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Tutorial
Copyright Virtual Management Simulations
Introduction
All the examples in the Tutorial are FICTIONAL, and are not related
to data being used in any Enginuity Competition, or for trialling.
Exit
The Challenge
Quit
Forming A Business Strategy
A
As
Aftersmartly
Having
GROWTH
We well
OBJECTIVE as
met designed,
the
the
a thorough
will now status
look well-executed
ofexample
review,
at an the
objectives, company,
thehave business
to
wesetting
following
of also
key strategy
develop
achieved
objectives
and a the
Navigate to
reviewing isstrategic
"Mainindispensable
strategy
are for for
set ASSESSING
the
goal
menu/Assessing
company the not
business
ASSESSING
of only
increasing
foreseeable PERFORMANCE
theto new
performance/Overhead
strategy. an
PERFORMANCE
the value
future, allof
analysis/Market
trend"
organization’s
management
the
aimed
To business,
Efficient long-term
team
atmanagement
increase :- the
market need
improving
operating
average success,
toprofit
the look
ofturnover
share. the
turnoverHeadof but
closely
company’s the to
Office,
each its
at very
the
reputation,
business.
QHSE
period. survival.
predicted
and and Simplyeconomic
global
increasing
Measurement having
the one
company
Departments. does
environment not price
share giveinyou?
Increase the average each period through a combination of :-
a
competitive
which
A the company
UK-based advantage. It isconstruction
is operating.
multinational the depth, quality has been and in flexibility
existence of a
forbusiness
just onestrategy that 2017
year, during
Increasing the value of the business
Identifying
(periods
COMPANY
makes the
1 to a
VALUE larger
difference.
4), share
known as theof the new work in the market,
History.
Navigate to "Main as outlined
menu/Assessing
Navigate to "Main above
performance/Performance
menu/Assessing summary"
performance/Performance summary"
Navigate to "Main menu/Industry information/The environment in which the company is operating"
Keeping shareholders happy
ByExpanding the 8company’s
the end of period company value infrastructure,
had increased by known
11%. as the capital base, to support more work
A Improving
new management the company’s
teamreputation
have taken over at the beginning of period 5 (2018 Quarter 1).
Competitive
The new management bidding in our need
team targettosectors
develop toasecure more jobs or business plan to :-
clear strategy,
To Grow
be able
KEEPING theSHAREHOLDERS
tobusiness
develop and improve
an effective HAPPY its valuethe new management team need to first look at the
strategy
Keep of
PROFITABILITY
MARKETING
status shareholders
the company happywhen they took control at the end of the History.
During periods 5 to 8 the company’s share price rose by 26%
Enhance the company’s reputation with clients
Increase
To from 1.17 to market
increase 1.48. share, and
the operating the number
profit of new jobs
of the business by: identified by :
To do this we refer to information shown in the Performance Summary.
The Increasing
value
Progressing
This of the
was influenced the
jobssize
company
by won of as
dividendthe isMarketing
measured
profitably
payments, asDepartment.
changes byin a
possiblenumber
company of assets,
by completing Market such
shareas
them on the company
or before
improved cash
schedule,
from 12% to 28%
The average capital base was
account,
allocating
value,
Primarily capital
forward base the
appropriate
profitability
targeting (infrastructure)
and personnel,
the debt
Building burden ofand investments.
& effective
the risk sector
company,
Commercial
increased from 4.07m to 4.58m
andNavigate
cost management
to to
guarantee and
a flow
"Main menu/Assessing oftargeted
new work as summary"
performance/Performance it is
and external
investments. world events.
the largest, with plenty of new work for the foreseeable future in both the UK and Overseas.
This would
Efficient also help toofbuild
management stronger
the Head relationships
Office, QHSE andwith clients in the
Measurement Building & Commercial
departments, to ensure
OBJECTIVES
sector in the
periods hope
5 to 8 of
the securing
that the staff can cope the company’s turnover.
During Head Office,repeat
QHSE work
and in the
Measurement future.
Departments were well managed.
However, REPUTATION
COMPANY it would be risky toprofit
put all During
the marketing
periods 5 to 8effort in one sector,
the company’s reputation sowith
a reduced
clients improved
By the
Developing end of period
an 8 the
effectivenet operating
strategy will had increased
involve ofacquiring a good understanding of :-
Therepresence
Bearing
are inwould
manymind thatbe
otherthemaintained
benchmark
areas that in
level the
was
could other
100%
significantly
be sectors.
the required
(client
considered, level to prevent
satisfaction)
and as jobsany
creating awereunderstaffing,
successfully
long-term allundertaken.
3
strategy is a
from 1.3% to 2.6%.
departments were more than adequately staffed.
The economic
complex environment
task. Indeed, the strategy in which will the
have company is operatingreviewed, particularly as the
to be periodically
TheThe NEW WORK
economic strengths
operating and weaknesses
environment
profit improvement is
was constantly ofchanging,
achieved because the business
:- andas our it original
currentlyobjectives
stands may not have been
By
The It
theis almost
end of impossible
period 8
job profitability (grossthe to achieve
market 100%
share of
had the required
increased
profit) improved from 4.5% to 4.8% levels
from 12% due
to to
28%.the required levels themselves not being
met.
During periods 5 to 8,The company is valued at 4.7m In line with an expected upturn in the construction industry
whole costs
Overhead numbers, and
were hence
reduced
The theend
By the
from
company slight
2.8%
share overstaffing
of period
to 1.6%
price did
is8 trading
thejob
of result
average
cost
at in a net loss
1.17turnover over
each the 4 had
period periods. However,
increased fromthis
8.2mis to 13.1m.
5 new
The contracts
strategy will consist of number of objectives relating
the overallto
in :-
worldwide, value of new work in the global
Thisnegligible compared
was achieved by
To to the
:-date thefigure
companyif thehave
departments
identified had
12% been
of is understaffed.
the new work the market (market share)
ONE
The jobYEAR
were secured. LATER,
profitability improved howfor a did
number we of perform
reasons against
market
including :- the
predictedobjectives
to steadily that
increase were
from set ?392m
currently
Identifying
new
size work
59% ofThis
the was achieved
in different
company’s by :-
sectors eachand
infrastructure locations (UK/Overseas)
in period 5 to around 437m by the end of period 9.jobs
Increasing the of the Marketing Department has
period. been utilised in procuring and progressing
Excellent
Expanding project
TargetingOUTLOOK
thethemanager
Building choice
The average turnover
& Commercial
Identifying more
in pernewperiod
particular, workto in
whichdate
the has beenfor
market
accounted 8.2m
64% of the new work identified. There was also a
Effective
GLOBAL risk management
infrastructure of the business to achieve growth
steady presence A gross
in other profit
sectors, of 4.5%
in line (of
thewith cost)
the was made
original on
strategy.the work progressed
Winning
Completing
For the UK
4new
jobsKeepwork
early
After
Construction
clicking
in
taking
a competitive
Increasing
Industryoverhead
it appears
Successfully
anywhere
costs that
bidding
company’s
and tax
there
winning newjob into
will
work
on
environment
infrastructure,
There
account
be a
the
the
period
building &overhead net
of
screen
appearsortocapital
be work base,
operating
uncertainty
commercial sector.
to
profit
during
advance
in alltosectors,
enable more
was
the 1.3%
Brexit
work to
particularly
(of
in be
theundertaken
cost)
process , but it is
Improving
Targeted profitability
investments Theto reduce
company through
joborder
costsbook effective
looks healthy,and with a forward workload management
of 21.9m
hoped that growth will begin to improve from
Progressing mid 2018
the work won onwards. Further afield, outside the UK, there is optimism of a
quicker global upturn for the Construction Industry.
