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Ministry of Transport URRAP-Training of Trainers for Contractors and Coordinators Project Management and Planning DAY 1- Friday August 02, 2013. Outline. Introduction Overview of the Construction Industry Project Management Framework. Outline. The Role of Effective Project Manager

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Ministry of transport urrap training of trainers for contractors and coordinators

Ministry of Transport

URRAP-Training of Trainers for Contractors and Coordinators

Project Management and Planning

DAY 1- Friday August 02, 2013


Outline

Outline

  • Introduction

  • Overview of the Construction Industry

  • Project Management Framework


Outline1

Outline

  • The Role of Effective Project Manager

  • Leadership and Human Resource Management


Outline2

Outline

  • Contemporary themes of Construction planning

    • Scheduling

    • Resourcing

    • Monitoring and Control

    • Cash flow forecast and Control


Introduction

Introduction

  • The prevailing facts of the road sector

    • Cost overrun

    • Time overrun

    • Quality reduction


Introduction1

Introduction


Introduction2

Introduction

  • Considerable shortcomings are related with failure of the contractor’s performance in all over project management

    (Abd. Majid and McCaffer, 1998, Frimpong et al. 2003, Assaf and Al-Hejji., 2006).


Introduction3

Introduction

  • Inefficiencies and ineffectiveness are part in day today activity in the construction sites

    • weak site organization;

    • Improper construction method;

    • Work discontinuity;

    • Rework: 10-15% contract value;

    • Improper resource allocation( Human, material, equipment) and under-utilization;

    • Poor cash flow: not to utilize advances properly, not to raise sufficient payment;

    • Attitude: not being self-contained…in identifying material sources, inaccurate setting outs, incomplete approval requests, resistance for changes…etc.


Overview of the construction industry

Overview of the Construction Industry


Overview of the construction industry1

Overview of the Construction Industry

  • High work demand in the market… 100s of thousands Kms

  • Less fragmented ( Specialized firms are growing so slowly)

  • Loose coupling between the industry and the supply chain

  • developing financial market

  • Relay on importation


Overview of the construction industry2

Overview of the Construction Industry

  • The Public sector is the major Client

  • Traditional procurement approach is predominant

  • Limited administration capability in most of the organizations, both private and public

  • Less focus on Research & Development


Overview of the construction industry3

Overview of the Construction Industry

  • Local Contractors and Consultants are taking the major share of the construction market

  • Limited financial and technical capability

  • Less focus on quality delivery

  • Less focus on organizational learning


What is a project

What is a project ?

A project is a temporary endeavour undertaken to create a unique product, service, or result.

(Source: Source: Project Management Institute ,PMIBoK)


What is project management

What is Project Management ?

Project management is the application of knowledge, skills, tools and techniques to project activities to meet project requirements.

(Source: Source: Project Management Institute ,PMIBoK)


Ministry of transport urrap training of trainers for contractors and coordinators

The Three Main Pillars of Project Management


And emphasise on people

.... and emphasise on people !

“Projects do not succeed just by assiduous adherence to a mechanistic process”

(BS 6079 Part 1: Guide to project management)


Triple constraints of projects

Triple Constraints of Projects

Project Management

!

Time

Start

End

Project Management

What happens if the plan

was based on the wrong

assumptions

Cost

Scope


Another view of the triple constraints

Another View of the Triple Constraints

Cost

ProjectBudget

Contingency

Scope

Contingency

Time


Why do we have projects

Why do we have projects ?

