Test Flashcards
Advantages of Project Manager Agent
- increased representation for owner
- independent evaluation
- increased constructability
- increased value engineering
Disadvantages of Project Manager Agent
- PM assumes no risk - owner holds contracts
- PM agency does not guarantee cost
- PM licencing not available
- high owner/PM involvement
Advantages of Design-Build
- sole source of responsibility
- reduction of project duration
- high constructability
- claims reduction
- non-adverserial relationship
- react rapidly to scope changes
Disadvantages of Design-Build
- fewer checks and balances
- reduced owner involvement
- difficulty of selection
- large staff
- additional risk
- scope changes difficult to track
Advantages of Design - Bid - Build
- historically accepted
- price fixed before construction
- owner involvement low
- contractor taes risk for construction
Disadvantages of Design - Bid - Build
- long delivery time
- no constructability advice during design
- can be adverserial relationship
- leads to change orders
- low bid does not always = lowest final cost
- low margins
- high risk for unforseen circumstances
Blanchards Situational Leadership
- Directing - Beginner
- Coaching - Learner
3 Supporting - Contributer - Delegating - Achiever
Mazlow’s Hierachy of Needs
- Self Actualisation
- Esteem
- Social
- Safety
- Physiological
ERG Theory
Individual drive from:
- Existence Needs
- Relatedness
- Growth Needs
Changing percieved inequity
- change money
- change input
- change comparison to others
- explain reason for difference
Porters 5 Forces Model
Potential Entrants
Buyers
Substitutes
Suppliers
Industry Competitors
Six Major forces of barrier to entry
- Economies of scale
- Product Differentiation
- Capital Requirements
- Cost disadvantages independent of size
- Access to distribution channels
- Government Policy
Supplier group powerful if
- dominated by a few companies
- product unique or differentiated
- not obliged to contend with other products
- poses a credible threat of integrating forward into industry’s business
- industry is not an important customer of the supplier
Buyer group powerful if
- it is concentrated, or purchases large volumes
- purchases standard or undifferentiated products
- product purchased is a significant component of its product
Elements of a Contract
- offer
- acceptance
- intention to be bound
- capacity
- reality of consent
- legality
Reality of Consent
- Mistake
- Misrepresentation
- Duress
Responsive tenders
all terms in the solicitation are met satisfactorily
- forms filled out correctly
- authorised signatories
- submitted as directed on time ad at correct location
Agency Problems
a manager who is principally and agent for stakeholders, acts in his own interests instead of maximising market value
- claiming high expenses
- avert risk to secure own position
ways to combat agency problems (conflict of interest)
- compensation plans
- board of directors
- takeovers
- monitoring
Payback Period
time until cash flows recover the initial investment of the project
- no account of time value of money
payback rule
specifies that a project be accepted if its payback period is less than the specified cut off period
ROI
Return on Investment
- the ratio of cashflows (gained) and initial investment
- no account of time value of money or size of the project
Net Present Value Rule
- accept all projects that are worth more than they cost (positive net present value)
Profitability index
relationship between NPV and initial investment
Costing Methods
- process costing
- job-order costing
- activity-based costing
process costing
assigns average costs to each unit of production
job-order costing
differentiates the direct costs per job, to see how profitable each job is
activity-based costing
calculates what percentage of overhead should be assigned to a job
depreciation
the expense part of an expenditure that falls within the period
3 phases of cost estimation
- the ‘decision’ phase
- the ‘validation’ phase
- the ‘execution’ phase
decision phase
work of cost estimator to quickly assist decision maker in estimating cost of various concepts and estimating influence of potential technical uncertainties to the cost
- focus on product
validation phase
make sure we will accomplish the project for the cost which has been decided upon
- focus shifts to activities
execution phase
periodically, from the information which is collected, decide if the project will remain inside the allocated budget
External Factors on Productivity
-market conditions
- environmental conditions
Internal Factors on Productivity
- work conditions
- management conditions
purpose of income statement
shows whether or not a company’s business is profitable
equity formula
equity = assets - liabilities
equity definition
(or net worth) is the capital invested by the owners of a company
liabilities
obligations to third parties
current liabilities
debts they have to pay within a year
long term liabilities
obligations with a payback period of more than a year
working capital
measure of short term financial strength of company
Client and contractor have conflicting interests
- client is interested in cost effectiveness
output / client’s costs - contractor is interested in cost efficiency
price / contractor’s costs
Difference between outsourcing and collaberation:
BASIC LAWS
- Two or more players which want to deliver the same product or process at an equal scale level should always be placed in an outsourcing competition
- Two or more players which want to deliver complimentary products or services at an equal scale level preferably should collaberate.
