CE 321- Construction Management

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Dr Mahmoud A. Taha 1

CE

CE 321 321-- Construction Construction Management Management

Week #1 Agenda

• Course Information

• Learning Objective

• The Construction Environment

• Main Project Parties

• Legal Structure

• General Management Functions

Objectives

• Recognize the construction industry environment including its characteristics, parties involved, legal structure, functions of management and the different types of construction projects.

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The Construction Environment

• Construction can be described as the creative effort that converts the four M's of construction (materials, manpower, machines, and money) into a constructed facility.

• The magnitude and scope of the construction effort involved in a project will depend on:

– size and complexity of the project;

– the variety of technologies and the type of construction involved;

– required quality control standards;

– the geographic location of the construction site and the nature of the work environment; and

– the planning and management skill of the constructor.

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• Construction is a complex undertaking involving the interaction and coordination of the skills and efforts of a large number and variety of agents.

• Major project participants include, but not limited to:

The Construction Environment

• Owner

• A/E

• Contractor(s)

• Subcontractors

• Suppliers

• Law firms

• Financial institutions

• Local authorities

Project Scope

• Time /Schedule

• Cost/Budget

• Natural environment

• Political/social environment

• Quality

Industry Characteristics

• Multiple Disciplines

• Multiple Participants

• Generally One-of of-a-kind Projects

• High Social/Political/Env. Implications.

• Increasing sophistication of designs

• High:

– Time pressure

– Cost and cost pressure (low profit) – Complexity

– Uncertainty/Risk (cost, schedule, quality) – Turnover

– Conflict & Litigation (claims 1% of cost)

• Important industry

• Sectors

– Residential const – Commercial

– Industrial contractors

– Infrastructure and heavy construction

• Affiliated institutions – Professional services – Suppliers

– Financial Services

Industry Characteristics (cont’d)

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Uncertainty in Construction Uncertainty in Final Project Cost

Breakdown of

Construction Industry Segments (Fig. 1.11)

Management Levels in Construction

Fig. (1.13)

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Main Project Parties

• Owner

– Role: Commissions project, arranges financing – Common Motives: Good design, save $, finish quickly

• Designer (Architects & Engineers) – Role: Designs facility (typically w/owner) – Frequently oversees construction

– Common Motives: Recognition, happy client

• Contractor(s)

– Role: Builds facility (often w/design assistance) – Common Motives: Make $, finish quickly, happy client

Project Life Cycle

Legal Structure

• Proprietorship (single owner): is the oldest form of construction organization

• Partnership: As the need for capital, or expertise grew, Partnership evolved. Each partner is liable up to his total assets (Risk/Reward Sharing)

• LLP: Limited Liability Partnership, similar to partnership but with limit to partners.

• Corporation: The development of Capital Markets led to the creation of separate legal entity, with limited liability

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Proprietorship

• The simplest form of legal structure.

• In this form of business ownership, an individual owns and operates the firm, retaining personal control.

• The assets of the firm are held totally by one individual and augment the individual's personal worth. All cash income to the firm is personal cash income to the proprietor, and all losses or expenses incurred by the firm are personal expenses to the proprietor. The proprietor is, therefore, taxed as an individual and there is no separate taxation of the firm.

• The credit that the firm can obtain and its ability to generate new capital are limited by the personal assets of the proprietor. Furthermore, any losses incurred by the firm must be covered from the personal assets of the proprietor.

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Partnership

• The ownership of the firm is shared among the partners to a degree defined in the initial charter of the

partnership.

• The capital base of the firm is broadened to include the personal assets of the partners involved. This increase in assets increases the line of credit available to a partnership as opposed to a proprietorship.

• Control of the firm, however, is divided among the principals who are called general partners. Partners share the profits and losses of the firm according to their degree of ownership as defined in the partnership agreement

• liabilities of the firm are directly transmitted with no limitation to the partners. However, since there are two or more partners, the liability is spread among several

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Assume that X, Y, and Z are partners in a small contracting business. The personal fortunes and percent ownership of the three principals are as follows:

X $1,400,000 40% ownership

Y 800,000 30% ownership

Z 100,000 30% ownership

The firm loses $1,000,000 and must pay this amount to creditors. The proportionate shares of this loss are:

X $400,000 Y $300,000 Z $300,000

However, since Z can only cover $100,000, the remaining $900,000 must be carried by X and Y in proportion to their ownership share.

Partnership

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Corporation

• It is a separate legal entity and is created as such under the law of a state in which it is chartered.

• Since the corporation is a legal entity of itself, only the assets of the corporation are subject to attachment in the settling of claims against and losses incurred by the corporation. This means that stockholders in a corporation can loose the value of their investment in stock, but that is the limit of their potential loss. Other assets that they own outside of the corporation cannot be impounded to offset debts against the corporation.

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Corporation Types

• Close or closely held corporations:corporations in which a small number of persons hold all of the stock in the firm. This form of ownership is very common in the construction industry, since it offers risk protection and also allows a small group of principals to control company policies and functions.

