Lecture notes on Engineering Project Management

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University of Nairobi Department of Civil and Construction Engineering FCE 372 ENGINEERING MANAGEMENT 1 LECTURE NOTES DR. NYAMBANE OSANO sosanouonbi.ac.ke 2013 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes TABLE OF CONTENTS 1 OVERVIEW ....................................................................................... 1 1.1 COURSE DESCRIPTION 1 1.2 PREREQUISITE 1 1.3 IMPORTANCE OF THE COURSE 1 1.4 IMPORTANCE OF THE COURSE 1 1.5 TEACHING METHODOLOGY AND TECHNIQUES 1 1.6 REQUIRED TEXT BOOKS 1 2 PRINCIPLES OF MANAGEMENT PRACTICE ....................................... 2 2.1 ENGINEERING 2 2.2 MANAGEMENT 2 2.3 ENGINEERING MANAGEMENT 3 2.4 EVOLUTION OF MANAGEMENT THOUGHT 3 2.4.1 APPROACHES TO MANAGEMENT 3 2.4.2 MAJOR CLASSIFICATION OF MANAGEMENT APPROACHES AND THEIR CONTRIBUTORS 4 2.5 HENRY FAYOL’S PRINCIPLES OF MANAGEMENT 5 2.6 MODERN MANAGEMENT THEORY 6 2.6.1 SYSTEM APPROACH 7 2.6.2 CONTINGENCY THEORY 8 3 MANAGEMENT FUNCTIONS .............................................................. 9 3.1 INTRODUCTION 9 3.2 THE FUNCTIONS OF MANAGEMENT 9 3.2.1 PLANNING 9 3.2.2 ORGANIZING 9 3.2.3 STAFFING 9 3.2.4 DIRECTING 10 3.2.5 CONTROLLING 10 4 STRUCTURES OF CONSTRUCTION BUSINESS................................. 11 4.1 TYPES OF CONSTRUCTION PROJECTS 11 4.1.1 BUILDING CONSTRUCTION 11 4.1.2 HEAVY / CIVIL CONSTRUCTION 12 4.1.3 INDUSTRIAL CONSTRUCTION 12 4.2 CONSTRUCTION PROCESSES 12 University of Nairobi Page i FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 4.2.1 DESIGN AND CONSTRUCTION TEAM 12 4.2.2 FINANCIAL ADVISORS 12 4.2.3 LEGAL CONSIDERATION 13 4.2.4 INTERACTION OF EXPERTISE 13 4.3 PROCUREMENT MODELS 13 4.3.1 TRADITIONAL 14 4.3.2 DESIGN AND BUILD 14 4.3.3 MANAGEMENT PROCUREMENT SYSTEMS 15 4.4 CONSTRUCTION CAREERS 15 4.5 CONTRACTOR BUSINESS STRUCTURES 16 4.5.1 SOLE PROPRIETORSHIP 16 4.5.2 PARTNERSHIP 16 4.5.3 CORPORATION 16 4.5.4 LIMITED LIABILITY COMPANY (LLC) 16 5 CONSTRUCTION ACCOUNTING METHODS ..................................... 17 5.1 ACCOUNTING METHODS 17 5.1.1 COMPLETED CONTRACT METHOD 17 5.1.2 PERCENTAGE COMPLETION METHOD 17 5.2 MISCONCEPTIONS 18 5.3 FINANCIAL STATEMENTS AND THEIR USERS 18 5.3.1 QUALITATIVE CHARACTERISTICS 18 5.3.2 FINANCIAL INFORMATION 18 5.3.3 INTERNAL USERS 19 5.3.4 EXTERNAL USERS 19 5.3.5 OTHER EXTERNAL USERS 19 5.4 CONCLUSION 20 5.5 AUDIT, REVIEW AND COMPILATION ENGAGEMENT 20 5.5.1 AUDIT ENGAGEMENT 20 5.5.2 REVIEW ENGAGEMENTS 21 5.5.3 COMPILATION ENGAGEMENTS 21 5.6 LINES OF CREDIT, BANK LOANS AND LONG TERM DEBT 21 5.7 BOOK-KEEPING 22 5.7.1 WHAT IS BOOK-KEEPING? 22 5.7.2 TYPES OF BOOK-KEEPING SYSTEMS 22 5.7.3 BASIC ELEMENTS OF BOOK-KEEPING 22 5.7.4 THE BOOK-KEEPING EQUATION 23 5.7.5 TYPES OF BUSINESS TRANSACTIONS 23 6 FEASIBILITY STUDIES OF CIVIL ENGINEERING PROJECTS ........... 25 6.1 DEFINITION 25 6.2 TYPES OF FEASIBILITY STUDIES 25 University of Nairobi Page ii FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 6.2.1 TECHNICAL FEASIBILITY 25 6.2.2 ECONOMIC FEASIBILITY 25 6.2.3 OPERATIONAL FEASIBILITY 25 6.2.4 LEGAL FEASIBILITY 25 6.3 COST-BENEFIT ANALYSIS 26 6.3.1 OVERVIEW 26 6.3.2 THE PURPOSE OF THE TECHNIQUE 26 6.3.3 IDENTIFYING COSTS 26 6.3.4 IDENTIFYING BENEFITS 27 6.4 SELECT EVALUATION METHOD 27 6.4.1 DISCOUNTED CASH FLOW ANALYSIS (DCF) 27 A. PRESENT VALUE ANALYSIS: 27 B. NET PRESENT VALUE (NPV) 28 7 ECONOMICS OF DIRECT LABOUR CONSTRUCTION ........................ 33 8 CIVIL ENGINEERING CONTRACTS ................................................. 34 8.1 DEFINITION 34 8.2 ELEMENTS OF A CONTRACT 34 8.3 FORMATION OF A CONTRACT 35 8.4 TYPES OF CIVIL ENGINEERING CONTRACTS 35 8.4.1 ITEM RATE CONTRACT 36 8.4.2 PERCENTAGE RATE CONTRACT 36 8.4.3 LUMP SUM CONTRACT 36 8.4.4 LABOUR CONTRACT 36 8.4.5 MATERIAL SUPPLY CONTRACT 36 8.4.6 PIECE-WORK CONTRACT 36 8.4.7 COST PLUS PERCENTAGE RATE CONTRACT 36 8.4.8 COST PLUS FIXED RATE CONTRACT 36 8.4.9 COST PLUS FLUCTUATING FEE CONTRACT 36 8.4.10 TARGET CONTRACT 36 9 CONTRACT DOCUMENTS ................................................................ 37 10 TENDERING PROCEDURE ............................................................... 38 10.1 OVERVIEW 38 10.2 BREAKDOWN OF FIDIC TENDERING PROCEDURE 39 11 CIVIL ENGINEERING ETHICS ......................................................... 40 11.1 INTRODUCTION 40 University of Nairobi Page iii FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 11.2 PROFESSIONAL AND CHARTERED ENGINEERS 40 11.3 CODE OF ETHICS 40 11.4 FUNDAMENTAL PRINCIPLES 40 11.5 FUNDAMENTAL CANONS 40 11.6 WHISTLEBLOWING 41 11.6.1 DEFINITION 41 11.6.2 EXAMPLES OF PROBLEMS THAT MIGHT WARRANT WHISTLE-BLOWING 41 11.6.3 MORAL GUIDELINES TO WHISTLE-BLOWING 41 12 TUTORIALS .................................................................................... 