module 1 the construction environment

Fiat Lux!

Introduction to Project Management

Contents I. The environment of Construction

Principles of Project Management

II. Projects and Programs

III. The Project Team

IV. Project Planning and Control

V. Planning Management

VI. Cost Management

VII. Quality Management

VIII. Safety Management

IX. Procurement Management

X. Introduction to Lean Construction

Module I The Environment of Construction

Module I

The Environment of

Construction

Contents

The Construction Industry

Characteristics and Opportunities

The Management in Construction

Specific Competencies

The yearly costs of Construction are distributed almost uniformly among the following segments of the sector:

Residential

Commercial, public and industrial

Infrastructures


Recent statistics show that the Construction industry is responsible for the 7 – 12% of the GPI (Gross Internal Product) of a country.

Although the Construction represent the largest sector of the industrial world, the competition among the various companies is very fierce.

Nevertheless, the yearly average turnover of each firm is very low.

Even if some international firms invoice various millions of dollars, the majority of them place themselves under the threshold of one million per year.


Company Country Yearly Turnover

Millions of US $

Wal-Mart Stores

(2003) USA 246,525

General Motors

(2003) USA 186,763

Exxon Mobil (2003) USA 182,466

………………………. ………………………. ……………………….

Bechtel (2002) USA 11,600

CMC Ravenna Italy 700

Many of these firms are owned by one person. The low amount of overheads make these companies very competitive in tendering for new jobs.

The output and the activity of the Construction industry is characterized by a high degree of variability from one period to another.


The output of the sector depends by many factors:

Government budget for new works

Monetary policy (when the interest rate is high, the construction activities drops)

Tax legislation in favour of private financed jobs.

The needs of people and business

Natural disasters (earthquakes, floods, etc.) which create the need for new infrastructures.

All these factors affect the volume of construction from one year the other.


Each project, whatever the size, requires the control of four variables:

The cost of the Project

The duration of the Project

The quality of the Project

The safety of the Project


We can imagine the construction firm as one which uses manpower and equipment to place materials in a specific project.

The ability of the firm to produce profit and to be successful depends on his ability to utilize manpower and equipment in the most efficient way.

The importance of these factors is clear when we analyze the cost components of a construction project.

Let’s consider the following examples:


Table I.1

Cost components of a project

Costs Building

Project %

Road

Project %

Direct cost of manpower 400,000 40 250,000 25

Direct cost of materials 350,000 35 170,000 17

Direct cost of equipment 80,000 8 400,000 40

Overheads (Project) 80,000 8 80,000 8

Overheads (Company) 70,000 7 80,000 8

Profit 20,000 2 20,000 2

Total 1,000,000 1,000,000

Analyzing these figures, it is evident that a contractor, who wants to be profitable, must utilize manpower and equipment at his best.

The measurement of efficiency in the use of resources is called productivity.

Productivity is defined as follows:


utilized hours-Man

executed units WorkyroductivitP

Even if the denominator has been expressed in “man-hours”, we could argue that this one should also include “equipment-hours”.

To be profitable in his operations, the contractor should utilize men and machines in a very efficient way to increment his productivity.

Unfortunately, the construction industry has always been recognized as a sector with a very low productivity.


Recent investigations have shown that in a eight–hours shift, 50% of the working time may be considered unproductive.

An analysis of the different causes, that are responsible for such a loss, has been prepared by Dr. James Adrian as shown in the following figure:


Fig. I.1

Productivity in Construction

by Dr. James Adrian

Productive work50%

Late start, early quit6%

Punch list3%

Late or inaccurate information5%

Waiting on resources14%

Accidents3%

Substance abuse2%

Double (+) material handling6%

Wastage and Thef t3%

Waiting on instructionst6%

Redo the work2%

Item Percentage

Productive Work 50.00%

Waiting on resources 14.00%

Late start, early quit 6.00%

Multiple material handling 6.00%

Waiting on instructions 6.00%

Late or incorrect information 5.00%

Accidents 3.00%

Punch list 3.00%

Wastage and Theft 3.00%

Substance abuse 2.00%

Redo work 2.00%

Table. I.2

Productivity in Construction

Nevertheless, although these figures may seem dramatic, they reflect a positive aspect that we have to exploit.

That is, this waste must be considered an opportunity for improving.

By a careful management of the project, the Contractor could eliminate or reduce these inefficiencies.