Two basic contract types
- fixed price contract
- cost plus fee contract
definition of Alliance Contract
- client and contractor create an initial risk budget
- all unexpected events during project (with associated consequences) financed by this risk budget
- risk budget left over at the end split 50-50
PPP
Public-private partnerships allow large-scale government projects, such as roads, bridges, or hospitals, to be completed with private funding.
- Private sector expertise request
- Cost on “whole life” basis
- High maintenance requirements (benefit to owner)
- Shifts risk transfer to private
- Value for money - balance upfront to long term cost risk
What can we do with risk?
- accept
- control (minimise/mitigate)
- avoid
- transfer (insure (pass on to 3rd party))
What is a risk
risk is a combination of:
- the chance of an event happening
- the outcome should that event occur
when is greatest uncertainty/risk
at the start of a project
Two of the most important financial statements
-income statement (or Profit & Loss Account)
- balance sheet
Purpose of income statement
- to show whether or not a company’s business is profitable
- shows profit or loss over a period of time
- usually comparison between figures of most recent year and year before
Steps of Income Statement
- Establish the revenue
- Deduct direct cost of making that revenue (cost of sales) to get Gross Profit or Gross Margin
- Further deduct the cost of being in business (operating expenses) to get Operating Profit
- Further deduct any financing costs or income to get the Profit before Income Tax
- deduct tax to get Net profit for the period
Purpose of Balance Sheet
shows a company’s financial position at a point in time (end of fiscal year), a snap shot
3 major items in a balance sheet
- assets
- liabilities
- equity (or called net worth)
Total Assets is the sum of
- total current assets
- fixed or non-current assets
Examples of total current assets
-cash
- inventory (materials)
- investments
- accounts receivable
Examples of fixed or non-current assets
-depreciable assets of property, plant equipment etc
Liabilities is the sum of
- current liabilities
- non-current or long term liabilities
examples of current liabilities
- accounts payable
- accrued expenses
- excess billings for work not done yet
- bank overdraft and short term loan
examples of non-current or long term liabilities
- long-term bank loans
- mortgages of equipment, buildings, land, cars/trucks
Current liabilities
debts a company has to pay within a year
long term liabilities
obligations with a payback period of more than a year
Accounting Equation
Equity = Assets - Liabilities
Working Capital equation
= current assets - current liabilities
working capital definition
- a measure of the short term financial strength of a construction company
- liquidity of working capital is high
increase working capital by:
- making profit, selling equipment, long term loans
decrease working capital by:
-losing money on a project
- purchasing equipment
- repaying long term loans
To stay a healthy company, volume of unfinished work:
- of all projects in hand should be at most ten times the working capital
- of the biggest project in hand should be at most five times the working capital
current ratio definition
ratio for a construction company’s liquidity or its ability to fulfil short term financial obligations
- should be 1.3 or higher
underbilling
- expressed in balance sheet under current assets
- estimated work done but not billed yet
Gross Profit Margin Ratio
gross profit / revenue
- goal of 25% minimum
Net Profit Margin Ratio
net profit before tax / revenue
- goal of 5% minimum
Return on Equity Ratio
net profit before tax / owners’ equity
- should be between 15% and 40
Current Ratio
current assets / current liabilities
- should be higher than 1.3
Current Assets to Total Assets Ratio
current assets / total assets
- should be between 60% and 80%
Working Capital Turnover
revenue / working capital
- should be between 8 and 12
Net Profit to Working Capital Ratio
net profit before tax / working capital
- should be between 40% and 60%
Leverage
total assets / owner’s equity
or
(total liabilities + owner’s equity) / owner’s equity
or
debt to equity ratio + 1
- should be lower than 3.5
Break Even Point
income from sales is equal to total expenses
Degree of Operating Leverage
degree of operating leverage is the percentage change in profit per percentage change in sold items
costs
the amount of money sacrificed for goods/services to bring a current or future cashflow to the organisation
direct costs
every cost that can be easily tracked to a product or service
indirect costs
every cost that cannot be easily tracked to a product or service
overhead is divided into?