43 GROUP 1, 2 AND 3 43 GROUP 4 44 GROUP 5 45 GROUP 6 45 GROUP 7 45 GROUP 8 45 GROUP 9 45 GROUP 10 46 GROUP 11 47 GROUP 12 47 GROUP 13 49 GROUP 14 49 GROUP 15 49 University of Nairobi Page iv FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 1 OVERVIEW 1.1 COURSE DESCRIPTION Engineering management is a specialized form of management that is concerned with the application of engineering principles to business practice; 1.2 PREREQUISITE None 1.3 IMPORTANCE OF THE COURSE Engineers find themselves at a decision point typically within 3 to 7 years after graduation. They choose between the technical specialty and technical management route. According to various studies conducted, it is estimated that more than 75% of engineers choose the technical management route, and perform management tasks while maintaining identity in their technical specialties. Despite this phenomenon, engineers are rarely trained for management responsibilities. This course helps prepare engineers to assume managerial positions within their technical specialty areas. Great deals of industrial executive’s top corporate managers have engineering backgrounds. Today, several universities offer Engineering Management programs/concentrations at the undergraduate and/or graduate level. 1.4 IMPORTANCE OF THE COURSE  To expose engineering students to managerial concepts and techniques used in the real world by Technical Managers, Project Directors, and other technically oriented management personnel.  To do in-depth analysis of some case studies pertaining to engineering management functions. 1.5 TEACHING METHODOLOGY AND TECHNIQUES This course relies on lectures and Power Point presentation by the lecturer. Tutorials will be offered. Students will then be required to contribute to discussions based on the explanations and will need to read the corresponding section in the assigned textbook. 1.6 REQUIRED TEXT BOOKS a) Engineering Management by B S, Dhillon, Technornic Publishing Co., 1987. b) Essentials Of Management by Joseph L. Massie, Prentice hall Publishing Co., th 4 Edition. c) Managing Projects: A System Approach by Daniel D. Roman, Elsevier Science Publishing CO., 1986. d) Engineering Program Management by Hans J. Tharrihain, John Wiley & Sons, 1984. e) Engineering Management by D.I. Cleland and D. E Kocaoglu, McGraw-Hill, 1981. UNIVERSITY OF NAIROBI Page 1 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 2 PRINCIPLES OF MANAGEMENT PRACTICE 2.1 ENGINEERING Definition; Engineering is the profession in which a knowledge of the mathematical and natural sciences, gained by study, experience, and practice, is applied with judgment, to develop ways to utilize, economically, the materials and forces of nature for the benefit of mankind Types; 1. Agricultural Engineering 2. Architectural Engineering 3. Bioengineering/Biomedical Engineering 4. Ceramic Engineering 5. Chemical Engineering 6. Civil Engineering 7. Computer Engineering 8. Electrical Engineering 9. Environmental Engineering 10. Fire Protection Engineering 11. Industrial Engineering 12. Manufacturing Engineering 13. Mechanic Engineering 14. Metallurgy and Materials Engineering 15. Mineral and Mining Engineering 16. Nuclear Engineering 17. Ocean Engineering 18. Transportation Engineering 2.2 MANAGEMENT Definition; The word “Management” originates from Old French ménagement “the art of conducting, directing”, and from Latin manu agere “to lead by the hand”) Management characterizes the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). Areas of Management;  Change management  Communications management  Constraint management  Cost management  Crisis management  Customer relationship management  Earned value management  Engineering management  Enterprise management UNIVERSITY OF NAIROBI Page 2 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes  Facility management  Integration management  Knowledge management  Marketing management  Micromanagement  Pain management  Perception management  Procurement management  Program management  Project management  Process management  Product management  Quality management  Resource management  Risk management  Skills management  Spend management  Supply chain management  Systems management  Time management  Stress management 2.3 ENGINEERING MANAGEMENT Definition; Engineering management is a specialized form of management concerned with the application in engineering, as a result of the unique personalities and technical nature of engineering. Engineering management refers to the functional management of technical professionals. Example areas of engineering are product development, manufacturing, construction, design engineering, industrial engineering, technology, production, or any other field that employs personnel who perform an engineering function. Successful engineering managers typically require training and experience in business and engineering. Technically inept managers tend to be deprived of support by their technical team, and non-commercial managers tend to lack commercial acumen to deliver in a market economy. Largely, engineering managers manage engineers who are driven by non-entrepreneurial thinking, thus require the necessary people skills to coach, mentor and motivate technical professionals. Engineering professions joining manufacturing companies tend to become engineering managers over a period of time. They learn all the facets of management on job and often this process is slow and disoriented. 