For example, if we could eliminate “Late or incorrect information”, which is responsible of 5% of time, the profit shown in the “Building Project” of Table I.1 could double.


An analysis of the equipment

utilized in the project would show

that the unproductive times are

much more bigger of those of

manpower.

From these analysis is evident that

the efficient management of

manpower and equipment must

be one of the top priority of a

Contractor.


Characteristics

and Opportunities

Among these characteristics we can include:

The work is characterized by a preponderant quantity of manpower.

The work is composed of various activities. These activities are heavily connected among themselves.

The wrong execution of one activity affects the cost, the duration, the quality or the safety of all the project.


A construction companies has various characteristics which are unique. Some of them are favourable while others have a negative effect.

There are many ways to execute an activity. The Contractor can have at his disposal various working methods.

This characteristic allows the Contractor to be very creative and therefore to score a competitive advantage.

The construction business is very competitive.

The relative small magnitude of the capital required to start a construction company is responsible for the large number of Contractors who compete for the same job.

In the market there are lots of products which allow the company to improve the duration, quality and safety of the works.


Due to the difficulties of the construction process, the rate and severity of accidents is one of the highest in the industrial sector.

The different types of works

require various degrees of

skills.

Consequently, the ability of manpower is critical to achieve the quality required by the project.


Although some of these characteristics may be seen as

not favourable, nevertheless the potentiality of

improvement of the sector is very high.

By creativity, commitment and technical and

managerial competency, the Contractor may achieve

success in construction.

Among the different items, which have a high degree

of potentiality for improving, we can include:


Productivity of Manpower

We have already mentioned that

the workers of a construction

project are unproductive for a

50% of the working hours.

A small increment in productivity

could increment the profit of the

company significantly.


Utilization of Equipment

Productivity studies have revealed

that a company can rely with less

than 900 productive hours per

year of equipment utilization.

A proper management of equipment

may help to decrease the cost

and the time required for the

execution of the project.


Safety of the works

The Construction industry has

got one of the highest rate of

accidents.

An accident in the works has a

negative impact which

affects the time, the cost and

the reputation of the company.

Safety Plan

Builder

OSHA

Occupational Safety and Health

Administration


Planning and Scheduling

The majority of the companies execute a project without

a Work Program.

There is a big difference between Planning and

Scheduling.

Planning is referring to what we have to do, how to do it and who is responsible for doing it.

Scheduling takes care of the determination of the times for the commencement and completion of the various activities of the project.


Estimates

Many companies prepare the

estimate of a project from “zero”.

Historical data about manpower

and equipment productivity,

quantities take-off, procedures for

overheads allocation, etc. must be

part of the know-how of the

company if we want to prepare a

successful tender.


Accounting and Financial

Management

Late Accounting reports and

lack of financial procedures do

not allow the identification of

specific problems in the project.

They will affect the Cost Control

and the Cash Flow of the works.


Legal Costs

The legal costs for the contractual

disputes do not generate any

value for the project or the

company.

The amicable settlement of the

disputes must be the path to

follow.


All the above mentioned points may be considered as

problems or as opportunities.

If we recognize that all the companies have got the

above mentioned problems, we deduce that these

points can been seen as opportunities.

That is, the improvement in any of these points allows

the company to have a competitive advantage over

the other competitors.


Management

in Construction

Generally, construction companies, if we compare them with other types of industries, have been slow in applying experimented methods of management to their activities.

Management in Construction

Of course, this does not mean that all construction companies are managed inefficiently.

Nevertheless, the statistics confirm that the construction companies have got the highest percentage of bankrupt and without any doubt one of the causes is the lack of experience in management.

There are various reasons to justify slowness in the application of these procedures, which have shown their efficiency in other industrial sectors.


1. The construction projects are “unique” and is very difficult to standardize them.

2. The construction activities require different types and degrees of specialization and usually are not repetitive.

3. The projects are executed under difficult weather, natural and logistic conditions that the Contractor cannot change.


4. The activity of Construction is a seasonal and cyclical activity with ups and downs.

5. The construction companies are usually small organizations where the decision making has been delegated to one or two persons only.

Without any doubts, these problems can cause difficulties in the management of the company.

Any way, a careless management cannot be considered the inevitable result of pressures and conditions that are typical of this type of industries.

On the contrary, the presence of these pressures and conditions should promote the search for more efficient methods of management.


Today, it has been shown that only a good management allows the survival in the difficult world of Construction.