  • Profitability

  • Market share

  • Competitive advantage

Business Goals

Outcomes

Projects

Outputs

Benefits


Projects take up investment

Projects Take up Investment

  • The Firm: An organization that bring together different factors of production such as labor, land and capital to produce a product or services which it hoped can be sold for a profit

    Firm

    Entrepreneurs: Profits are a rewards of the Entrepreneurs to take risks

    Managers : hire ,fire , organize the business

    Workers


Projects take up investment1

Projects Take up Investment

  • Normal profit : minimum level of reward to keep/attract the entrepreneur in the particular economic activity

    Profit = total revenues- total cost

  • Economic profit : considers alternative use of all resources

    Economic profit= total revenues – total opportunity cost of all inputs used

    Economic cost= explicit cost and implicit cost


Projects take up investment2

Projects take up investment

  • Opportunity cost of Capital : concerns the rate of return on the capital as all other business of similar risk are willing to pay

    Degree of risk and difficulty involved

  • Opportunity cost of Labor: concerns rate of return on the opportunity cost of time of doing similar job

  • Opportunity cost of land: concerns the rate of return on the capital as all other business of similar risk are willing to pay


Projects take up investment3

Projects Take up Investment

Returnon Investment

Investment

Projectduration

Start

End

Goal = Finish As Soon As Possible

Goal of the firm: Profit maximization is a target


Project management framework

Project Management Framework

Project Procurement Management

Project Integration Management

Project Time Management

Project Scope Management

Project Risk Management

Project Communication Management

Project Cost Management

Project Human Resource Management

Project Quality Management


Project management framework construction extension

Project Management Framework– Construction Extension


Project scope management

ProjectScope Management

Processes required to ensure that the project included all the work required and only the work required to complete the project


Project manager

Project Manager

Is the single integrative point of responsibility for the project


T he role of project manager

The Role of Project Manager

The planning and coordination of a project from inception to completion on behalf of a client, to deliver the client's objectives in terms of Function, Time and Cost


Project manager s responsibilities

Project Manager’s Responsibilities

  • Liaison with the client/sponsor

  • Develop and maintain project plans

  • Team leadership/Teambuilding ability

  • Cost effective work progress control

  • Cost control

  • Planning and technical decision making

  • Quality and safety management

  • Business and administrative aspects


Higher order objectives

Higher Order Objectives

  • Complete all projects efficiently & profitably

  • Balance long & short term priorities

  • Supply & allocate resources

  • Integrate multiple projects with other activities


Balance in projects

Balance in Projects


Managing clients

Managing Clients

  • Agree project objectives – deliverables

  • Initial start up meeting

  • Interim reporting & reviews

  • Problem resolution

  • Manage the relationship

  • Under promise & over deliver

  • Always negotiate


Establish client s objectives priorities

Establish Client's objectives + priorities

  • Business aims

  • Project aims + scope

  • Priorities - quality, time, cost

  • Timescales

  • Understand uncertainty + risks


Design an organisation structure

Design an Organisation Structure

  • participants

  • relationships

  • decision points, key + operational reporting

  • integrating + coordinating


Common forms of structure

Common forms of structure

  • Functional

  • Product based

  • Geographical

  • Divisionalised

  • Matrix


1 functional

1Functional


2 divisional

2Divisional


3 matrix

3Matrix


4 teams

4Teams


Selection appointment of project team

Selection + appointment of project team

  • Scope + terms of reference

  • Selection criteria

  • PM's own appointment

  • Appointment agreements

  • Procurement route


Develop brief for project team

Develop brief for project team

  • translate client's objectives

  • state in terms of needs + outcomes

  • alternatives + evaluation

  • clarity + communication


Uncomfortable facts

Uncomfortable Facts

  • Left alone people will tend toward;

    • First come – first served

    • Enjoyable / familiar tasks first

    • Easy rather than difficult tasks

    • Simple vs complex tasks

    • Gain easy wins –short term rewards

    • Not favour releasing key resources / people

    • Provide the answer you want to hear


Establish information and communication structure

Establish Information and Communication Structure

  • Measurement of data + presentation

  • Communication channels

  • Meetings

  • Reporting mechanism


Facilitate the decision making

Facilitate the Decision Making

  • What?

  • By whom?

  • When?

  • At what Cost?


Question in groups

Question – in groups

Reference the distirbuted ‘direction finder’, how would you apportion your time (%) on a project?