2.4 EVOLUTION OF MANAGEMENT THOUGHT 2.4.1 Approaches to Management  Classical Approach  Behavioral Approach  Quantitative Approach  Modern Approaches to Management UNIVERSITY OF NAIROBI Page 3 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes According to one school of thought, history has no relevance to the problems faced by managers today. Some are also of the opinion that management theory is too abstract to be of any practical use. However, both theory and history are indispensable tools for managing contemporary organizations. Like most modern disciplines, contemporary management thought has its foundations in the history of management and the many significant contributions of theorists and practitioners. A theory is a conceptual framework for organizing knowledge that provides a blueprint for various courses of action. Hence, an awareness and understanding of important historical developments and theories propounded by early thinkers is important for today’s managers. 2.4.2 Major Classification of Management Approaches and their Contributors Table 2.1: Major Classifications Major Classification of Management Major Contributors Approaches Classical approach Scientific management Frederick W. Taylor, Frank and Lillian Gilbreth and Henry Gantt Bureaucratic Max Weber management Administrative Henri Fayol management Behavioral Group influences Mary Parker Follet approach Hawthorne studies Elton Mayo Maslow’s needs theory Abraham Maslow Theory X and Theory Y Douglas McGregor Model I versus Model II Chris Argyris values Quantitative Management science - approach Operations - management Management - information system Modern The Systems Theory - approaches Contingency Theory - Emerging approaches: William Ouchi Theory Z and Quality management UNIVERSITY OF NAIROBI Page 4 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 2.5 HENRY FAYOL’S PRINCIPLES OF MANAGEMENT Fayol developed theory of management. According to him managerial excellence is a technically ability and can be acquired. He developed theories and principles of management which are universally accepted and make him universalistic. He was pioneer of the formal education in management. Fayol's principles of management meet the requirements of modern management. Henry Fayol, a frech industrialist, offered fourteen principles of management for the first time in 1916. During the period of 1920-40 in the U.S. many authors did hard work in developing and testing various principles of management. Today, there is a very lengthy list of management principles and it is not possible to give an exhaustive lot of these management principles. According to Fayol management was a separate and distinct skill from other business function. He also felt that management skills had been the most neglected aspect of business operations. Fayol developed fourteen general principals of managements. According to him these principles can be applied in all types, functions, levels and size of organizations. This had earned him the title of “UNIVERSALIST”. For a long time Fayol’s list was accepted on “Complete and Comprehensive”. Following are the fourteen principles of management developed by the Henry Fayol: i. Division of work: - This is the principle of specialization which applies to all kinds of work. The more people specialize the more efficiently they can perform their work. Specialization increases output by making employees more efficient. ii. Authority and Responsibility: - According to Fayol responsibility is a corollary and a natural consequence of authority. Responsibility implies an obligation to perform the task in a satisfactory manner. iii. Discipline: - Good discipline is the result of effective leadership a clear understanding between management and workers regarding the organization’s rules and the judicious use of penalties for violation of the rules. iv. Unity of Command: - Every employees should receive order and instruction from only one superior. Dual command is a perpetual source of conflict. If a person receives order from more than one superior, it would lead to confusion and chaos. v. Unity of Direction: - This principle calls for one manager one plan for all operations having the same objectives. This principle when applied properly, ensure unity of action and facilitates coordination. vi. Subordination of Individual Interest to the General Interests: - The interest of the organization is above the individual and the group. This can be achieved when manager set an example through their exemplary behaviour. They must be prepared to sacrifice their personal interest when ever such interest are in conflict with organizational interest. vii. Remuneration: - UNIVERSITY OF NAIROBI Page 5 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes Workers should be paid a fair wages for their service. The method of wage payment should provide maximum possible satisfaction to both employees and employer. viii. Centralization:- Everything that goes to increase the subordinate role is decentralization, everything which goes to reduce it is