- manufacturing overhead
- administrative expenses
- selling expenses
fixed cost
does not increase or decrease when output varies
variable cost
increases or decreases with output
mixed cost
has a variable and fixed component
Financial accounting
produce financial statement that conveys information to outside parties
Management accounting
provides useful information for operation of the company
Cost accounting
technical process by which expenses are allocated to products
expenditure
an amount of money paid for acquiring an asset or service
Expenses
amounts of money which is used during a given year for the production of goods and services sold by the company
Relationship between expenditure and expenses
not all expenditures are expenses
Process Costing
assigns average costs to each unit of production
Job order costing
differentiates the (direct) costs per job (or service) to see how profitable each job is
activity based costing
calculates what percentage of overhead should be assigned to a job
Depreciation
- expense part of an expenditure that falls within the period
- depreciate according to physical deterioration (or different for tax deductions)
Accuracy factors
quantity and cost of:
- construction materials
- labour
- equipment
Contingency
amount of money added to an estimate to cover unforseen needs of the project, construction difficulties or estimating accuracy
Sole traders
own all assets of a business and are responsible for all the risks, obligations and debts
Partnerships and joint ventures
can establish an ordinary or special partnership to operate a business with other people
-> advantages: combine overseas capital or expertise with business networks and ownership of resources here
Companies must have:
- a registered name
- one or more shares
- one or more shareholders
- one or more directors
- registered company with the companies office
Three main forms of businesses in NZ
- sole traders
- partnerships and joint ventures
- Companies
Structure of Companies
- shareholders
- board of directors
- top management (CEO, COO, CFO etc)
- staff
Shareholders
owners of the company
Ways to combat agency problems
- compensation plans
- board of directors
- takeovers
- monitoring
Accounting
preparation of accounting records
Economics
study of choices made by people who are faced with scarcity
Finance
consists of investments, the decisions of institutions as they choose to invest, and managerial finance (business finance) which involves the actual management of the firm.
Role Financial Manager
-make ‘project’ decisions
- issue shares
- borrow
- certainty against market fluctuations (hedging, futures)
- short term decisions
Disadvantages of ROI
- no account of time value of money
- no account of the size of a projec
Time value of money
a dollar today is worth more than a dollar tomorrow
interest calculation
interest = interest rate * initial investment
investment value calculation
investment value = initial investment + interest
or
investment value = initial investment * (1 + interest rate)
present value
investment i have to do now to get a certain value in the future
profitability index
= NPV / initial investment
NPV Rule
managers should accept all projects with a positive net present value
Agency Costs (DB)
- specimen design
- laborious tender
- consultant costs
- lower number of bids
Agency Benefits (DB)
- control over design
- best value
- best design
- DB advantages (less claims, less costs, schedule, contractor leads designer)
Contractor Costs (DB)
- tender costs (1.5%)
- less control
- best design no guarantee
Contractor Benefits (DB)
- ability to add value
- paid for tender no matter whether they win
- no non-conforming bids
Sources of Law
- Statute Law
- Common Law
- Regulations
- By-Laws
What is a contract
- a promise(s)
- between capable parties
- that create an obligation
- that is enforceable by law
Elements of a Contract
- offer
- acceptance
- consideration
- intention to be bound
- capacity
- reality of consent
- legality
Offer
- needs to promise to do something, for something
- can be express (written or verbal) or implied
- intended to lead to a binding obligation
- time dependency
- offer can be revoked
- communicated
Revocation of offers
- withdraw before acceptance
- scheduled revocation (“good until…”)
- offer revoked b counter-offer
Reality of Consent (contracts)
- Mistake
- Misrepresentation
- Duress
Interpretation (contracts)
- implied vs. expressed
- correspondence
- language
- exclusion
Consideration (contracts)
- something FOR something
- does not have to be monetary
- is the consideration fair?