Projects direction finder

Projects – Direction Finder


P o l c model

P. O. L .C. MODEL

Setting standards and assessing success in achieving objectives

Establishing objectives & planning work

PLANNING

CONTROLLING

ORGANISING

LEADING

Influencing and motivating team members in doing the work

Organising people, materials and scheduling


Leadership involves

Leadership involves:

  • Challenging the status quo

  • Inspiring a shared vision

  • Empowering others to act

  • Modelling the way

  • Motivating others


Ministry of transport urrap training of trainers for contractors and coordinators

MOTIVATION FACTORS

ENVIRONMENT

  • Working conditions

  • Interpersonal relations

  • Job Security

  • Salary

  • Status

  • Policy

  • MOTIVATORS

  • Recognition

  • Responsibility

  • Achievement

  • Advancement

  • Work itself

  • Growth


Ministry of transport urrap training of trainers for contractors and coordinators

Empowered Individuals:

  • Take risks

  • Gain knowledge, and

  • Develop new skills


Ministry of transport urrap training of trainers for contractors and coordinators

Leadership – The 4 Basic Building Blocks

Accountability

Trust

Communication

Goal setting


Ministry of transport urrap training of trainers for contractors and coordinators

Communication

  • Involves the transfer of information and understanding

    • Are you really communicating when you talk?

    • How can you be sure?


Ministry of transport urrap training of trainers for contractors and coordinators

  • Communication breaks down due to:

    • Biases and assumptions

      • Biases predetermine reality of how things or people are

      • Assumptions are about why people do things

    • The language used

    • Status

    • Not really listening

Communication


Ministry of transport urrap training of trainers for contractors and coordinators

Overcoming Communication Barriers

  • Takes time

  • Involves conscious effort

  • Requires a structure


Ministry of transport urrap training of trainers for contractors and coordinators

TeamCommunications

  • Could include:

    • memos

    • minutes

    • circulars

    • notices

    • meetings


Why do we have meetings

Why do we have meetings?

  • Exchange Information

  • Discussion on important issues

  • Make Decision

  • Team Building

  • … Management


Planning meetings

Planning Meetings:

Conducting a meeting without a plan is much like trying to build a house without a plan. It can be done but is likely to take much longer and have many more problems


Planning meetings1

Planning Meetings:

  • Determine the objective:

  • - Why do I want to hold this meeting?

  • - What do I want to achieve?

  • - Is it necessary?


Planning meetings2

Planning Meetings:

2 Determine who should participate:

3 Prepare the Agenda:

. Venue

. Date

. Start and Finish Times

. Agenda Items - What, Who, Timing


Ministry of transport urrap training of trainers for contractors and coordinators

Delegation

  • Advantages:

  • Builds trust

  • More people can do more things

  • Staff are more involved and committed

  • Staff grow and develop

  • Skills and knowledge of staff are used more fully

  • Individual performance can be measured

  • Opportunity for recognition

  • The manager has time for managing


Ministry of transport urrap training of trainers for contractors and coordinators

Delegation

  • Barriers:

  • I don’t have time

  • I don’t know how

  • I don’t know to whom I should delegate

  • It’s easier to do it myself

  • I don’t want to lose control

  • My staff lack experience and competence

  • My team members resist responsibility

  • My staff are not smart enough

  • My staff cannot be trusted to work on their own


Ministry of transport urrap training of trainers for contractors and coordinators

Delegation Principles

  • Delegate the whole task to one person

  • Select the right person

  • Specify the required result

  • Delegate the responsibility and authority

  • Check for understanding

  • Set a date to review progress

  • Maintain open lines of communication

  • Don’t take the project back

  • Evaluate and recognise good performance


Ministry of transport urrap training of trainers for contractors and coordinators

Benefits of Effective Work Assignment

For the Individual:

  • Has a clear understanding of what is required in doing the work

  • Is motivated and has ownership of the work

  • Is able to measure and adjust achievement towards the goal


Ministry of transport urrap training of trainers for contractors and coordinators