centralization. Whether decision making is centralized (to management) or decentralized (to subordinates) is a matter of proper proportion. The problem is to find the best amount of centralization in each case. ix. Scalar chain hierarchy: - The graded chain of authority from top to bottom through which all communication flow is formed the “Scalar Chain”. x. Order: - People and material should be in the right place at the right time. A place for everything and everything in its place. xi. Equity:- Manager should be both friendly and fair to their subordinates. Employees should be justice and kindness promotes better relation between employees and employer. xii. Stability of tenure of personnel: - Management must implement practice which encourages long term commitment of employees. Instability of tenure can significantly affect the fortunes of a company. xiii. Initiative: - Employees must be encouraged to think and implement a plan of action even through some mistake may result. The opportunity to perform independently is an essential component of employee growth and development. xiv. Spirit of Co-operation (Spirit de crops) This principle state that “Union is Strength”. Fayol defined esprit de corps as unity of effort through harmony of interest. Promoting team sprit will give the organization a sense of unity. These fourteen principles were considered to be flexible and capable of meeting every managerial need. Fayol’s contribution to management theory is unique and valuable. In fact he was the first management thinker who contributed substantially and brought respectability to management as a discipline. Undoubtedly, Fayol was the important management thinker who has presented the most lucid and highly systematic analysis of the management. 2.6 MODERN MANAGEMENT THEORY The past thirty years witnessed a “Knowledge Explosion” in the field of managements. During this period management writer have been primarily concerned with integrating the findings of scientific management, principles of management and human relations movements. However two integrating trends have developed throwing adequate light on the dynamic nature of management namely: -  System Approach  Contingency Approach UNIVERSITY OF NAIROBI Page 6 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes These modern management theories considered all elements the whole organization as well as components parts. The organization is viewed as adaptive systems which must in order to survive adjust to environmental changes. The organization and its environment are seen as interdependent; each depends on the other for resources from scientific management, human relations. It is a background that furnishes a foundation for understanding Contemporary management theory and practice. 2.6.1 System Approach A system in simple terms is a set of interrelated parts. It is a group of interrelated but separate elements working towards a common purpose. The arrangement of elements must be orderly, there must be proper communication faciliting interaction between the elements and finally the interaction should lead to achieve a common goal. The organization transforms input into a variety of outputs and offers the same to the external environment in the form of products good and services. Sale of the output provides the necessary energy (feedback) to the system cycle. The system approach provides a unified focus to organizational efforts. A major contribution of the system approach results from its strong emphasis on the interrelatedness or mutuality of the parts of an organization. Another important benefit of system theory lies in its treatment of the organization as an open system. A close system imports something from the environment and exports something into the environment. The system theory of management is characterized by the following: - (a) Dynamic: - Within the organization the process of interaction between subsystem is dynamic. (b) Multilevel and Multidimensional: - It is micro within the nation’s industrial network and it is macro with respect to its internal units. The modern manager is forced to recognize the importance of parts as well as the whole. (c) Multimotivated: - Motivation is an extremely complex process and drawing simplistic equation is a futile exercise. (d) Probabilistic: - Modern theory tends to probabilistic. “Statement in modern theory tends to be qualified with phrases such as “may be”, in general” and usually” because modern theory recognizes that few predictive statement can be made with certainty. (e) Multidisciplinary: - Modern theory of management is enriched by contribution from disciplines like sociology, psychology, economics, anthropology, ecology mathematics, operations research and so on. (f) Descriptive:- Individual are free to select the objectives and the methods to improve organizational effectiveness. (g) Multivariable: - There is no simple cause effect phenomenon in organizational activities. An event may be the product of many factors that are in turn interrelated and interdependent. (h) Adaptive: - An organization and its environment are expected