Unfortunately this rule has not yet been understood by the majority of the companies as shown by the high rate of financial bankrupts in the sector.


Dun & Bradstreet, a famous rating agency has classified the various causes of the crashes in Construction.

Causa %

Negligence 1.6

Fraud 1.3

Lack of technical experience 16.4

Lack of managerial experience 14.1

Lack of experience in the sector 21.6

Incompetence 41.0

Disasters 0.6

Others 3.4

The results of a

careless Management


We show some projects which illustrate how different has been the final result in relation to the initial planning.

Project:

Suez’s Canal – Egypt – Over cost: 1,900%

Project:

Sydney Opera House – Australia – Over cost: 1,400%

Project:

Boston Big Dig – United States – Over cost: 480%

Project:

Panama’s Canal – Panama – Over cost: 200%

25,000 deaths

Project:

Euro Tunnel– UK– France – Over cost: 200%

Times have changed. We need a new enterprise

philosophy; it is necessary to learn new instruments and

management techniques.


The illustrated projects are very eloquent.


Project Management is the discipline which organizes and administers the resources in such a manner that the works required in the Project maybe completed in accordance with the Scope, the Time and the Cost defined.

The answer is Project Management.

The knowledge, the techniques and the instruments required to manage a project have been organized in one document, known as PMBOK - Project Management Body of Knowledge, published by the PMI (Project Management Institute).


The PMBOK is a collection of processes and areas of knowledge generally accepted as the best practices for the administration of projects.

The PMBOK recognizes 5 Basic Processes and 9 Knowledge Areas which are common to the majority of projects.

The concepts are common to projects and programs.

PMI & PMBOK

The processes described by the PMBOK are:

Project Initiating

Project Planning

Project Execution

Project Controlling

Project Closure

Project Initiating

Establishing the purpose of the business

Why do we do it?

Clear and measurable objectives

What do we want?

Sponsorship and Leadership

Who is the Owner?

The management of the Stakeholders

Who do we affect?

Authorized Budget

How much will we spend?

Project Planning

Identification of the “deliverables”

What we can achieve with each activity

Risk’s evaluation

Knowing the risk and its probability

Realistic estimations

Knowing what we can achieve

Sequence of the activities

Knowing when it will happen

Efficacious Resources

With the proper resources

Achievable Milestones

Control points for the progress

Project Execution

Execution of the activities

In accordance with the agreed Plan

Producing the planned “deliverables”

As identified in the project documentation

Quality Assurance

Gateways Reviews – Does the project satisfies the

CSF?

Communications

Keeping the Stakeholders informed

Project Controlling

Scope verification

Is what the Owner is expecting?

Scope administration

Control of changes, quality, time and cost

Risk administration

Management of the identified risks

Costs administration

Controlling that the budget is not exceeded

Control of the program

Monitoring and managing the changes in the program

Project Closure

Learned Lessons

What happened and what did not happen

Agreement of the acceptance

Formal acceptance by the Owner

Archive of the documentation

Documenting the history of the project

PMBOK Knowledge Areas

The Knowledge Areas describe knowledge and practices of Project Management in terms of their process’s components.

These processes have been organized in 9 Knowledge Areas.

PMBOK Knowledge Areas

Knowledge Areas

1. Project Integration Management

2. Scope Management

3. Time Management

4. Cost Management

5. Quality Management

6. Human Resources Management

7. Communication Management

8. Risk Management

9. Procurement Management


The techniques outlined in the PMBOK have been proving themselves as the Best Practices to manage a project.

Nevertheless, if we want to be successful in the field of Construction

this knowledge must be

complemented by other skills of

General Management.


With the inevitable increment in

technology and complexity of the

projects, the construction professionals

need a more specific knowledge of

the technical, administrative and

financial aspects of their work.


for Construction

These competencies may be divided into two categories:

1. Competencies required for managing a company

2. Competencies required for managing a project


A construction professional, whether works for an Owner or a Contractor, must possesses different abilities and skills.


Negotiations

Strategic Planning

Marketing and Bid Strategies

Accounting

Financial Management

Contracting

1. Competencies required for managing a company

These competencies may be resumed as:


Estimation Techniques

System Engineering

Productivity Measurement

Equipment Management

Subcontractors’ Management

Contract Administration

2. Competencies required for managing a project

These competencies may be resumed as:

module 1 the construction environment

Documents

construction project

construction firm

construction activities

volume of construction

construction industry

overheads project

project costs

project planning