Overview Of The Decisions To Be Made
MAKING OVERHEAD DECISIONS
LABOUR
PROJECT MANAGERS Overheads are the MAKING non-contract based support services required to
FINANCIAL DECISIONS
It is vital
INVESTMENTS to ensure the workforce
HEAD OFFICE, QHSE AND MEASUREMENT (labour) on the sites is sufficient
DEPARTMENTSenableMAKINGthe to company
progressJOBjobs in line procure
PROGRESSION
to identify, with theDECISIONS
company's
and and progressstrategy for job
work.
completion. Project managers are concerned with the overall planning and co-ordination of a project
Financial management involves :-
TheThe corestaff
business
in these of the company perform
departments from
is procuring inception
tasks andrelated toto
They consist of :- atjob
progressingcompletion
the Progressing
contracts,
company’s aimed and
a
jobs meeting
ifindone
awarded
progress the toclient's
successfully
:- requirements
the company
the company involvesand ensuring
will:-report a
A well-managed
healthy operating job willand
profit, be one
increase thecompletion
that either completes
company’s on time,However,
either
value. withinorcost
early on and
time.
there toLooking
are the required
alternative afterwaysquality
the standards. the
of increasing
shareholders’ value of the
interests
Headsuch
company, Officeas staff deal withinbuying,
by investing accounting
other concerns, whichand may 4issues
IT or may
key departments;
Allocating
not be an Marketing, Head
appropriate
construction-related. project Office,
manager QHSEtoand Measurement
oversee the job
QHSE staff deal with quality,
There are two types of labour that can be health & safety
A employed and
project manager
environmental
on a job with
Non-departmental
Allocating
:- well-matchedissues overheads,
labour
Trying to to such
progress
increase as
the
theidle
job labour
through
value of
experience for a particular type of job will handle and
theto idle
company project
completion by
Measurement managers BIDDING FOR A JOB
There are two waysstaff (quantity the
of increasing surveyors) ensure
available
company’s that
resources
value money
through more isefficiently,
recovered:-
investments making
from a
whilst the the
client
best
project use of the
manager withcompany’s
inappropriate assets
The company's own labour experience will impair contract efficiency.
INVESTMENT
Subcontract
The task oflabour RETURNS,
the Overheaddepending
Manager is upon how well
to ensure thatthe The
the Overhead
investment
level A number
of is Manager
staff Inelements
of
performing.
in each allisbusiness make
responsible
department up
areas
each foraperiod
:-bid. is ableperformance
monitoring to manage the to
company’s jobs in progress without any There deterioration
are a number in the of performance
project managers ofimprove
thethat jobs. company profitability
can be recruited with differing levels of
Planned
INVESTMENT
PAYING labour BENEFITS,
DIVIDEND
levels each that
TO period can
SHAREHOLDERS reduce
were expertise reduce
assessedin costs
during Setting
on jobs appropriate
in progress,
ESTIMATED staffing
namely
COSTS levels
build orfor
riskeach
costs. department
eachthe estimating
market sector, stage as definedin order by tothecomplete the contracts
career profile. on time, and
theyAscan thebe used asdoes
company guidelines
more work, in setting the labour
or turnover, so levels. Directing marketing effort into
the staffing levels in the Head Office, QHSE and Measurementcannot
The estimated design, the
build 5
andmarket
site sectors
costs, which be
departments
Theneedcompany's was originally funded fromadditional
amanagers
share issue, altered.
will to be increased to cope withProject
the thatand
workload. are shareholders
employed by expect the company a return areoneither
their investment,
:- in the
form of a dividend, related to how well the company is The non-departmental overheads are the responsibility of others, and
performing.
THE CAPITAL BASE areManager
related toPool
ONCOSTS jobsawaiting
in progress.
In the Idle Project allocation to a job
Any dividend
MAKING
MARKETING paid comes out
PROCUREMENT of thecash
DECISIONS account,
Allocated to anand reduces
ongoing Anjobthe value of theadded
additional cost business.to a bid to cover the contract costs
The capital base is the company’s investment in infrastructure over and above the design, buildetc),
(plant, equipment, buildings andand sitedetermines
costs, and includes :-
the level of work that the company can have in progress at any point in time, which limits the value of work that
The The
Each dividend
period the
Marketing paid to shareholders
company is
areoffered is one
aladder
number oftotheof key
jobsfactors
for whichthataaffects the company share price :-
bid is invited.
can be wonDepartment
on the Procurement on theScreen. winning and progressing
Project contracts.
manager allowance
Insufficient dividend will disappoint the shareholders and have a negative affect on the share price Contingency for risk
TheAny
Each jobs
period were
the identified
marketing bystaff
thebase
marketing
identify new department
construction in jobs
the The
previous
in the period
global depending
market, known upon the sectors into which
as prequalification, which thethe
changes
Sufficient to thewill
dividend capital
keep the affect the
shareholders cash account.
'content', with nocapital
change base in canshare
the be :- price
marketing
company effort was directed.
Amplemay then decide to try and win through the procurement
dividend will make the shareholders happy, and have MARK process.
a positiveUP affect on the share price
INCREASED, reducing cash reserves, in order to supportThe further growth,
margin, and to
or mark up,secure
is themore
profit new to beworkmade on onthethe job.
There are two
Procurement types of
Screen.jobs that
There can
are be bid
limitationsfor :-
on the increase possible
All jobs belong to one of 5 market sectors: Industrial, Building and Commercial, Transport, Energy, Water and Sewage. each period, which can vary by period.
The affect on share price is determined by the % of the company's current equity value that is paid as a dividend.
Build Only, whereincreasing
the client has already hadwhich the design The competition
produced, and for
the contractor each job comes
is for
only from
responsible a numberif the of
orfor known,
build
Thevalue
DECREASED,
and number of jobs that cash thereserves,
company can prequalify may be desirable
for
and in any if money
unknown, period rival
is governed
is needed
companies. byother
a
Each
things,
number of factors :-
The
Designcurrent
capital and equity
baseBuild, value
is notwhere is the
being the
fullynumber
contractor
utilised. ofThere
shares
has in limitations
circulation
responsibility
are for multiplied
both
on thethe ofbythe
% design the current
and
capital thebaseshare
buildthat canone
price. has their
be sold own unique
off each
Theperiod,
size of which
the Marketing
can varyDepartment
by period. (number of company staff) profile and bidding history, and a careful assessment of them is
In
Thebothsize
completing
cases
Where the marketing
Keep clicking anywhere on the screen to advance
of theit global market
is assumed
effort
(value
that and number
the estimators
is directed
haveof jobs
produced required
available) an accurate to determine
assessment the margin to betoadded.
of the costs be incurred in
the job, along with planned (5 potential
labour levels sectors
for each of work)
period of the planned duration of the job.
