilised
company on jobs.
does
on site, leaving no
Jobs in idle labour.
not incur any additional
the Idlecosts
Pool such as subcontractor premiums.
Progress
Total Labour
in Company
In this scenario the company
(Own) 6would beleft
men were perceivedidle to
in the (Own have a good labour relations policy and
+ Sub)
the morale of the company’s pool
ownand
labour would
not used be high, ensuring greater productivity.
to replace
subcontractors being used.
The affect of the company’s construction management decisions on labour
relations is reflected in comments in the Management consultant's report.
The least the
To source cost-effective way
jobs in progress of managing
with
Additional the was
labour thethe
labour labour force
required
company’s is to be constantly
the Construction Manager hiring and be
will often
laying off the
faced with company’s
either own
own,
an overall labour,
and not
labour and also or relying
subcontractors
shortfall, on subcontractors.
a surplus. In this situation a number of
8 men were laid off from site, and
decisions haveif to
For example, be made
a high on howofbest
proportion to replaced
manipulate
the company’s by own
the labour
labour
subcontractors.
force.
is laid off inNoasubcontractors
period, then the
were used.
morale of the remaining own labour (not subcontractors) would be weakened, leading to
The options
reduced available include
productivity. :- the Company would have a poor labour relations policy..
In this case

FOR THE COMPANY’S OWN LABOUR


WeLaying men off
will now from
look the Idle Labour
at detailed Pool that
examples (ILP) illustrate good and bad labour relations.
 Transferring men from the ILP to jobs, or from jobs to the ILP
 Taking on new recruits onto jobs, or laying off labour from jobs
The Construction Manager was able to manipulate the labour force so 84 subcontractors were used.
FOR SUBCONTRACT LABOUR
that :-
None of the company’s own
 The Construction Manager did not manipulate the labour force effectively, and :-
Taking on or releasing subcontractors labour was laid off from site.
 All idle labour was redeployed to site
 Used 84 subcontracts
Additional when
labour was the men were
company’s available
own, in subcontractors
and not the idle pool, but were paid off
 Laid off 8 men from site, some of whom could
None of the company’s own labour was laid off have been used instead of subcontractors
Keep clicking anywhere on the screen to advance
 No subcontractors were used
This is an example of poor labour relations, and the productivity of the company’s own
labour
This is would be adversely
an example of very affected.
good labour relations, and the productivity of
the company’s own labour would be improved. Quit
Job Profit
The profit the company makes across allNavigate
jobsNavigate
progressed
to Navigate
Navigate
Navigate
Navigate
"Main
Navigate to "Main
Navigate
totoNavigate
"Main
menu/Assessing
toto
to "Main
"Main
"Main
"Main each
to period
menu/Assessing
menu/Industry
"Main
to "Main
menu/Assessing
menu/Assessing is critical
performance/Job
menu/Assessing
menu/Assessing
information/Country
performance/Job
menu/Assessing
menu/Assessing performance/Job
performance/Job
analysis/Riskto the
analysis/All
performance/Performance
performance/Consultant
information”
analysis/All
analysis/All
performance/Management
performance/Managementanalysis jobs
jobs
forhealth
jobs
all identified”
summary"
history”
identified”
identified”
consultants
consultants jobs won”
report"
report"
Navigate to "Main menu/Assessing performance/Project manager history”
of the business.

The job profit should at least cover the company overhead costs not covered in the
individual jobs, otherwise serious cash flow problems could occur.