Benefits of Effective Work Assignment

For the Manager:

  • Management is more effective due to a disciplined process of assignment

  • Fewer performance problems

  • A better base of coaching/help staff

  • A better base of monitoring staff performance


Ministry of transport urrap training of trainers for contractors and coordinators

The process:

Work Assignment

Step 1Explain the purpose and relevance… (Why)

Step 2Explore the current situation

Step 3Define the work [Description, Scope, Means]

Step 4Specify authority and responsibility

Step 5Ensure system and personal capability

Step 6Agree performance management of the work

Don’t forget to check for understanding and agreement!


Ministry of transport urrap training of trainers for contractors and coordinators

Includes:

Performance Management

  • Performance Measures

  • What is being measured – outputs, outcomes or a mix

  • Performance Standards

  • Apply to a role or a process eg ‘response within 1 week’

  • Performance Monitoring

  • How and how often will information on performance be collected and reviewed

  • What reporting is required


Ministry of transport urrap training of trainers for contractors and coordinators

Work Assessment - Feedback

  • The process of providing staff with information with respect to their actual performance

  • Should be used to not only get staff member back on track but to confirm that they are on the right track.


Ministry of transport urrap training of trainers for contractors and coordinators

7 Reasons for giving feedback

  • Correction and consolidation

  • System improvements

  • Coaching

  • Learning and Development

  • Recognition and reward

  • Discipline

  • Evaluation


Ministry of transport urrap training of trainers for contractors and coordinators

  • Be specific

  • Be honest

  • Stick to the facts

  • Maintain self-esteem

  • Listen and respond with empathy

  • Separate the problem from the person

  • Involve the employee

Elements of effective feedback


Ministry of transport urrap training of trainers for contractors and coordinators

Critical, Complex and Difficult:

Feedback

Because it provides staff with information with which they can evaluate and modify their performance

You have to be the task expert managing the technical aspects and, at the same time, manage a difficult person-to-person interaction


Main stages of a construction project

Main stages of a construction project

  • Inception

  • Feasibility

  • Design

  • Preconstruction

  • Construction

  • Commissioning and occupation


Ministry of transport urrap training of trainers for contractors and coordinators

The project ‘moodograph’

Scale of enthusiasm

Handover

New Project

Project Timescale


Contemporary themes of planning

Contemporary Themes of Planning

Construction is Complex system

  • Uncertainty

  • Interdependency of operations

    • Sequencing of activities

    • Resource

  • Construction a Chaotic system:

    • dynamic

    • non uniform environment


  • Contemporary themes of planning1

    Contemporary Themes of Planning

    • It demands frame work

      • To structuring and managing the complexity of a project

      • To coordinates activities

      • To control the interfaces and delivery

      • To control effective use of resources


    Contemporary themes of planning2

    Contemporary Themes of Planning

    ‘If you fail to plan, then plan to fail’


    Contemporary themes of planning3

    Contemporary Themes of Planning

    Planning in management concept

    • Assists Objective setting and monitoring progresses

    • Avoidance of Sub-optimization

    • Facilitating communication and collaboration


    Contemporary themes of planning4

    Contemporary Themes of Planning

    Planning in Construction

    • Assists PM setting guide line for project

    • Execution, coordination

    • Forecast uncertainties

    • Identify constraints

    • Monitoring progress


    Effective planning contributes

    Effective Planning Contributes...

    • a disciplined approach

    • a crucial communication aid

    • identification of project risks

    • preparation of risk mitigation measures

    • formulation of contingency plans

    • fundamental project progress monitoring

    • anticipation of project delivery issues

    • evaluation of remedial options

    • confirmation of achievements


    Planning in construction

    Planning in Construction

    • A multi-staged process performed by different people at different stages for various purpose


    Planning in construction1

    Planning in Construction


    Planning view

    Planning View

    schedule

    project

    view

    planning

    view

    quality/scope

    costs

    resources


    Preconditions and stability

    Preconditions and stability

    Materials

    Information

    Activity

    Preceding

    Activities

    Space

    Crew

    Equipment

    External Conditions

    Safe environment


    Preconditions and stability1

    Preconditions and Stability


    Planning process

    Planning Process


    Planning encompasses

    Planning Encompasses...