Financial Decisions
Financial management involves :-
Looking after the shareholders’ interests
Trying to increase the value of the company by making the best use of the company’s assets
In all business areas monitoring performance to improve company profitability
Company value
Cash account
Overdraft limit
Gearing ratio
Capital base
Calculating capital employed
Investments
Corporation tax
Profit definitions
Dividend
Factors affecting share price
Making Financial Decisions
Apart from paying dividend, each
Navigate to "Main period the
menu/Making
Finding Financial Manager
decisions/Financial
an investment opportunity
In addition
The value that
oftothe
the could
decisions/Assessing
offers
current
good
Company choose
financial
investments,
returns
at any tois
and
time leave
performance/Share
there
benefits the
price
areis
measured also
notbyrest
its of
analysis"
aalways
the financial structure of the companypossible, unchanged,
and often keyassets, The
and and
decisions
selection dividend
simply
ofhave
other
the to payment
hope
companies
otherbemain
made comes out
toresponsibility
earn some
balancing
that can of
beof the
risk cash
interest
invested
theand account,
from
reward.
in, and
Financial
these and
can the
be value
viewed of the
using company
the Add is reduced
new by
investment 117,000.
option.
a credit balance in the cash account.
INVESTMENTS Manager is to make the best use of the assets to try and
The core business of the company is procuring For example, an investment
and progressing increase opportunity
contracts, the and company may
if done arise
value. that offers the
successfully substantial
company build
will cost
report
savings in the Building and KEY
Commercial POINTS sector, in which the company are very active.
a healthy operating profit, and beincrease the company’ssince value. there However, there are alternative ofways of increasing the value
However, this would short-sighted, However, the investment Afterreturns are
Because
paying may other
not
dividenddividend
be ways
very payments
good. manipulating
the assets consist of :- reduce company the value, aof
the company, such
company’s assets to improve the company’s value, involvingas by investing in other concerns, which may or may not be construction-related.
the transfer of funds between
careful balance has to be struck between paying the
cash
INVESTMENTS account,
There are two THAT capital
ways CEASE base
of increasing TRADING and investments.
In this scenario,
the company’s valuethe through Financial
CASH dividend
Manager
investmentsIN THE :- levels
must decide
BANK to keepifshareholders
(-349,040) the net gain from happy, cost whilst not
Investment concerns that are reductions outweighs the This riskcan compromising
thateither the investment the
be in credit may financial
or in run stability of
into difficulty,
overdraft, the
when itand business.
is cease
Investment returns; thatperforming
change the badly value can of the investments
Since period 1 the company has paid dividendtrading, of 2% of
a decision equity every
that could period
impact (8%
a on per
the annum), and this has kept the
Although
go bust,
INVESTMENT and cease
Investment these changes
trading.
benefits;
BENEFITS that reduce do not costsimmediately
on jobs in progresschange consideredthe value of profitability
liability. the company, of the company. by the end of
shareholders content, as we can see from the Management consultants The overdraft report. limit is defined in the Industry information.
the As
DIVIDEND period the affects of the changes will have been felt, including, amongst others
well as investing in other companies to yield a better return than can be obtained from the bank, there :-
is potentially an
How even do
We can we
more know
examine
lucrativeif one
each of
reason our
of the for investments
company’s
investing may
Dividends
In period 5are we? taxable
will continue payments to pay declared
dividend bycurrent
in company's
otherinvestments
ata this
concerns. by directors
level. board of
using theand Display givendetails option.
to its shareholders, normally quarterly.
cease
CAPITAL trading
BASE CAPTAL BASE (4,173,998)
They Capital provideBase an incentive affecting to own the stock value in stable of jobs companies thateven canThis ifbetheysecured
isby
are not experiencing
thethe company’s during the much bidding
growth. process
TheIflevel enough of futuremoney workload
is invested (turnover)in particular that can be undertaken
concerns, costs may is limited be reduced sizework
on of the ininvestment
company’s
progress incapital
in plant, equipment,
specific base,
sectors. as shown facilities,
on
The
the
AnKEYInvestment
clues POINTS
increase
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isinformation
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Manager and
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review operating
theetc (infrastructure),
financial profit
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which
of the cost
determines reductions
the level of
The dividend expectations
Shareholder paidScreen. to shareholders can change is one asof the theoperating
key factors that affectsofthe company share price :- may be higher or lower than
should There beare carefully
two monitored
company,
types of cost and eachdecide
reductions period upon :-for signs
any changesperformancethat need work to be the
that made. company
the company changes,
can undertake.and
All
MAKING
thethe the
History financial
EFFECTIVE
level.may decisions
Thisbe will
USE have an affect on the cash that needs to be paid to keep them happy. may already be in overdraft
account, and it may go into overdraft, or it
The
that
The from long-term
Insufficient
capital company base dividend
of 4,173,998 inaffect
objectives
will
OF THE
trouble.
disappoint
can
the level
support
COMPANY’S
of the
of dividend
the
up Financial
shareholders
to
ASSETS
41,739,980 andofthe Manager
reduce
workload. the share
Since are theto
price look
current after
forward the interests
workload is only 21,872,190 of
Build
A number the cost last One are
period.
of choices reductions; of available
the thesemain :- responsibilities
are earned by investingof in businesses Financial that supplyManager is
commodities to look that are used directly in the
the shareholders, and make effective decisions INVESTMENTS to (892,066)
ismanipulate theare company’s inassets
(the
SomeSufficient
value of dividend
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the
to keep
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interests
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on ofthe
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Progression
company’s
:-large with no change
Screen),
shareholders. in
there the isshare
still price
scope for winning more work.
IfThe
Consider
INVESTMENT
an investment
constructionthe example
RETURNS
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phase, such
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in
ceases
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the
as Zenor
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acompany.
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account growth.
increase
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used the share
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in
increases the worktransport
vary
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period
undertaken.
of all the in depending
This
current
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investmentsfrom the
affectwhich the
theperformance
phrase
the following
cash in
account, theof company’s
an
decisions investment,
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since profile
made
money and thateither
states
:-is being increase
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moved specialising
or reduce
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POINTSsizea
off letter
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is, deteriorating
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if the cash
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course.
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are
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Industry information. cost reductions.
Quit
Company Value
The value of the company at any time is measured by its assets and liabilities, which consist of :-
Interest is earned/paid on the cash account balance at the beginning of the period. The
prevalent interest rates each period are defined in the Industry information.
CREDIT INTEREST
OVERDRAFT LIMIT If the cash account is in credit, interest is
The cash account can be overdrawn earned at the annual rate shown.
up to the overdraft limit. If this is
exceeded steps need to be taken to OVERDRAFT INTEREST
try and reduce the overdraft. If the cash account is overdrawn, interest is
paid at the annual rate shown.
Quit
Gearing Ratio
The gearing ratio is the ratio of the company’s liabilities, when the
cash account is overdrawn, to its assets, and indicates the debt burden
of the company.
Liabilities
Investments
Capital Base
0 indicates no liabilities
1 indicates serious debt problems
The company will be viewed as being vulnerable to both interest rate rises,
INCREASES and its ability to service its debts from its future profit flows. Consequently,
this will have a depressing affect on the company share price.
Conversely, if the gearing ratio decreases then the company will be viewed as
REDUCES
being more financially sound, and the company share price will increase.
Capital Base
The capital base is the company’s investment in plant, equipment, buildings etc, and
determines the level of work that the company can undertake.
One of the key company performance indicators is capital employed, which measures how well
the capital base is being utilised over a period of time.
Changes to the capital base are the responsibility of the Financial Manager, and the Industry
information shows factors that affect the capital base.