to rearrange their parts. Organization tries to cope with environment changes through the “feed back” mechanism. An organization must produce output acceptable to components in environment. UNIVERSITY OF NAIROBI Page 7 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes It is true that “System theory provides a broad Philosophical perspective that bridge academic disciplines and mounts integrated attack on a wide variety of problem” 2.6.2 Contingency Theory In recent years especially after 1970 the word “contingency” has invaded the field of Management. One important contribution of contingency perspective may best be summed up in the statement that “there is no one best way to manage”. According to this approach the best way to lead, plan organize & conduct managerial activities varies with the situations. There are no plans, organization structure leadership style or control that will fit all situations. A manager trained in the contingency approach may offer a solution that is responsive to the characteristics of the total situation being faced. Organization characterized by the limited resources, unskilled labour force, limited training opportunities, limited products offered to local markets- work simplification would be ideal. Job enrichment programme would work better if the organization employs skilled labour force. Applying a contingency approach requires that managers diagnose a given situation & adapt to meet the conditions present. The strength of contingency theory rest on two points: -  First it focuses attention on specific situation factors that influence the appropriateness of one managerial strategy over another.  Second it highlights the importance to managers of developing skills in situational analysis. Such skills will help managers find out important contingency factors that influences their approach to managing. The contingency approach is a useful instructional device in the sense that it compels us to be aware of the complexity in every situation and forces us to take an active and dynamic role in trying to determine what would work best in each case. It is said that the contingency approach is refreshing breeze in management literature that clears away the humanistic and general system fog. The contingency theory is concerned with achieving a “fit” between organization and its environment. The contingency approach dose not incorporates all aspects of system theory and hold that it is severely constrained by paucity of literature. Contingency theory is theoretically complex. The goal of integrating functional, quantitative behavioral and system approaches in the form of contingency model may prove to be too difficult to realize because of the incomplete development of the earlier approaches. UNIVERSITY OF NAIROBI Page 8 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 3 MANAGEMENT FUNCTIONS 3.1 INTRODUCTION Management consists of the functions given below. It is based on Henri Fayol's thinking on the functions of management. 1. Planning 2. Organizing 3. Staffing 4. Directing 5. Controlling 3.2 THE FUNCTIONS OF MANAGEMENT 3.2.1 Planning It is the basic function of management. It deals with chalking out a future course of action & deciding in advance the most appropriate course of actions for achievement of pre-determined goals. It bridges the gap from where we are and where we want to be. A plan is a future course of actions. It is an exercise in problem solving and decision making. Planning is determination of courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways and means for accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of human and non-human resources. 3.2.2 Organizing It is the process of bringing together physical, financial and human resources and developing productive relationship amongst them for achievement of organizational goals. According to Henry Fayol, “To organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a business involves determining and providing human and non-human resources to the organizational structure. Organizing as a process involves:  Identification of activities.  Classification of grouping of activities.  Assignment of duties.  Delegation of authority and creation of responsibility.  Coordinating authority and responsibility relationships. 3.2.3 Staffing It is the function of manning the organization structure and keeping it manned. Staffing has assumed greater importance in the recent years due to advancement of technology, increase in size of business, complexity of human behavior etc. The main purpose o staffing is to put right man on right job i.e. square pegs in square holes and round pegs in round holes. Staffing involves: UNIVERSITY OF NAIROBI Page 9 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes  Manpower Planning (estimating man power in terms of searching, choose the person and giving the right place).  Recruitment, selection & placement.  Training & development.  Remuneration.  Performance appraisal.  Promotions & transfer. 