    • schedule management

      • recording planned activities and dependencies

      • testing plan logic

      • highlighting critical activities

      • recording activity progress

    • achievement projections

    • resource management

    • costs management

    • exploring what-if scenarios


    S m a r t goals

    S.M.A.R.T. goals

    • develop a series of goals to define a logical sequence of achievements that, cumulatively, build towards successfully delivering the required project outcomes

    • goals should be SMART…

      • Specific

      • Measurable

      • Agreed

      • Realistic

      • Time-based

    • include these goals in the project plan as milestones


    Preparation of plan

    Preparation of Plan

    • Major Steps required to develop a schedule

      • Establish work breakdown structure (WBS)

      • Sequencing of activities by analysing their interrelations / interdependencies

      • Allocation of resources to activities

      • deciding time required for each activity

      • developing the overall time schedule of the project

        NB: The above are not a onetime done activity, need iterative process till optimal solution is obtained.


    Preparation of plan1

    Preparation of Plan

    • Resources planning:

      • Determining the labour requirement

      • Determining the material requirement

      • Determining the number of equipment required

      • Determining the cash requirement

      • Schedule the ordering of material, equipment, recruitment of labour and cash requirement together with the provision of lead-time for all.


    Preparation of plans major components

    Preparation of Plans ….Major components

    • Work method selection

    • Scheduling

      • Critical Path Method

      • Critical Chain Method

      • Location based/Repetitive Scheduling

      • The Last planner concept

        C) Cash flow forecast


    Preparation of plans

    Preparation of Plans

    • Work Method Selection

      • Analyzing the project scope: including quality assurance requirements against the time and cost implication

      • Understanding the whole process: mapping the process and pin point the required information

      • Reviewing the construction technique that goes with the company ability and the work demand

      • Defining the natural work flow within the sub-sequent work units


    Preparation of plans1

    Preparation of Plans

    • The Method Selection needs to provide Efficiency and Effectiveness, i.e.:-

      • Economical: too much focus on least expensive activity may adversely affect productivity and quality of works

      • Site specific

      • Safe

      • Reasonably considered social and environment issues


    Preparation of plans2

    Preparation of Plans

    • The Selected Method : address issues like:

      • The What? …. The activities

      • The Where?..... The location

      • The When? …. The duration

      • The How?...... The Construction Technique

        Typically done either simultaneously or in a series of iterations.


    Preparation of plan2

    Preparation of Plan

    • Scheduling Techniques:

      • Tools for construction planning and control

      • Used to estimate of overall duration

      • Basis for resources allocation & cost estimation

      • Control timing of activities thereby ensuring the timely completion of project

    • Principal scheduling techniques

      • Bar chart

      • Network Methods

      • Time-space diagram


    Preparation of plan3

    Preparation of Plan

    • Bar chart

      • Easiest to understand

      • Most commonly used

      • List of activities shown as “bar” plotted against time scale (start, duration, Finish)


    Ministry of transport urrap training of trainers for contractors and coordinators

    Preparation of Plan


    Preparation of plan4

    Preparation of Plan

    • Advantages of bar charts

      • Very simple presentation, easily understood

      • Good form of communication to non-technical personnel

      • Requires little training to use

      • Suitable to be used for planning time-phased resources (labor, material, equipment, budget)


    Preparation of plan5

    Preparation of Plan

    • Disadvantage of bar charts

      • Can not show interdependencies among the various activities

      • Critical activities that need attention and floats for non‑critical activities are not shown (complex projects).

      • Change in schedule requires redrawing of the chart.