DEPRECIATION
Each period the capital base
WRITING DOWN depreciates by a %, reducing the
Any increases in the capital base can be overall value of the company. This
used to reduce the company’s tax occurs at the end of the period.
burden, known as capital writing down.
Calculating Capital Employed
The company’s capital employedAtmeasures
the Navigate how
to much
"Main4
start of period of theperformance/Financial
menu/Assessing
the company’s company’s
initial capital base
analysis/Financial
forward workload was (plant,
performance"
15,963,660. This
equipment, buildings etc) is being was
utilised.
based on the turnover still to be completed on the 4 jobs in progress at the
start of the period.
Not utilising the capital base is a waste of resources that could be directed elsewhere, and can
5 jobs were bid for, and 3 were secured, which took the cumulative forward
hinder growth. workload post-bidding to 25,951,610.
For Period 4 the company’s capital employed was 61 %, indicating that the
capital case was being reasonably well utilised.
The answer can be found by looking at the Procurement Analysis for period 4.
Quit
Investments
The core business of the company is procuring and progressing contracts, and if done successfully the company will
report a healthy operating profit, and increase the company’s value.
However, there are alternative ways of increasing the value of the company, such as by investing in other
concerns, which may or may not be construction-related. Such investments can :-
Offer a better return than can be obtained from the bank
Provide benefits for work in progress, in the form of reductions in build and risk costs
Each period a number of new investment opportunities may arise, adding to the list of available investments, and
for each one some key information is given to help in making investment decisions :-
The investment profile describes the concern.
The Past Performance gives the % return given in previous periods to all investors, and details any money the
company invested, and any build cost savings gained.
INCREASING INVESTMENTS
The increase in a single
investment each period cannot
exceed a given amount,
depending upon the size of the
investment concern.
If the company makes a operating loss before interest and tax no corporation tax is paid, and any
capital allowances are carried forward to future periods.
Capital Allowances are acquired by investing in the company’s capital base, and are calculated
on a ‘written down’ basis; the rate of writing down allowances is shown in the Industry information.
The Operating
Increased/reduced by changes in the company’s capital base Profit Before Interest & Tax was then subject to Corporation
Tax of off
Reduced by using up capital allowances that are written 63,550. How
by 25% perwas this calculated
annum (6.25% per?period)
Weiscan
Capital allowances are not used if an operating loss use the drill-down to investigate further.
made.
In period 4 an operating profit before interest & tax of 337,589 was made, and as a result capital allowances were used.
These amounted to 6.25% of 317,449, the amount still to be written off, giving the figure of 19,841.
-
Measured value across jobs progressed Retentions held from jobs progressed
Gross Profit = Retentions repaid from completed jobs Costs across all jobs progressed
Early completion bonuses
The dividend paid to shareholders each period is one of the key factors that affects the share price of the
company.
The equity of the company at any time is the overall share value.
EQUITY = NUMBER OF SHARES x CURRENT SHARE PRICE
The dividend paid is expressed as a % of the equity of the company, or the earnings per share. This can be :-
Insufficient to satisfy the shareholders, which will reduce the share price
Sufficient to satisfy the shareholders, which will have a no effect on the share price
More than sufficient to satisfy the shareholders, which increase the share price If the cash account is in credit,
interest is earned at the annual rate shown.
Factors That Affect Share Price
The company’s
Consider share
the following price
example, is one
where of the
a company key
isNavigate
in performance
period indicators
5. menu/Industry
to "Main in measuring
information/World events that have the success
affected the company"
or failure of the company, with a rising share price signifying increasing industry confidence in
Since period 1 the
the fortunes ofshare price has fluctuated, with periods of improvement (2 and 3), and
the Company.
periods of deterioration (1 and 4).
The share
We will price
now look is influenced
in more by has
detail at why this internal
been thefactors,
case. related to the company’s decisions :-
DIVIDEND
The level
COMPANY
GEARING
PAYMENTS
VALUE
RATIO of dividend paid to the shareholders Navigate to "Main menu/Assessing performance/Financial analysis/Share price analysis"
FUTURE
Dividends PROFITABILITY
are taxable payments declared by a company's board ofaffect
directors and given
Changes
Changes
The final in the in
internal theof
value
factor value
the
that ofthe
company
affects the company
from
share periodis to period also the share price.to its shareholders, normally quarterly.
Another
They factoranthat
provide affects
incentive the
to share
own price
stock is price
in stable changes
the changes
companies in the
ineven
the futuregearing
if they ratio.
profitability
are not (forward much
experiencing margin) of the company, which is
growth.
Changes
based upon the in the
company’s future profitability of the company
IfDividend
The thegearing payments
company value
ratio is are
falls
the in awork
based
ratio of theincompany’s
upon
period, progress.
the current
it will have share price.
a depressing
liabilities (cash effect on
account share price
overdraft) as shareholder
to its assets and industry
(capital base confidence
and investments, and
falls.Changes
Conversely, inif the
the debt
value burden
increases of
then the Company
confidence will improve, and the share price will increase.
indicates
At the theofdebt
end burden of the company. Ifwas there are established,
no liabilities,there
the gearing noratio is 0.
The equity of period
the company 1, whilst atthe
anycompany
time is the overall being share value i.e., thewere
number ongoing
of sharesjobs, and hencemultiplied
in circulation no forward
by margin.
the
As However,
can be during
seen the periods
trend 2
hasto 4 when
been some
mixed, work
with was
adverse secured,
affects forward
on share margin
price fluctuated,
in periods increasing
1-3,rate rises, and its ability to3,service
then a in periods
positive 2 and
affect during but
and
If external
the gearing
current price ratio
per share.factorsthe
increases (world
companyevents),
will be viewed outside
as beingofvulnerable
the company’s control.
to both interest
falling
period 4 back
which in period
would 4,
havebut overall
helped tohaving
boost a
thepositive
share affect
price. on the share price, as reflected in
its debts from its future profit flows. Consequently, this will have a depressing effect on share price. Conversely, if the gearing comments in the Management
consultant's
ratio
There is a levelreport.
decreases then the company
of dividend, measuredwill be asviewed
a % of as thebeing more
equity, financially
at which sound,
the share priceanddoes
the share price will
not change. increase.
Paying more than the
Comments in the Management consultant's report provide further evidence of the affects
‘equilibrium’ level will cause the share price to rise, but paying less will be not be well received by the shareholders, of the company value changes.
and the
As can be seen,
price will fall. the cash account was overdrawn in periods 3 and 4, when the increasing gearing ratio had a negative affect on
the share price, albeit a slight one as can be seen from the Management consultant's report.
Dividend payments of 2% of equity have been made each period, and the affect has been “Shareholders are content with
IN SUMMARY
the level of dividend paid”, implying no change to the share price.
Both internal and external factors have different levels of impact upon the company share price. It may be, for example, that the
share price rises even though most of the factors have negative affects, but the positive affect of one factor has the greatest
If dividend has had little affect on the share price, what about other factors ?
impact.
Careful examination is needed of the company data to determine which factors have had which affects, and to what level :-
EXTERNAL FACTORS
External factors1that
During period affect the
the share company’s
price fall was down sharetoprice
a dropareincaused
company byvalue.
world events outside the control of the company’s
management
Even though team.
company value fell further during period 2, this was
All the world events that affect the company can be viewed in the more thanIndustry
offset by ainformation.
rapidly improving forward profitability and
external world events, and the share price rose.