Any additional profit can then be used to pay dividend to shareholders, and crucially to grow
the business, such as by expanding the capital base (infrastructure) and targeted investments.
JOB COSTS: CONSULTANT DESIGNER CHOICE FOR DESIGN & BUILD JOBS
We will now look in detail at how job profit is defined, and how it can be improved.
The choice of consultant to produce the design on a design and build job can have a significant impact on
the
JOBbuild costs.
COSTS: RISK COSTS
JOB COSTS: WORLD ConsiderEVENTS the following example.
If a risk does not strike on expertise
JOB Consultants
COMPLETION with appropriate a job, theand BIM experience
contingency builtproduceinto thedesigns original thatbid reduce
as part theof expected
the oncost build
cost
World
will improve when a
events job
The can
the is progressed,
jobimpact
company profit upon
were which
build and
considerably.
successful improves the
site costs afor
in submitting profit
bidjobsmargin
for job on
progressed,
24. the job. Conversely inappropriate
which can have a significant affect
JOB consultants
The LABOUR
on COSTS client
job profit. can
PRODUCTIVITY
pays areduce
bonus the for
AND VALUE: OVERHEAD DEPARTMENT STAFFING job
early profit. completion of a job.
LABOUR In addition,
JOB COSTS: the
Therisk
USE
PRODUCTIVITY: OF costs
expected incurred
SUBCONTRACTORS
LABOUR profit to bewhen
RELATIONS madeaon risk thestrikes
POLICY job wascan the be markupreduced, (margin) andofimprove
3.4% of the jobjobprofit
costs. by :-
JOB
For COSTS
job 24, Neo Creative Designs were chosen, and their expertise and BIMtheexperience
Early The
Although
Understaffing
JOB job
COSTS:is progressed
completion
world
of the of
events
ADDITIONAL aby
Head Office, joballocating
are means
outside
LABOUR
QHSE labour
completingeach
theMeasurement
and
COSTS period,
company’s at least and
direct thecontrol,
one
departments,total
periodmanbelow periods
thebefore
marketing
the needed
required end of
level, will reduced
tostrategy
complete
the planned
have of jobthe
thenegative
the are overall
191.
duration
business
affects
across build
e.g.,
Subcontractor
can
 Targeted cost
if the
influence
all jobs by 0.5%,
planned cost
Inwhich
investments
being a significant
duration
variations
world
progressed,
monetary into
terms is
events 4
between
appropriate
namely
the overall
periods,
have
:- can
expected reduction
an it must
countries,
affect,
risk
profitmanagement
isthe bethat
and
isand helped
completed
whenconsultants
the careful
difference to in
analysisincrease
allocating 3
between periods
labour
of the
the the or job
to less profit.
to
progress
bidENGINUITY
value obtain
to beon jobs,
NEWS
earned the theclient bonus.
decision
NETWORK
The The If labour
the actual
bid relations
profit
value of policy
made
11,513,320 of
on the company
aisjob
divided can by bethe affect
improved,
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or reduced,
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considerably
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value labour
internal
(turnover)andallexternal
theeach
for jobs in progress.
factors
man
on
There
(ENN)
JOB where
Employing willto
are
COSTS: ahelp use
number
the
TARGETEDin
frombest subcontractors
of
deciding
the additional
possible
client upon
INVESTMENTS project
(11,513,320) can
thelabour have
most
manager
and the aexpected
costs significant
effective that canimpact
strategy.
costs impact onupon
(11,134,737) the i.e.,
build costs.
the378,583.
job profit :-
LABOUR that
The period affect the
progressed
PRODUCTIVITY:
bonus varies costs is incurred
60,279.
depending PROJECT This
upon on is aameasure
MANAGER
the job.
size of of the
PERFORMANCE
the labour
job, and productivity.
is expressed as a percentage of the tender value
The  Use
Head of a BIM
Office,
productivity anwill (Building
increase
be improved in jobInformation
costs
by :- (buildModelling)
costs) model
 Less (bid
For
QHSE, entered)
example,
Overmanningan increase for
suppose
KEY ofin the
a job
job
POINTS job;abeyond
costs details
number (build the arejobs
of
and given
effective
risk are inin
costs) the
labour Industry
progress, limitsand information.
incurs subcontractors
ineffective are in
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costs used in onspecific
a job in
During Targeted
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will
bid
periodnow
bid investments
4 on look
value
of subcontractors
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job detail
recovered
Sid can
at the
Arkle’s improve
fromfactors
performancethe jobthat
clientprofit
was affect
cannot by be reducing
‘excellent’. costs.build
jobaltered. However, costs it onpossible
is work toprogress
improve, or reduce, the
LABOUR Australia,
Not completing
Conversely
Measurement,
sectors
Paying off duewhere
risk
a
to
PRODUCTIVITY:
less of subcontractor
acompany’s
costs
reduction
When jobare as
progressing
preferential
the efficiently
increased,
in measured
PROJECT rates
owna jobcosts asare
value
onthe
labour expensive.
possible
reducing
(turnover)
actual
materials,
MANAGER profitjob in profit,
plant
PERFORMANCE made Another
itsetc.
final byperiod
can :- job is
differ being
incurs
from progressed
theineffective
expected profitindue
labour India,
costs where
to factors
For labour
Takingjob 24,
subcontractor productivity
on a own planned
costs