    • Despite its disadvantages the bar chart is the most commonly used tool for planning and control


    Preparation of plan6

    Preparation of Plan

    • Network method

      • Suitable for large complex projects having many interdependent activities

    • Two commonly used network methods are

      • Arrow‑diagram

      • Precedence‑diagram

    • Main difference

      • Arrow diagram represents activities on arrows and the node represents the event at a time

      • Precedence diagram shows activities on nodes and the logical sequence of activities with arrows


    Construction planning cont

    Construction Planning(Cont.)

    ACT. 2

    ACT.1

    4

    1

    2

    3

    ACT.3

    EXAMPLE OF ARROW DIAGRAM (ACTIVITY ON ARROW)

    Act. 4

    3weeks

    Act. 5

    6weeks

    Act. 1

    2weeks

    Act. 2

    5weeks

    Act. 3

    5weeks

    SS 2 weeks

    EXAMPLE OF PRECEDENCE DIAGRAM (ACTIVITY ON NODE)


    Preparation of plan7

    Preparation of Plan

    • Steps in developing a network diagram

      • Listing all project activities using WBS

      • Prepare an arrow‑diagram following the logical sequence of activities

      • Estimate activity duration

      • Calculate the time for events and determine floats and critical‑path (time analysis using forward and backward pass)


    Critical path method scheduling concept

    Critical Path Method: Scheduling concept

    • Predecessor

      • controls the start or finish of another activity

    • Successor

      • depends on the start or finish of another activity


    Activity relationships

    A

    B

    Successor

    Predecessor

    Activity relationships

    Finish to Start (FS)

    when A finishes then B can start

    (this is the default relationship type)


    Activity relationships1

    A

    Predecessor

    B

    Successsor

    ActivityRelationships

    Start to Start (SS)

    when A starts then B can start


    Activity relationships2

    A

    Predecessor

    B

    Successor

    ActivityRelationships

    Finish to Finish (FF)

    when A finishes then B can finish


    Activity relationships3

    A

    Predecessor

    B

    Successor

    ActivityRelationships

    Start to Finish (SF)

    B cannot complete until A starts


    Activity relationships4

    B

    A

    Successor

    Predecessor

    ActivityRelationships

    Finish to Start with Lag/lead

    ....days

    Should be carefuly reveiewed inorder to avoid miss use / overlaps

    It may bes better to deffine the activity itself inorder to avoid confusion

    And better control…specially for people who are not familiar with

    The hidden structure Concerete cure time


    Activity relationships5

    A

    predecessor

    B

    successor

    ActivityRelationships

    Start to Start with Lag/lead

    Excavation and pipe laying

    ...days


    Scheduling concept

    Scheduling concept

    Forward Pass

    • calculates the early dates for each activity

    • early dates are the earliest times an activity can start and finish once its predecessors have been completed

    • the calculation begins with the activities without predecessors

      (Early Start + Duration) - 1 = Early Finish


    Ministry of transport urrap training of trainers for contractors and coordinators

    1

    5

    25

    11

    10

    1


    Scheduling concept1

    Scheduling concept

    Backward Pass

    • calculates the late dates for each activity

    • late dates are the latest times an activity can start and finish without delaying the end date of the project

    • the calculation begins with the activities without successors

      (Late Finish – Duration) + 1 = Late Start


    Ministry of transport urrap training of trainers for contractors and coordinators

    10

    6

    11

    25

    10

    1


    Float definitions

    Float- definitions

    Float generally is the amount of time an activity can slip from its early start without delaying the project

    • Total float: Time available before being critical

      • Late Dates - Early Dates = Total Float

    • Free float: Time delay without delaying subsequent activities

    • Independent float: Time delay without impact on preceding or succeeding activities

    • Activities with zero total float are critical


    Ministry of transport urrap training of trainers for contractors and coordinators

    Critical Path

    5

    0

    0


    Preparation of plan8

    Preparation of Plan


    Preparation of plan9

    Preparation of Plan

    • Advantages of network methods

      • shows the logical interdependencies among activities and the effects of their changes on one another

      • shows critical activities and floats for non‑critical activities

      • estimates project duration more accurately by splitting the project into smaller activities (work contents)

      • doesn't require redrawing for changes

      • Resources levelling can be done by shifting around non‑critical activities


    Preparation of plan10

    Preparation of Plan

    • Disadvantages of network methods

      • Requires proper skill & training

      • Difficult for supervisors on site to easily understand and get necessary information. This normally leads to the use of network based bar charts on construction sites.