For example,
During
price
factors
by were
just over
Keep clicking anywhere on the screen to advance
periodin3period 3 missile
the company
offset
2%.
testing
value by North
fell further, Korea
and therecaused jitters
external across
events hadworld markets,
a negative
by a rapidly improving forward profitability, and the share price rose again.
andonreduced
affect the company
share price, but againshare
these
During period 4 company value improved, but this was offset by an increasing gearing ratio, and falling forward profitability, and
the share price fell slightly. Quit
Overhead Decisions
Overheads are the support services required to enable the company to procure and progress work and consist of :-
4 key departments; Marketing, Head Office, QHSE and Measurement
Non-departmental overheads, such as idle labour and idle project managers
The non-departmental overheads are the responsibility of others, and are related to jobs in progress.
Head
On
We
Bearing inOffice
have
the Job
seen
mind the staff
that settingdeal
benchmark
Progression ofwith
adequate
screen, and buying,
staffing
3 assuming
Head Office accounting
levels inbeing
staff the current
appropriate and
period
able to
labour ITforissues
support
allocations
the Head
11.8m
have of
Office, QHSE
turnover,
been made,ifthe
and Measurement
theexpected
turnover isturnover
expectedfor
toDepartments
Consider
This thewe
beperiod
12.3m, involves
following
the number:-have
situation.
currently 3 Head
of staff Office
required staff, /all
is (12.3 are xcompany
11.8) staff and up
3 = 3.1, rounded there
to 4are no agency
staff, staff. of staff is not
since fractions
each job is staff
QHSE
allowed.
calculated
dealaswith
followsquality,
:- health & safety and environmental issues
ItHow
is thedo beginning
we knowofifperiod 3 staff5,will andbe the Overhead
enough Managerthe
to manage needs to decideturnover
company’s upon thethis staffing
periodlevels
? for the Head Office, QHSE
1. For each
Measurement department establishing the level of turnover that each person can support, known as the benchmark level,
and
(TotalMeasurement
labour on site * staff
Departments.
expected (quantity
value persurveyors)
man period) ensure that money is recovered from the client
To answer
Since which this
therecomesarequestion
from the
currently we must Office
do twostaff
3 staffing/turnover
Head things :- during
levels
employed at period 4.
the moment, an extra 1 person needs to be recruited to cover
The
the principal
slight for
shortfall,setting
and the staffing
to facilitate level applies to all 3 departments, so we will concentrate on the Head Office
1. all
For Assess
jobs thethe
in level of turnover
period this that this
equates each
to there
:- person are cantwo support
choices :-
Department.
2. Complete the labour allocations for the current period on the Job Progression Screen, and calculate the expected
The taskmore
2.Employ
Determine
turnover ofin the
thecompany Overhead
expected
the current
staff,
period.Manager
bearing
turnover in thein mind
periodthat is there
for tojobs
all ensure
is a that
limit progressed
being on the level
the number of newof staff staff
company in each
that can be
Job 4: (
employed eacheach 44 x 50,485)
period, period =
as definedis 2.2m
in able
the Industry information (3 for Head Office). jobsNew company staff also without
incur a
department to manage the company’s in progress any
Job
KEY 24:
recruitment
POINTS ( &77 x
training 60,279)
cost in =
their 4.6m
first period.
deterioration
Job
3. Use the information
47: ( 25 in54,040)
x the from performance
step 1, and the expected
= the1.4m of theturnover jobs.level in step 2 to determine the required staffing levels
The turnover
Employ agencyof the company
staff for the
for each department in the current period. in
current period
period is
only. the amount
Agency of money
staff attract the company
a higher receives
salary from progressing
than company staff. all jobs in
Job 55: and
progress, ( 83 x 36,367)
is directly related = 3.0m
to the amount of effective labour on each site.
Since59:
Job the company
( 30 x is37,039) looking to=increase 1.1m turnover in the next year, its more cost-effective in the long run to increase
We KEY
the will POINTS
now look
company’s own at an
staff rather example
than use agency of how to so
staff, setweadequate
will employ an staffing
additional levels
1 companyfor each department.
staff, which is within the
Total: 12.3m
The benchmarks
limitations for new staff. in step 1 will not change, but the company’s expected turnover will vary each period.
Hence, the expected turnover in period 5 across all jobs being progressed is 12.3m.
OVERSTAFFING
UNDERSTAFFING
Overstaffing of the Head Office, QHSE and Measurement departments, above the required level, has no negative affects across
Understaffing
jobsWhenbeing of the Head
theprogressed,
decisions but Office,
have beenincur
does QHSE
processed andfor
unnecessary Measurement
the period,
additional departments,
and the results
overhead below the required
received,
costs. level, will have
the Performance negative affects
Summary/Overhead
across all jobs being progressed, namely :-
performance can be used to review how effective the staffing levels have been.
The example shown indicates that staffing in all 3 departments was more than sufficient i.e., well above the 100% optimum level,
The
with Head Office, net
anoptimum
overall an increase
setting
loss. is 100% in job of coststhe (build
required costs)
level allocated.
QHSE, an increase in job costs (build and risk costs)
The
KEY Measurement,
net affect shows
POINTS a reduction in measured
the affect on company valueprofits
(turnover)from the staffing levels allocated. If the optimum levels are set the net
affects would is
Understaffing beto0.be avoided at all costs, and it is better to slightly overstaff if the optimum level cannot be met due to the
ASSESSING
Understaffing THEis aLEVEL OF TURNOVER
false economy. It mightTHAT reduce EACH PERSON
overhead costs,CANbut SUPPORT
will also reduce job profits, resulting in reduced
rounding of staffing levels to whole people.
Referring
operating to the
profits Head
for office,
the company. QHSE and Measurement performance option, period 4, the last period of the History, sets the
Because the required level of staffing normally has to be rounded upwards, due to not being able to have fractions of
benchmark staffing/turnover level The i.e.,staffing
the number levels of forstaff
the required
QHSE and Measurement
to support the levelDepartments
of turnover are
without impairing performance.
staff, it is almost impossible to be exactly at the 100% optimum level, but it is better to be slightly over than under, as
The example determined in the same manner, based upon
shown indicates that staffing in all 3 departments was insufficient i.e., below the 100% optimum benchmark staffing levels and level.
in the example.
We can see that 3 staff can copeanticipated with 11.8m turnover of turnover. levels.
TheWecompany
willonnot
Keep clicking anywhere on the screen to advance
The expected value (turnover) per man period is
may
look inhave
more saved
detail on overhead
Having
at what performed
happenscosts,as but
the thestaffing
reduction
necessary
if :-the in job set
calculations
levels profit
an
are(increased
extra
lower costs is
1 person and reduced
required
(understaffing) value)the
inthan is
shown
This is the the Display
benchmark job details
for affect
all future and is defined
staffing levels for the anyHead Office Department.
reflected in the overall net
required levels, or higher (overstaffing) (loss).
each Department to prevent shortfall.
(bid submitted during tendering / total man periods) Quit
Overhead Staff
Overheads are the support services required to enable the company to procure and progress
work, and consist of :-
and are subject to costs and limitations shown in the Industry information.
STAFFING LIMITATIONS
There is a cap on the number
of new company staff that can
COSTS (PER PERSON) be employed in a period.
Both company and agency staff incur an
annual salary, which is higher for agency
staff.
For new company staff only, there is a
recruitment/training and payoff expressed as
a % of the annual salary.