3.2.4 Directing It is that part of managerial function which actuates the organizational methods to work efficiently for achievement of organizational purposes. It is considered life- spark of the enterprise which sets it in motion the action of people because planning, organizing and staffing are the mere preparations for doing the work. Direction is that inert-personnel aspect of management which deals directly with influencing, guiding, supervising, motivating sub-ordinate for the achievement of organizational goals. Direction has following elements:  Supervision  Motivation  Leadership  Communication Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching & directing work & workers. Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative, monetary, non-monetary incentives may be used for this purpose. Leadership- may be defined as a process by which manager guides and influences the work of subordinates in desired direction. Communications- is the process of passing information, experience, opinion etc from one person to another. It is a bridge of understanding. 3.2.5 Controlling It implies measurement of accomplishment against the standards and correction of deviation if any to ensure achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in conformities with the standards. An efficient system of control helps to predict deviations before they actually occur. Therefore controlling has following steps:  Establishment of standard performance.  Measurement of actual performance.  Comparison of actual performance with the standards and finding out deviation if any.  Corrective action. UNIVERSITY OF NAIROBI Page 10 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 4 STRUCTURES OF CONSTRUCTION BUSINESS 4.1 TYPES OF CONSTRUCTION PROJECTS In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking. Normally, the job is managed by a project manager, and supervised by a construction manager / resident engineer, design engineer, construction engineer or project architect. For the successful execution of a project, effective planning is essential. Those involved with the design and execution of the infrastructure in question must consider the environmental impact of the job, the successful scheduling, budgeting, construction site safety, availability of building materials, logistics, inconvenience to the public caused by construction delays, and bidding, etc. In general, there are three types of construction:  Building construction  Heavy / civil construction  Industrial construction Each type of construction project requires a unique team to plan, design, construct, and maintain the project. 4.1.1 Building Construction Building construction is the process of adding structure to real property. Building construction projects include some elements in common - design, financial, and legal considerations. Many projects of varying sizes reach undesirable end results, such as structural collapse, cost overruns, and/or litigation reason, those with experience in the field make detailed plans and maintain careful oversight during the project to ensure a positive outcome. Building construction is procured privately or publicly utilizing various delivery methodologies, including hard bid, negotiated price, traditional, management contracting, construction management-at-risk and/or design & build Construction practices, technologies, and resources must conform to local building authority regulations and codes of practice. Materials readily available in the area generally dictate the construction materials used (e.g. brick versus stone, steel versus timber). Cost of construction on a per square metre (or per square foot) basis for houses can vary dramatically based on site conditions, local regulations, economies of scale (custom designed homes are always more expensive to build) and the availability of skilled tradespeople. As residential (as well as all other types of construction) can generate a lot of waste, careful planning again is needed here. UNIVERSITY OF NAIROBI Page 11 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 4.1.2 Heavy / Civil Construction Civil engineering deals with the design, construction and maintenance of the physical and naturally built environment, including works such as bridges, roads, canals, dams and buildings. 4.1.3 Industrial Construction Industrial construction, though a relatively small part of the entire construction industry, is a very important component. Owners of these projects are usually large, for-profit, industrial corporations. These corporations can be found in such industries as medicine, petroleum, chemical, power generation, manufacturing, etc. Processes in these industries require highly specialized expertise in planning, design, and construction. As in building and heavy/highway construction, this type of construction requires a team of individuals to ensure a successful project. 