    Preparation of plan11

    Preparation of Plan

    • Time space diagram

      • Suitable for linear construction projects like highways, cannels, tunnels, sewer lines


    Preparation of plan12

    Preparation of Plan

    • Advantages of the method

      • Easily understood by all levels

      • Good means of communicating information to non-technically trained personnel

      • Varying performances can be clearly seen from the diagram i.e. change in slope

      • Location of the work along the project length can easily be seen at any given time


    Preparation of plan13

    Preparation of Plan

    • Disadvantages of the method

      • Interdependencies among activities are not shown

      • Critical and non-critical activities are not shown

      • Its use is limited to linear construction projects


    Plan information diffusion

    Plan Information Diffusion

    • Plans have to be communicated clearly and ‘no doubt should be left as to what is to be done and when’.

    • A well informed employee is committed to the plan which facilitates the monitoring and controlling process.

    • Clear information also increases commitment of subcontractors.


    Cost flow forecasting

    Cost Flow Forecasting

    • Cash is a life-blood of any business

    • Cash inflow is not an income: money entering -money leaving the firm

    • .


    Cost flow forecasting cont

    Cost Flow Forecasting …. Cont

    • Helps to :

    • To provide timely warnings…to take corrective actions

    • They also allow you to analyze whether a project will be sufficiently profitable to justify the effort put into it.

    • Be useful for analyzing owners’ personal finances. This is useful when making difficult financial decisions.


    Cost flow forecasting cont1

    Cost Flow Forecasting …. Cont

    • The Process of Cash flow forecast is similar to the process of production(SingleProject)

    Working capital

    Cash operation expense

    Operations

    ( break into manageable size)

    Revenue

    Operation Income


    Cost flow forecasting cont2

    Cost Flow Forecasting …. Cont

    • The basic steps in cash flow forecasting are:

      • Set the period of forecast

      • Prepare manageable activity break down

      • Prepare a spreadsheet identifying revenues, costs and total cash flow

      • Estimate/forecast the corresponding values and calculate


    Factors affecting project cash flow

    Factors affecting project cash flow

    • Revenue factors

      • Advance payment: proper utilization to support the cash flow

      • Progress payment: timely delivery of the work and timely collect the payments

      • Interest on Payment: Sub clause 60.8

      • Retention release

      • Acceptable cost claims

      • Cost factors

      • Direct cost of factors of production: ( labour, material, equipment, finance...)

      • Indirect cost

        • Overhead and Profit, (Performance and other payment guaranties)

      • Subcontractors

      • Escalation...etc


    Factors affecting project cash flow1

    Factors Affecting Project Cash flow

    • Time

      • Project schedule: delays/ accelerations, change of work

      • Holidays and non-working days

      • Terms of the contract

      • Minimum amount of payment for IPC

      • Retention deduction

      • Advance recovery

      • Payment on remaining % for General Provisions

      • Unbalanced bids and the BoQ quantity changes


    Factors affecting project cash flow2

    Factors affecting project cash flow

    • Material related variables

    • Storage, lead time of procurement, credit terms, discount rate

  • Depreciation

    • Helps to recover fixed capital early


  • Implementation of plan and control

    Implementation of Plan and Control

    • Planning facilitate project implementation control

    • Firms has to Methodically and Continuously measure and evaluate the performance


    Implementation of plans and control

    Implementation of Plans and Control

    • Project performance measurement should evaluate

      • Productivity(efficiency)

      • Effectiveness of how the activities were done, i.e. no rework

      • Improved relations and communication

      • Overall satisfaction


    Implementation of plan and control1

    Implementation of Plan and Control

    • The performance monitoring system:

      • Timeliness

      • Standard,

      • Honest and

      • Clearly showing divergence

  • managers must evaluate the performance, and take corrective action when the project runs away from the plan.