Idle Staff
Project managers can reside in the pool for a number of reasons :- Labour can reside in the pool for a number of reasons :-
They may have been deliberately recruited by the personnel They may have been deliberately transferred there by
manager prior to being used on site, perhaps to prevent other the construction manager, and not reallocated to site.
companies from employing them (Later Years). Own labour is automatically transferred to the pool
Project Managers are automatically transferred to the pool upon completion of a job.
upon completion of a job.
It is always more cost-effective to keep the idle labour
pool as low as possible, using the company’s own fully-
trained staff on contracts that are in progress.
Making Non-Departmental Overhead Decisions
As
IDLE well
IDLE as theMANAGER
PROJECT
LABOUR departmental
POOL (JOB POOL overheads,
PROGRESSION
(JOB PROGRESSION
SCREEN) thereSCREEN)
are also non-departmental overheads :-
Project
The company’s
managers own employed
site-based
by thelabourers
companywho whoare arenot
notcurrently
currently allocated to a job
Idle BIDDING
in allocated
progress project
to job
are inmanagers
COST (PROCUREMENT
in progress
held the Idleare held(Job
Project the Progression
inManager SCREEN)
Idle Labour
Pool. Pool. Screen)
MANAGEMENT CONSULTANTS REPORT
Each job that the company bids for incurs a bidding Each period an external management consultant carries out
Idle cost, labour poolupon
depending (Job theProgression
approximate value Screen)
of the
Idle labourers incur a cost whilst they are in the idle pool, so it a detailed review of the company’s activities, looking in
They can be placed
job, defined there if :-
in the Industry information.
Bidding
makes sense to cost
either(Procurement Screen) contracts or
allocate them to appropriate particular
pay for any problem areas.
Athem
job has just finished, and the project manager is
off, which is the responsibility of the Construction Manager. placed in the pool until the
Management
company consultant
decides what to do with him. report The review is in the form of a report, and this has to be paid
KEYproject
The POINTS manager has been recruited from the market for use for,onthe cost being defined in the Industry information.
a future
We Sometimes andathe
will take
contract, decision
briefislook
a company made
doesat to deliberately
noteach
want to riskkeep
one. losingexcess
them to a rival.
labour in the idle pool. This may happen if the company is
expecting
Project managersto winmust
a labour-intensive
be paid their salaryjob, and its cheaper
whilst they aretoinpaythe them
idle pool, which is a
for being idle in the short-term, rather than incur
wasted cost, and it is important to try and allocate them to appropriatepotentially higher contracts,
costs for laying off and then retraining
which is the responsibility of the Personnel Manager. new staff in the future.
The cost per annum of keeping one idle labourer is shown in the Industry information.
In this example the cost of keeping 1 idle labourer each period is 1,500 (6,000 / 4).
Keep clicking anywhere on the screen to advance
Hence, for 243 idle labourers the cost in the period is 243 x 1,500 = 364,500.
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Forming Client Relationships
Each period a number of jobs are available in the
The company canmarket.
influence The relationship
their
Navigate tocompany’s withmarketing
a client
"Main menu/Assessing effortofhistory"
in a number
performance/Client will
ways :-
determine how many of the jobs thePositively
company by identify
:- (prequalify for).
The Client History provides a detailed
Identifying and winning jobs
analysis of the company’s current
Each job has a client, in either the public
PROCUREMENT or private
Submitting sector,
competitive for whom
bids, even the
if jobs are not work
securedis to be carried
relationship with each client.
out.
As time passes, and depending upon economic Managing jobs well, and completing them at least on schedule
conditions, clients may look to preferred bidders,
Negatively by :-
and if the client relationship is not strong enough
Submitting uncompetitive (poor) bids
the client may refuse to accept the bid.
Managing the jobs poorly, and completing late
Not keeping jobs on schedule
In this example, the company currently have a fairly good relationship with NSW
PREQUALIFICATION Energy, based upon a number of factors.
The level of a company’s relationship with a client can determine whether or not the
company
Considerprequalifies forexample.
the following new work with the client But:- why is the client relationship so important ?
PERFORMANCE INDICATORS
The
If thecompany have prequalified
client relationship
Thehas for a relationships
company’s job with
deteriorated, NSW
‘poor’ Energy.
or worse,
with then
ALL the company
clients forms onemayof the key performance indicators
not be able to prequalify for work
upon which with a client.
the progress of the company
As the company prequalifies, tenders for and secures work withisthe
measured.
client a relationship is built up between the two parties.
The
If thecurrent
client relationship
state of thehas improved tocan
relationship a certain level, prequalification
be analysed using the Displaymay be Details option.
Client
possible even if the company’s marketing effort may not have previously identified
a job i.e., preferred bidder status with the client.
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Procurement Decisions
Each period the company is offered a number of jobs for which a bid is
invited. These jobs were identified by the marketing department in the
previous period depending upon the sectors into which the marketing effort
was directed.
Making Procurement
Decisions
Successful Tendering
Period 1 of Period 3 of
the job the job
Period
5 6 7 8 9 10 11 12
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Job Details
JOB NUMBER TYPE
A unique number that identifies a job, There are two types of job :-
ranging from 1 (earliest jobs) onwards. PERIOD IDENTIFIED BO (Build Only); traditional type of job where the client is
The period in which the company responsible for the design, if appropriate, and the contractor
identified the job through marketing effort. is only responsible for the build.
DB (Design and Build); the contractor has responsibility for
both the design and the build.
COUNTRY/LOCATION
APPROXIMATE VALUE Where the job is located.
The anticipated cost of the job TOTAL LABOUR MANNING
rounded to the nearest million. The total number of man periods
required to complete the job.
DURATION
SIZE The planned duration of
The size is based upon the the job (2 to 5 periods.
approximate value :-
Small (range 1m - 6m)
Medium (range 7m - 13m)
Large (range 14m - 25m)
DESCRIPTION
A brief description of
what the job entails.
BIM offers
BIM is an enormous
acronym for gains Building
in saving Information
in cost and time, Modelling.
much greater accuracy in
For Design and Build (DB) jobs using a BIM model,
estimation, and the avoidance of error, alterations and rework the consultant’s BIM experience canto
due have a major affect on the quality
information
BIM The
MODEL BIM status
AFFECT column indicates
WHEN BIDDING if a job is using a BIM model.
Itof describes
the BIM model produced, which can then impact upon the build costs when the job is progressed.
loss. the process of designing a building collaboratively using one coherent
system
For
For KEY
Design 79,of
job POINTS computer
& aBuild jobs,and
Building models
at the bidding rather
Commercial stage than
a consultant
contract, as needs
the Harper separateto setshave
Partnership of drawings, which
been chosen due is expertise over many
to their
the
To
be achieve
traditional
Both inBuild
allocated
years all the
Only
thetoBuilding
producemethod.
(BO) benefits
and
the
and Design
design,
Commercial BIM
and if aoffers,
& Build
sector, jobs
BIM model
and everyone
(DB) can
is
since theuse
jobais
being in the BIM,
BIM
using architecture, engineering
their significant BIM experience.
andmodel
used construction
for the .job, such asindustries willclient
with job 79, the have toinsist
will learn thattoa work in fundamentally new ways.