4.2 CONSTRUCTION PROCESSES 4.2.1 Design and Construction Team In the modern industrialized world, construction usually involves the translation of designs into reality. A formal design team may be assembled to plan the physical proceedings, and to integrate those proceedings with the other parts. The design usually consists of drawings and specifications, usually prepared by a design team including surveyors, civil engineers, cost engineers (or quantity surveyors), mechanical engineers, electrical engineers, structural engineers, and fire protection engineers. The design team is most commonly employed by (i.e. in contract with) the property owner. Under this system, once the design is completed by the design team, a number of construction companies or construction management companies may then be asked to make a bid for the work, either based directly on the design, or on the basis of drawings and a bill of quantities provided by a quantity surveyor. Following evaluation of bids, the owner will typically award a contract to the most cost efficient bidder. 4.2.2 Financial Advisors Many construction projects suffer from preventable financial problems. Underbids ask for too little money to complete the project. Cash flow problems exist when the present amount of funding cannot cover the current costs for labour and materials, and because they are a matter of having sufficient funds at a specific time, can arise even when the overall total is enough. Fraud is a problem in many fields, but is notoriously prevalent in the construction field. Financial planning for the project is intended to ensure that a solid plan, with adequate safeguards and contingency plans, is in place before the project is started, and is required to ensure that the plan is properly executed over the life of the project. Bankers, financial controllers and cost engineers are likely participants in creating an overall plan for the financial management of the construction project. The presence of the banker is highly likely even in relatively small projects, since the owner's equity in the property is the most obvious source of funding for a project. Financial controllers act to study the expected monetary flow over the life of the project, and to monitor the payouts throughout the process. Cost engineers apply expertise to relate the work and materials involved to a proper valuation. Cost overruns with UNIVERSITY OF NAIROBI Page 12 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes government projects have occurred when the contractor was able to identify change orders or changes in the project resulting in large increases in cost, which are not subject to competition by other firm as they have already been eliminated from consideration after the initial bid. 4.2.3 Legal Consideration A construction project must fit into the legal framework governing the property. These include governmental regulations on the use of property, and obligations that are created in the process of construction. The project must adhere to zoning and building code requirements. Constructing a project that fails to adhere to codes will not benefit the owner. A construction project is a complex net of contracts and other legal obligations, each of which must be carefully considered. A contract is the exchange of a set of obligations between two or more parties, but it is not so simple a matter as trying to get the other side to agree to as much as possible in exchange for as little as possible. The time element in construction means that a delay costs money, and in cases of bottlenecks, the delay can be extremely expensive. Thus, the contracts must be designed to ensure that each side is capable of performing the obligations set out. Contracts that set out clear expectations and clear paths to accomplishing those expectations are far more likely to result in the project flowing smoothly, whereas poorly drafted contracts lead to confusion and collapse. Legal advisors in the beginning of a construction project seek to identify ambiguities and other potential sources of trouble in the contract structure, and to present options for preventing problems. Throughout the process of the project, they work to avoid and resolve conflicts that arise. In each case, the lawyer facilitates an exchange of obligations that matches the reality of the project. 4.2.4 Interaction of Expertise Design, finance, and legal aspects overlap and interrelate. The design must be not only structurally sound and appropriate for the use and location, but must also be financially possible to build, and legal to use. The financial structure must accommodate the need for building the design provided, and must pay amounts that are legally owed. The legal structure must integrate the design into the surrounding legal framework, and enforce the financial consequences of the construction process. 4.3 PROCUREMENT MODELS Procurement is the acquisition of appropriate goods and/or services at the best possible total cost of ownership to meet the needs of the client in terms of quality, quantity and time. Procurement describes the merging of activities undertaken by the client to obtain a product. There are many different models of construction procurement; however the three most common types of procurement are: a) Traditional (Design-bid-build) b) Design and Build c) Management Contracting UNIVERSITY OF NAIROBI Page 13 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes There is also a growing number of new forms of procurement that involve relationship contracting where the emphasis is on a co-operative relationship between the principal and contractor and other stakeholders within a construction project. 