  • Dynamics of planning

    Dynamics of Planning

    The employed performance measurement must lead to plan revision when there is divergence:

    Project plans are subjected to re-planning either

    • due to project goal change by the client or

    • plan change by site management due to influence of project micro and macro environment.


    Dynamics of planning cont

    Dynamics of Planning…….Cont.

    • Planning needs timely and frequent updating during construction due to following reasons:

      • Resources not available as planned

      • Productivity may be less than assumed

      • Unanticipated extra quantities

      • Design changes etc.

      • Unusual weather conditions

      • Differing site or soil conditions

      • Untimely payment for completed works

    • In such ever changing and dynamic environment plans age early:


    Implementation of plans and control1

    Implementation of Plans and Control

    • Earn Value Management has become an industry standard way to Performance management and forecast

      • measure the progress of a projects if accomplished is as planned in terms of Cost & Schedule of the work performed

      • identify schedule and budget variances throughout the life of a project

      • forecast its completion date and final cost

    • Value is “earned” as it is completed, based upon the WBS budgeted cost of work completed


    Earn value management

    Now

    Cost

    EAC

    Cost

    overrun

    BAC

    BCWS

    Time

    overrun

    BCWP

    ACWP

    CV

    SV

    Time

    Earn Value Management

    • ACWP – Actual Cost of Work Performed (spent cost)

    • BCWP – Budgeted Cost of Work Performed (Earned Value/Achieved Cost)

    • BCWS – Budgeted Cost of Work Scheduled (Elapsed Cost/Baseline Cost to Date)

    • BAC – Budget at Completion

    • EAC – Estimate cost at Completion

    • CV – Cost Variance

    • SV – Schedule Variance

    EAC


    Earn value management1

    Earn Value Management

    • SPI: Schedule Performance Index (“Did a month’s of schedule produce a month of progress?”)

      • SPI=BCWP/BCWS

      • SPI<1 means project is running behind schedule

    • CPI: Cost Performance Index (“Did the progress we made cost what it should?”)

      • CPI= BCWP/ACWP

      • CPI<1 means project is going over budget

    • CSI: Cost Schedule Index (CSI=CPI x SPI)

      • The further CSI is from 1.0, the less likely project recovery becomes.


    Earn value management2

    Earn Value Management

    • Predicting future cash flow

    • Simple extrapolation

    • Final cost = cost of work done + (work left/past performance)

    • Assumes future performance is same as past (generally true)

    • EAC=ACWP + (BAC-BCWP)/CPI

    • EAC=ACWP + (BAC-BCWP)/CSI

    How far is the

    Completion predictable


    Securing smooth cash flow

    Securing Smooth Cash Flow

    • At Tender stage:Having as accurate estimate as possible Load money into early items such as excavation and substructures

  • Construction stage: from project activities

    • Submit interim application on time

    • Deal with defective work quickly to avoid delayed payment

    • Delay some activities

    • Value materials on site

    • Frequent inventory to spare parts and idle resources

    • Manage maintenance and other expenses

    • Agree in the value of variations as soon as possible

    • Keep good records and submit claims early


  • Securing smooth cash flow1

    Securing Smooth Cash Flow

    • Timely avail finance from other sources

      • Long term borrowing: has to be invested in capital assets

      • Short term borrowing: should be invested as working capital

        • Bank loans,

        • Bank overdrafts

        • Trade creditors: make maximum use of credit facilities..etc

    • Post-construction stage : to assure profit is maximized: agree on final account and collect outstanding retentions

      on time


    Ministry of transport urrap training of trainers for contractors and coordinators

    Thank you


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