It
Theisrisk
a digital
consultant
‘structuralrepresentation
designer is chosen with some ofBIM
defects’ struck in period physical
3, but theand
experience. functional characteristics of a facility,
use of the BIM model reduced the impact cost by 22%, a significant
and saving.
cost a shared knowledge resource for information about a facility forming a
reliable
We will basis
If job now
79 is for
takedecisions
secured, aandlook
thenduring
at howitsBIM
progressed, life-cycle;
we canis used
use thedefined
within asEnginuity.
Consultant existing from
history option earliest if our choice of
to determine
conception
KEY POINTS
the Harper to demolition.
Partnership is justified.
The cost reductions are graded depending upon the particular risk, and the reductions to date across all jobs can be found in
the Main menu/Assessing the performance/Job analysis/Risk analysis forexperience
all jobs won.
At theClearly we made
technical core right
of BIMchoice as thesoftware
is the Harper Partnership’s
that BIM
enables has helped
3D modelling andto reduce build costs by
2.38%, a significant saving.
information management. Extensive use of the software eventually leads to a
more complete understanding of the technical core.
If a consultant is allocated to a Design & Build job using a BIM model
who does not have any BIM experience, the client will reject the bid
due to “Consultant had no BIM experience”, as shown.
BIM MODEL AFFECTS ON RISK COSTS
If the job is using BIM (Building Information Modelling), there may be an opportunity to reduce the impact cost if the risk occurs.
For example, for job 3 there is the risk of ‘structural defects’, and these may be identified in the BIM model, and the threat
mitigated.
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Job Risk Glossary
TARGETED
Navigate Navigate
"Main to "Main
INVESTMENTS
toNavigate
menu/Assessing
to "Main menu/Making
menu/Making decisions/Procurement
performance/Job
decisions/Procurement decisions/Set
analysis/Risk analysis
decisions/Display the
for all jobs
jobbid”
won"
details”
Target investments on the Financial Decisions Screen into risk
management
If the decision is made to bid for the job, what mitigating consultants
actions can to the Construction Industry can reduce any risk
be taken to deal with each risk, and the potentialcosts
costincurred.
incurred ?
The action taken depends upon each risk element. The profile of Phoenix Horizons shows that they appear to be an ideal
company to invest SCENARIOin for reducing3: ‘SENSIBLE’ risk costsRISK on Transport
CONINGENCY contracts, providing
that we are undertaking If a sensible jobs in the
level Transport sector.
of contingency is added the bid will still be
competitive, and the company have partly covered themselves
Although thereSCENARIO inarecasea number
the risk2: of risk RISK
occurs.
FULL management CONTINGENCY companies, many
As well as targeted investments, risk costs incurredmanagement can be reduced SCENARIO by employing1:doof NO a good
RISK project manager, who will be notable
consultants
If the full cost notthe risk CONTINGENCY
specialiseis added in this
then area,
there and would
is less chance reduce
of
to identify and address the potential effects of the risk. risk costs on job If no risk
scompanycontingency
undertaken. is
The clues added then there is a good chance of the
Since
the there iswinninga 40-50% thechancejobalways
since lie
theinrisk
of their theoccurring,
bid investment
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based
probably be
company
less winning the
uponcompetitive
probability it isjob
than theirsince
reasonable rivalstheirto bid
who covercould
may 45%
havebeoffar more
the
includedrisk some,
cost, or
Conversely, risk costs may be increased if the project manager
The Industry but is inadequate,
competitive
information than or if
theirthe QHSE
rivals who Department
would is
probably understaffed.
have included
74,250.not the fullshows the reductions possible.
risk contingency.
some risk contingency.
In addition, where BIM (Building Information Modelling) KEY POINTS has been If the used
riskon a job, the some risk costs may to be reducing by 55%
usingof
However, ifoccurs,
the contract company
is secured has and find
the theriskother
occurs the
the BIM model, but this will not apply to all risks. If the company However,
arerisk
the if
already the
cost, contract
investing
orwill 90,750, is
in an secured,
whichappropriate and
eats into the
riskthe risk occurs,
consultant
margin. e.g.,the
If the
additional cost have been covered, and will not affect
BIM REDUCTION
that serves IN additional
theIMPACT
sector
risk does cost
COST
of a
not job could
being
occur seriously
bid
then for,
the thenaffect
74,250the the
risk
is job profits,
contingency
additional and
may
margin. be
MITIGATING
The Risk Analysis LIKELIHOOD
for allACTIONS
jobsOFwon OCCURRING
TO REDUCE
and progressed COSTS a the
RISK displays job margin. If the risk does not occur the margin would
detailed risk analysis for all jobs progressed, covering both
No action reduced adversely affect the cash flow of the company.
costs incurred As we The
and have
likelihood
delaysseen, setting
of the risk
to jobs. ‘sensible’
occurring,levels orneeds
level
of risk to
below
of be be taken
the
contingency
risk, ‘sensible’
as inthea cost
issignificantly level.
bid reductions
can This
keepwould
improved. aremake
a bid madethe chances
competitive in of securing
relation toIMPACT
classifiedrivalasbids,
eitherandHigh,
cover automatically
the company
Medium the jobif the
even risk better,
occurs, in the
and knowledge
BIM
or Low.for a proportion of the risk cost if a risk occurs. is being that
used should
on the any
job. of the job risks
LIKELIHOOD
BIM MODEL AND
AFFECTS COST strike,
The nature of the potential No construction
risks, particularlyproject the riskthey
islikelihood free,will and
and bewhenreduced
impact a job
cost,by the
mayinvestment
is identified be some ofmade.
the estimators the deciding
make an factors in
IfFor
the each
job risk
is
determining in
using the
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whether risk register
(Building the bid
Informationitself contains
Modelling), a contingency
there may
IMPACT be for
an
COST the likelihood
opportunity to of
reduce the risk
the occurring,
impact cost andif the
the potential
risk occurs.
impact cost. In addition,
The % chanceifor
a not
assessment
job the
is company
ofsecured
each ofand
levelthe
bids
potential
for progressed,
happening
being a job, risks
is along
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defined could
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in thefactors
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such
on a of as
job, the
any whichjob sector,
risks are stored
incurred location,
in abe
can risk
size,register.
client etc.
The impact cost is the cost incurred if the risk occurs.
ForKEY example,reduced
if there byistaking
Industry the a number
information.
risk of of mitigating
structural defects, actions.
these may be identified in the BIM model, and the threat mitigated.
POINTS We will take a closer look at the features of each risk.
The company are bidding for a job that has a risk register consisting of 3 potential risks. in a % reduction in the effectiveness
If a job isWewon,will
If and
the being
examine
risks progressed,
occur
possible
they any
mitigating
only risk
occur that
actions
once strikes
further.
during can
the delay
planned the job, resulting
KEY POINTS
of the labour duration
on site inofthe period when the risk strikes.
One of the identified risks the
is contract.
‘Structural defects’, which is classifiedrisk, as thehaving
The cost reductions are graded depending upon the particular and aallocated
the reductions Medium toto likelihood
date of the
occurring, and
be this implies
Action can be taken to deal with potential job delays by adjusting labour siteacross
when all jobs
job is can being found in the
a progressed,
Main40-50% chance
menu/Assessing the risk will occur
performance/Job at some point
analysis/Risk during the progressing
analysis for all of
jobs the job,
won. as shown in the Industry information.
and
KEYisPOINTS
discussed in a separate topic.
If the risk strikes If athere
job iswillcompleted
be an impact early cost
thereof is 165,000.
a possibility of avoiding risks
Keep clicking anywhere on the screen to advance
that may occur towards the end of the job.