4.3.1 Traditional This is the most common method of construction procurement and is well established and recognized. In this arrangement, the architect or engineer acts as the project coordinator. His or her role is to design the works, prepare the specifications and produce construction drawings, administer the contract, tender the works, and manage the works from inception to completion. There are direct contractual links between the architect's client and the main contractor. Any subcontractor will have a direct contractual relationship with the main contractor. This model uses three main mechanisms for determining a contract price:  lump sum contracts, where the contract sum is largely determined before full construction starts;  Measurement contracts, where the contract sum is not finalised until after completion by a re-measurement of the works on a previously agreed basis; and  Cost reimbursement contracts, where the contract sum is determined on the actual cost of labour and materials, with an amount added to cover overheads and profit. 4.3.2 Design and Build This approach has become more common in recent years and includes an entire completed package, including fixtures, fittings and equipment where necessary, to produce a completed fully functional building. In some cases, the Design and Build (D & B) package can also include finding the site, arranging funding and applying for all necessary statutory consents. The owner produces a list of requirements for a project, giving an overall view of the project's goals. Several D&B contractors present different ideas about how to accomplish these goals. The owner selects the ideas he likes best and hires the appropriate contractor. Often, it is not just one contractor, but a consortium of several contractors working together. Once a contractor (or consortium/consortia) has been hired, they begin building the first phase of the project. As they build phase 1, they design phase 2. This is in contrast to a design-bid-build contract, where the project is completely designed by the owner, then bid on, then completed. As design and construction may proceed in parallel, this could result in a shorter overall project timeframe. The client will have reasonable certainty over construction costs because the contract sum is known at the outset. UNIVERSITY OF NAIROBI Page 14 FCE 372 – ENGINEERING MANAGEMENT I OSN - Lecture Notes 4.3.3 Management Procurement Systems In this model, overall design is the responsibility of the client’s consultants, while the contractor is responsible for managing the performance of the works through separate trade contracts. The client appoints the consultants and prepares the project drawings, specifications and cost plan, and retains overall design control through its professional team. As detailed design can proceed in parallel with construction work, the length of the project programme may be reduced. However, there is no certainty over costs at the outset and works proceed on the basis of a contract cost plan. Final costs are not known until the last trade contract is let. Speculative risks lie largely with the client. 4.4 CONSTRUCTION CAREERS There are many routes to the different careers within the construction industry which vary by country. However, there are three main tiers of careers based on educational background which are common internationally:  Unskilled and Semi-Skilled - General site labour with little or no construction qualifications.  Skilled - On-site managers who possess extensive knowledge and experience in their craft or profession.  Technical and Management - Personnel with the greatest educational qualifications, usually graduate degrees, trained to design, manage and instruct the construction process. Skilled occupations require further education qualifications, often in vocational subject areas. These qualifications are either obtained directly after the completion of compulsory education or through "on the job" apprenticeship training. Technical and specialized occupations require more training as a greater technical knowledge is required. These professions also hold more legal responsibility. A short list of the main careers with an outline of the educational requirements are given below:  Architect - Typically holds a degree in architecture.  Civil Engineer - Typically holds a degree a civil engineering.  M&E Engineer - typically holds a degree in mechanical or electrical engineering..  Project Manager - Typically holds a greater higher education qualification, but are often also qualified in another field such as quantity surveying or civil engineering.  Quantity Surveyor - Typically holds a master's degree in quantity surveying.  Structural Engineer - Typically holds a bachelors degree in structural engineering, UNIVERSITY OF NAIROBI Page 15

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