Construction Management and Finance

This document contains the contents of the book.

This document contains the preface of the book.

Engineering, according to the Accreditation Board for Engineering and Technology, is “the profession in which a knowledge of mathematical and natural sciences gained by study, experience, and practice is applied with judgement to develop ways to utilise, economically, the materials and forces of nature for the benefit of mankind’’. Engineering then includes the application of these mathematical and scientific principles to the planning, design, construction, operation, and maintenance of products, systems, and large fixed works that serve humankind. It also includes the management of such activities, research and development related to such outputs, and the education of persons who will be responsible for these myriad forms of activity.

The main contractor’s task is to convert the design drawings into reality. Sequence and methods to be used to execute the contract must thus be considered. Since most construction projects are unique, even the same building type to be constructed in a different locality will present new problems. The majority of projects will have many thousands of operations, many of which will be interdependent. A trial and error approach is no longer valid and planning is therefore vital. The amount of detailed planning or sophistication involved is likely to be a function of the size of firm; complexity of project and management expertise.

In construction we usually use the term ‘‘schedule’’ to indicate a list of resources needed for a project, with or without relation to time, and for a time-based plan of work. For instance, a record of all windows needed, taken from the plans, is called the window schedule, which at first is merely a list but later may contain required delivery dates. There is also a project time schedule, which shows when the various activities should take place, including window installation. So, in construction the word “schedule” shall mean any list of resources needed for the project and/or any orderly arrangement of activities describing sequence and/or timing.

CPM schedules are usually drawn as either arrow (activity-on-arrow) or node (activity on- node) diagrams.

Quite often in construction planning the person responsible for estimating how much time each activity in the network will take might have little experience with exactly that particular construction form. When the planner estimates that a certain activity takes 6 weeks, he/she is really saying that he/she thinks it will take 6 weeks. From experience he/she knows that such things as adverse weather, poor materials delivery, machinery breakdown, etc. may affect the activity duration. This uncertainty that exists in construction work is a fact of life and there is no way of removing it. There are however, methods by which the probability of an activity being completed as planned can be assessed. Program evaluation and Review Technique, PERT, is one of the most widely used method which entertains uncertainty in planning.

Simulation is a representation of reality through the use of a model or other device, which will react in the same manner as reality under a given set of condition. Simulation is also defined as the use of a system model that has the designed characteristics of reality in order to produce the essence of the actual operation.

A least-cost schedule is one with optimum project duration such that to lengthen or shorten it would increase the total cost. Time and cost are the two most important components of project economy. If time is not important, management can utilize its resources in the most efficient way. Even stopping work on one project, moving to another for a while, and then coming back. If money is not important, management can obtain the best of resources and schedule work around the clock. This process is usually inefficient but produces a completed project in a minimum time. Both ways have their uses, but in the normal situation cost effectiveness calls for a study of the trade-off between time and cost which yields a “least-cost” solution.

A capital expenditure situation is one in which the company’s or individual’s funds are committed to projects, which will return the invested funds and profits during future periods. The objective is to evaluate from alternatives the project (investment) which will promote the profitability and long-range growth of the enterprise.

Baum and Tolbert (1985b, p.333) defined a development project as: “a discrete package of investments, policies, and institutional and other actions designed to achieve a specific objective (or set of objectives) within a designated period”. In addition, a development project is often an essential part of a country’s development plan. In developed countries similar projects may well go under different names, for example, “infrastructure investment”, the difference being that development investment is made specifically to increase capacity, whether it be through structures, organizations or methods. It is wrong to consider development projects purely as physical investments. The objective of any development project should be to improve both physical and non-physical aspects (for example, skill and acquisition).

The fact that there is, in general, a depreciation in value of construction assets (in civil engineering plant, projects and equipment) is self evident. The depreciation or decrease in value may be due to, but not limited to, the following:
• Passage of time – rusting, deterioration,
• Reduced performance – wear, corrosion, decay, more frequent breakdown, difficulty in
obtaining spares, difficulty in repairing,
• Change in requirements,
• Change in legislation – no longer meeting stricter Health and Safety requirements,
• Destruction by accident,
• Replacement by new technology, and
• Replacement by newer more efficient equipment.

Civil engineering development has been marked by the move from large quantities of manual labour to increasing mechanisation. Labour intensive schemes may have attractions in developing countries where there are large pools of low cost labour and few plants and skilled operatives, but such method are now totally unworkable and uneconomical in the developed world. The increasing use of plant has raised productivity, but has necessitated large capital investment in plant. In civil engineering projects it is now common for about 25% of the cost to be associated with the plant. In some cases, the capital value of the plant may well exceed the capital value of the project. Efficient selection, financing, use and maintenance
of plant is, therefore, more important than ever.

Health and safety is a responsibility of everyone at work. It is of particular importance to the construction industry, where it is one of the major employer of the work force in Ethiopia. Reports from the industry indicate that injuries due to construction related accidents are increasing. Health and safety in the context of construction industry is the discipline of preserving the health of those who build, operate, maintain and demolish engineering works, and others affected by those works. The term safety generally applies to the freedom from risk of injury from avoidable accidents whereas the term health refers to the freedom from the immediate and long term effects of exposure to unhealthy working condition.

Communications is the process by which information is exchanged between one or more individuals. Since the management process thrives on communication, it is extremely important that new or prospective managers be thoroughly familiar with how managers communicate. Communication is the livelihood of organizations. Effective communication includes talking, listening, writing and reading. The communication process may be formal, informal, written or oral. Communication can be verbal or non-verbal. Non-verbal communication may include the way we dress, comb our hair, or wear make up. Facial expressions, such as smiling or frowning are also examples of non-verbal communications. In order to convey the message correctly, it is important to understand not only what you wish to say, but how to say it.

According to Hansell, insurance may be defined as a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme. It may be seen as a kind of fund, into which all who are insured will pay an assessed contribution called premium. In return, those insured will have the right to call on the fund for any appropriate payment should the insured events occur. Based on the above definition, it may be seen that insurance exists to combat the adverse effect of risk in day-to-day activities.

Claims are continuously becoming to be an inevitable fact of life in the construction industry. Whether in local or international contract projects, the issue of claims remains the same. In the context of civil engineering projects, claims are requests or demands for payment of money or request for time extension or both to which a contractor believes, rightly or wrongly, he/she is entitled. They result as a consequence of various factors among which incomplete information in the initial tendering documents; unforeseen circumstances and inadequate contract administration play a major part. There have been significant occurrences of claim cases in major international construction contracts in Africa. Some have been handled by international arbitration while others are settled locally.