• Public corporation:corporations which allows its stock to be bought and sold freely. The actual ownership of the stock varies daily as the stock is traded by brokers, in the case of large corporations, on the stock market.

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Comparisons of Legal Structures

• An owner contemplating a legal structure for the firm must consider:

– Taxation

– Costs and procedures in starting – Size of risk

– continuity of the concern – adaptability of administration – Influences of applicable laws – Attraction of additional capital

• SeeTable 5.1page 87 of textbook

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General Management Functions

• The general management functions can be divided into two groups:

1.theorganizingandstaffinggroup, which is associated with establishing the project team, and

2.theplanning,directing, andcontrollinggroup, which is associated with the activity of managing the project, that is, project management.

– The determination of the organizational structure and size of the project team must be based on a full understanding of the project, the scope of management effort required, and a technical knowledge of the work required to perform each management function involved in the project.

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PLANNING

• Planning is the formulation of a course of action to guide a project to completion.

• It starts at the beginning ofaproject, with the scope of work and continues through the life of a project.

• The establishment of milestones and consideration of possible constraints are major parts of planning.

• Successful project planning is best accomplished by the participation of all parties involved in a project.

• There must be an explicit operational plan to guide the entire project throughout its life.

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PROJECT MANAGER'S ROLES IN PLANNING

• Establish project objectives and performance requirements early so everyone involved know what is required

• Involve all discipline managers and key staff members in the process of planning and estimating

• Establish clear and well-defined milestones in the project so all concerned will know what is to be accomplished. and when it is to be completed

• Build contingencies into the plan to provide a reserve in the schedule for unforeseen future problems

• Avoid reprogramming or re-planning the project unless absolutely necessary

• Prepare formal agreements with appropriate panes wherever there is a change in the project and establish methods to control changes

• Communicate the project plan to clearly define individual responsibilities schedules and budgets

• Remember that the best-prepared plans are worthless unless they are implemented

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ORGANIZING

• Organizing is the arrangement of resources in a systematic manner to fit the project plan.

• A project must be organized around the work to be performed.

• There must be a breakdown of the work to be performed into manageable units that can be defined and measured.

• The work breakdown structure of a project is a multi-level system that consists of tasks, subtasks and work packages.

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PROJECT MANAGERS' ROLE IN ORGANIZING

• Organize the project around the work to be accomplished

• Develop a work breakdown structure that divides the project into definable and measurable units of work.

• Establish a project organization chart for each project to show who does what

• Define clearly the authority and

responsibility for all project team members

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STAFFING

• Staffing is the selection of individuals who have the experience to produce the work.

• The persons that are assigned to the project team influence every part of a project.

• Most managers will readily agree that people are the most important resource on a project. People provide the knowledge to design, coordinate and construct the project.

• The numerous problems that arise throughout the life of a project are solved by people.

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PROJECT MANAGER’S ROLE IN STAFFING

• Define clearly the work to be performed and work with appropriate department managers in selecting team members

• Provide an effective orientation (project goals and objectives) for team members at the beginning of the project

• Explain clearly to team members what is expected of them and how their work fits into the total project

• Solicit each team member's input to clearly define and agree upon scope, budget, and schedule

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DIRECTING

• Directing is the guidance of the work required to complete a project.

• The people on the project staff provide diverse technical experience must be developed into an effective team.

• Although each person provides work in his area of expertise, the work that is provided by each must collectively directed in a common effort and in a common direction.

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PROJECT MANAGER'S ROLE IN DIRECTING

• Serve as an effective leader in coordinating all important aspects of the project

• Show interest and enthusiasm in the project with a

“can do” attitude

• Be available to the project staff, get problems out in the open, and work out problems in a cooperative manner

• Analyze and investigate problems early so solutions can be found at the earliest possible date

• Obtain the resources needed by the project team to accomplish their work to complete the project

• Recognize the importance of team members, compliment them for good work guide them in correcting mistakes, and build an effective team

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CONTROLLING

• Controlling is the establishment of a system to measure, report, and forecast deviations in the project scope, budget, and schedule.

• The purpose of project control is to determine and predict deviations in a project so corrective actions can be taken.

• Project control require the continual reporting of information in a timely manner so management can respond during the project rather than afterwards.

• Control is often the most difficult function of project management.

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PROJECT MANAGER'S ROLE IN CONTROLLING

• Maintain a record of planned and actual work accomplished to measure project performance

• Maintain a current milestone chart that displays planned and achieved milestones

• Maintain a monthly project cost chart which displays planned expenditures and actual expenditures

• Keep records of meetings, telephone conversations, and agreements

• Keep everyone informed, ensuring that no one gets any “surprises", and have solutions or proposed solutions to problems.

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Questions!

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Project

Consultants Architects

Suppliers Contractor’s Insurance

Vendors

Designer’s Insurance Owner’s Insurance

Owner

Owner’s Representative

Permanent Lender

Interim Lender

National Government

Regional Government

Local Government

Project Manager General Contractor Subcontractors Unions Accountants Attorneys Engineers

Participants on a Project