Discharge (contract)
- performance
- agreement
- frustration
- operation of law
- breach of contract
procurement
the framework within which construction is brought about, acquired or obtained
Tenders
- responsive
- responsible
- award metric
Responsive (tender)
all terms in solicitation met satisfactorily
- forms filled out correctly
- authorised signatories
- tender offer displayed as required
- submitted as directedon time at correct locatio
Responsible (tender)
meets the requirements to submit the offer
- prequalified, if required
- registered with appropriate governmental agency
- tender offer contains required financial instruments/securities
- tenderer is not a falon
Award Metric (tender)
formula by which the owner will determine the successful offerer
- lowest price
- best qualified
- best proposal at stipulated price
- best value
Rules of Contract Administration
- Read the Contract
- Do what the contract tells you to do
- Do not do what the contract tells you not to do
Delivery Methods
- Negotiated
- Design-bid-build
- Design-build
- Project Manager Agent
- PPP
- Alliances
Motivational Theories
Needs Theory
- Mazlow’s hierachy of Needs
- Alderfeld’s ERG theory
Process Theory
- Equity Theory
Individual attributes
- biographic characteristics
- competency characteristics
- personality characteristics
self serving bias
- our success comes from our traits and dispositions
- our failure comes from factors external to us
attribution error
an individual’s tendency to attribute another’s actions to their character or personality, while attributing their behavior to external situational factors outside of their contr
Equity Theory
two people paid differently for same job
- person paid less wants more money
- person paids more works harder/feels greater pressure
Job satisfaction
- low job satisfaction costs money in form of labour turnover, absenteeism and ultimately mental and physical health
- influences whether an individual stays a member of the group
Situational Theory
- Contingency Theories (assume that a leader’s effectiveness depends on the situation)
- Path-goals theories (leaders clear the path in order for employees to achieve their goal)
- Life-cycle theory
- Blanchard’s Situational Leadership
Situational Leadership
Directing: Beginner
Coaching: Learner
Supporting: Contributer
Delegating: Achiever
Beginner
Directing
Learner
Coaching
Contributer
Supporting
Achiever
Delegating
MBTI
- Source and use their energy
- Gather and take in information
- Make decisions about what they have perceived
- Organize their live
top down estimate
use one design parameter to calculate overall project cost
bottom up estimate
use detailed design to add up all cost components and calculate overall project cost
What are the project phases in order?
Project Establishment
Concept Design
Prelim Design
Procurement
Construction
Post Completion
project establishment phase
agreement between client and consultants is established; preliminary information is gathered; methods of procurement other than tendering advised; no design work done; H&S plans commences
concept design phase
explore design concepts and test client brief; prepare concept estimate; prepare resource consent; prepare preliminary programme; update coordinated H&S plan
preliminary design phase
refinement of the approved concept design (regulatory requirements, preliminary cost estimate, preferred procurement method, resource consent application, H&S plan updated) top-down estimate
developed design phase
design major elements with documentation; all design decisions made; firm estimate of cost; gain stakeholder approvals; requires client approval to move into detailed design; H&S plans updated
detailed design phase
design developed to clear definitions of quantity and quality of all elements, materials and systems (drawings, specifications, schedules and performance requirements); coordinate with other disciplines; critical use in consenting and procurement; H&S plan updated detailed estimate and schedule (quantity takeoff)
procurement phase
selecting a builder to construct the building, process is managed by the consultant (required to review tender submissions for technical conformance); QS closely involved in assessment of cost; once tenderer selected, contract documents assembled for signing including design matters negotiated during tendering; H&S matters relevant to contract included in procurement documentation
observation stage
site visits to determine if the installations are in accordance with the contract documents;
HSW plan developed and implemented on site, monitored and reported
post completion phase
issuing of practical completion and notification of defects to contractor; provide items required under contract terms (warranties, as built drawings etc.); QS prepares final account; contractor attends to defects; HSW plans continually updated; defects liability period forms at end of phase; contract administrator issues final completion certificate; remaining retentions discharged
