Construction Fundamentals

Chapter 3 – Construction Management Functions

Purpose of operating a business is to earn a profit!

Chapter 3 – Construction Management Functions

To be successful a construction company must:

– Estimate the cost of construction projects accurately

– Predict the schedule of the work– Control the progress and

expenditures during construction– Complete projects safely and on time

Construction Management Functions

Responsibility to construct the project:– in accordance with the plans and

specifications– to satisfy the customer’s cost, quality,

and time expectations

The project team is organized for the purpose of accomplishing those missions!

Owner Functions

• Defining the scope of the project

• Planning the project

• Financing the project

• Ensuring the project team understands the project’s goals

Construction Management Functions

Company level– Selecting the right jobs to bid– Preparing the cost estimate– Submitting the bid– Procuring the payment and

performance bonds– Scheduling the work– Securing project operating capital

Construction Management Functions

Construction site level– Setting the standards for quality

and safety– Planning the sequence of

construction

– Controlling progress and expenditures

Construction Management Functions

Construction site level– Communicating effectively with

owner and designer– Coordinating the work of the

subcontractors– Managing submittals, change

orders and periodic pay estimates– Closing out the project

Project Planning And Design

• Master planning• Scope definition

–Owner determines exactly what kind of a facility will be built

–Sets the design objectives for the Architect/Engineer

• Planning phase

Influence on Construction Quality

Influence on Construction Project Cost

Impact of Time on the Cost of Project Changes

The Business of Construction Management

Planning Phase

• Select the designer• Define the project goals• Ensure the availability of sufficient

funds to complete the project• Select and purchase the project site, • Determine construction

procurement system and the form of construction contract to be used.

Design Phase

• Primary requirement for any facility is that it must be safe!!

–Building codes• Owner and A/E schedule design

reviews – schematic drawings –preliminary drawings –working drawings

Bid Phase

First step is to decide whether or not to bid the job. Contractors are generally limited in their ability to bid by two factors:

– their bonding capacity and

– the policies of management

Policies of ManagementFactors contractors consider in deciding whether or not to bid a particular project include:

– Location of the work

Factors Contractors Consider

– Identity of the owner– Availability of key company

personnel

– Experience in the type of work solicited

Factors Contractors Consider

–Whether or not there is financing for the project

–Size of the project.

Bid Preparation

Bid preparation is expensive!In preparing a bid, contractors must consider the costs of:

–Equipment–Labor–Materials–Subcontractors

Bid Preparation

Consider the costs of:

– Job and company overhead, contingency, and profit

– Should also consider the number of competitor bidders and the bidding history of those competitors on similar projects

Award Phase• Owner provides:

– Builder’s Risk insurance

• Successful bidder must provide:– Payment and performance bonds– Workers compensation insurance– Liability insurance– List of subcontractors– Detailed project schedule

Notice to Proceed

Contractor cannot begin the work until the Notice to Proceed is received – so

Use the time between bid opening and contract award for detailed pre-project planning.

Pre-project planningPlanning how the work will proceed and in what sequence– Construction procedures– Type of equipment to be used– Job access– Location of the field office and

storage areas– Final selection of subcontractors

and suppliers

Pre-project planning

• Cash flow analysis should be completed to determine if the company needs to borrow money

• Detailed project schedule is prepared

• Work break down (WBS) and pay schedule are planned

Construction Phase

Size of the contractor’s on-site project management organization is a function of the size and complexity of the project.

Project Management Team

Owner

GeneralContractor

Mechanical S tructuralConcreteE lectrical

P lumbing HVAC

OtherTrades

Construction Company Team Functions

• Project managers (PM)

• Superintendents

• Schedulers

• Estimators

• Material expediters

Owner’s Project Team • Size of the owner’s project team will

depend on the size and complexity of the project – small project (A/E)

• Large highway project–Resident engineer– Inspectors–Surveyors–Quality assurance technicians

Managing Critical Activities

• Contracts are broken down into activities for purposes of scheduling, estimating, progress control, and cost control. Large projects can have several hundred activities, or more!

• Trick is to know which activities are critical

Critical ActivitiesCritical activities are those that could impact the cost of the work by at least one half of one percent of the bid price:–For example, on a $1,000,000

project, any activity with a potential for cost over-run or under-run of $5,000 or more is by definition a critical activity.

Pareto’s 80-20 rule

• 20% of the activities are critical and should be managed carefully

• The other 80% will average out…

Project Control

• Cost control

• Cash Flow Analysis

• Schedule Control

• Material Management

Cost Control

Possible corrective actions could include:

• Adding additional trade workers or crews

• Adding or removing equipment• Working overtime• Bringing in additional subcontractors

Cost Control

Possible corrective actions could include:

• Making the job more efficient• Eliminating factors that cause

subcontractors to interfere with each other

ProductivityLet R = Production rate

Where: T is total time, Q is the total quantity to be installedThe total cost is determined by the equation:

Ct = Ch T

Where Ct = total cost and Ch = cost per hour, or

Ct = Ch (Q/R)

R

QT

Cash Flow Analysis

Time

Cost

Front Loaded Cost Curve

Time

Cost

Cash Flow Schematic Diagram

Profit (loss) To DateProject Manager must calculate profit (loss) to date on a regular, weekly basis– Cost to date– Re-estimated cost to complete– Amount billed– Contract amount (including change

orders)– Example 3.2

Schedule Control• Chapter 4• Critical path - By definition, activities

on the critical path will delay the entire project if they are delayed

• Physical progress can be compared with the financial progress to determine if the project is:– on schedule or late– over budget or under budget

Materials Management Ensure that materials are delivered in a timely manner to the site in the quantity and quality required. When materials arrive they are:

– Counted

– Inspected

– if necessary, Tested

Materials Management

Must determine the latest order date accounting for the:

–shop drawing • Preparation• submission and • approval time

–lead time required for fabrication–shipping

Materials Management

Too many materials stored on the site can lead to problem of:

– space allocation

– weather damage

– theft

Construction Related DesignTemporary structures such as:

– Scaffolding– Forms– Temporary bridges– Shoring– Cofferdams– Rigging

must be designed by the contractor

Risk Management

Risks are inherent in construction• Industry is moving toward allocating

risks to the party most able to control the specific risk

• Managing risks means:–minimizing risks– insuring against risks–and sharing risks

Risk Management

• Construction risks - inability of a subcontractor to perform

• Economic risks - cost escalation

• Political/public risks - disapproval of the required project permits

• Physical risks - subsurface conditions

Risk Management

• Contractual and legal risks - risks assigned by contract over which the contractor has no control

• Design risks - a project design that is not constructible

Risk Management

• Worker injured or killed

• A job accident that injures the public

• A construction vehicle is involved in an accident off the project

Risk Management

Risks are best assumed by the party with the ability to best control the risk

The best way to manage risks is to avoid them, but the construction industry is characterized by risks!

Risk Management• Contractors manage risks by

purchasing insurance

• Examining the contract language addressing changed conditions…

• Contractor safety programs• Subcontracting is also a form of risk

management –require performance and payment bonds

Value Engineering (VE)

• Function analysis or value analysis

• Main objective to reduce project cost, without reducing the quality of the structure

• VE exists because contractors know better ways to build projects, and owners are willing to pay for that knowledge!!

Assignment

Due next class

Chapter 3 Review Questions

– 3.5

– 3.10

– 3.15