There are 3 possible scenarios for determining the risk contingency, and we will investigate each one in turn.
Choosing A Consultant Designer
One of the key decisions when bidding for a design & build
Navigatejob is menu/Assessing
to "Main the choice performance/Consultant
of the consultant to
history"
produce the design.
The choice of consultant can have a significant impact on the build costs. Consultants with
appropriate expertise and BIM experience produce designs that reduce the expected build cost
when a job is progressed, which improves the profit margin on the job.
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Consultant Details
EXPERTISE
The consultant’s profile
highlights the sectors of
expertise of the consultant.
BIM EXPERIENCE
The consultant’s BIM (Building Information Modelling) is
graded from ‘none’ through to ‘significant’.
CHOICE OF CONSULANT
The choice of consultant for a Design & Build job can have a significant
impact on the build costs when a job is progressed.
Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance [Performance (By Period) tab]"
Job profit
Project manager information
Project manager performance
Measured value (turnover)
% of a job completed
Job costs
Labour costs
Retention
Job completion bonus
Forward workload and margin
Project Manager Decisions
Project managers are concerned
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working on which have
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POINTS the level of bonus paid There foriseach period aimpact
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Decisions
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KEY POINTS
We will try and boost the performance of Gordon Simcoe considerably
Although we have now allocated by paying in arelation
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in performance. the jobs that did not already have manager. one, it may be worth using the
Allocating suitable project managersDisplay to jobs in progress, especially
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another job or from the market (a list of available ones who have registered with the
jobs. If not, they could be replaced.
Gordon Simcoe in the idle pool KEY POINTS
KEY recruitment
POINTS agency).
Craig Wooten on job 10 The list of project managers signed up to the
If too
Sidmuch
Arklebonus is paid
on job 17 it, it may be money down the drain, because there comes Projecta Manager point when the performance
Agency is dynamic,does and not
can
improve no matter how
Harry Mitcham on job 29 much bonus is paid; the trick is to find the level. change from period to period.
Keep clicking anywhere on the screen to advance
The affects of bonus payments are the same for all project managers.
Quit
Labour Decisions
The Construction
LABOUR
Navigate to "MainManager
SHORTAGE menu/Making now Due looksto the
decisions/Job to set
requirements
the labour
progression Navigate
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job 53isisand
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equating
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KEY POINTS
option.
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men x 149).
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x 104). Roundingup givesupa gives labourarequirement
labour requirement of 36 effective
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28
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for deciding
only upon the
labourers are needed
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determining 10
17 toto complete
the labourititrequirements,
complete as
as efficiently
efficiently as and
as possible in
in period
period 5.
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possible 5.
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Manager 52 making
is decides
a the
2-period labour
to Transportallocation
concentrate decisions
first onalso
contract, job 29,for
in each
asfirst
its job,
must be completed in the current period, and is a priority. If this is the
thisperiod. there may be a surplus of labour left in the idle pool.
Job
case, At53 the isend
there a 3-period Energy contract, also in its first period.
Job 58 is a are of
3-periodathe
numberlast period,
Building of options and :-
& Commercial available atwhich
thewhom
contract, beginning
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all bonus of period
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At
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the moment
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5 is the there
there
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are 39
61 labourers
41
areperiod labourers
of the job,
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41
areare the
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the company’s
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subcontractors
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58
all are
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operatives,
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and be required.
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Normally,
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premium If we
allocating
completion.
job 52
take
each period
cannot
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has
information.
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labour
current
allocations.
providing
level
workforce ofa85 good project manager has
of labourers.
Instead
been of transferring
allocated to oversee men thetojob,the andidle all
labour pool from
the labour is site,
fully pay
effective. them straight off
Completing a job early means completing before the from site using the “Paid off” column
planned duration e.g.,
Since 181. the planned labour for job 53 in its first period is 10 labourers, the required labour level is 12 labourers (10 x 1.18).
To instead
Sincereduce
do the of
the
this :-the transferring
plannedlabour labour
from themfor
39
41 to
job
to the
33
2858 weidle
in itslabour
will first
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To However,
reduce since labourthisfrom is the 61final
to 36planned period of
we will transfer 25 the menjob we should
to the idle labour take a closer
pool using the look“To at how
ILP” the job has progressed
column.
to
Since date,
KEY since
POINTS
there is no other
spare factors
idle labourmay have contributed
it is decided to taketoonthe thejob12being
labourers behind needed or ahead
as new ofrecruits
schedule, into and we need to
the company’s
KEY
Since POINTS
there is no spare idle labour it is decided to taken on the 23 labourers needed as new recruits
KEY 84
allocate POINTS
men are transferred
sufficient tolabour to site
to the from
complete the idle
theforlabour
job pool
asprogress by
efficiently entering
areas 84 into
possible. the “From ILP” column. period. bycompany’s
into the
KEY
The
The 1
into
The
workforce
Unnecessary
workforce
new
default
POINTS
surplus,
in order
in full
recruit
However,
surplus,
the “New” theKeep clicking anywhere on the screen to advance
Idle
order
is
labour
labour
to build
trained
taken
default
full column.
trained on
allocations
build
own
up
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into
levels
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the
the
are
labour
for each
workforce
money,
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transferred
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to
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required
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rather
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use subcontractors.
and
reallocation
build
for up
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for reallocation the is
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subcontractors. overhead
other
workforce
period.
to more/less
the last
This
jobs.
for
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the
is achieved
that
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achieved
future,
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needed on other
than on
use
12
23
other
Due
company
into
jobs to a
the “New”
they number
operating of
column. factors
profit forthethe job may
period. be behind/ahead of schedule, and require planned.
jobs they may
subcontractors. may be paid
beThispaidis off instead.
offachieved
instead. by entering 1 into the “New” column.
We can use the Display job details option to investigate further.
Quit
Key Points For Progressing Jobs
Progressing jobs to completion is often a complex task, and the The labour used to
decisions that have to be made are often the result of the progress a job
strategies adopted in other areas.
Overmanning to try and
For example, if the company has an aggressive tendering policy, complete jobs early
and secures a large number of profitable new contracts in a
particular period, this can cause problems when it comes to What happens if a
adequately resourcing the new and existing jobs. job over runs
More work normally means more labour, and the company may
Handling job delays
have a significant shortfall of its own fully-trained labour. This
would then require decisions on how to overcome the shortfall, by
taking on new recruits into the company’s own direct workforce, Using new recruits or
or using subcontractors. An alternative policy may even be to subcontractors
deliberately delay jobs in the short-term, but this can affect the
relationship with the clients. Labour relations
Quit
Overmanning To Complete Jobs Early
Trying
But
It is what
unlikely
to complete
happens
that any
aif job
the
jobearly
Construction
will has
be progressed
a number
Manager
Navigate of
exactly
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attempts
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menu/Making with
complete
company,
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decisions/Job
the planned planned
theof
level including
job progress,
early, :-hadjob
16decisions/Display
labourers even if that
details”
been
overmanning
is the intention.
in some periods, but is still not able to complete allocated,thethejob
jobearly
would ?have completed very early
in the period, as shown in the Management
The client may pay a bonus for early completion (see below). consultant's report.
This
There may
are occur for a reasons
numerous number for
of reasons
this, :-
including :-
The company’s own labour that was being used on the completed job can be used on other
Delays
sites, to the jobthe
Job delays
preventing reduce
needthe
to effectiveness of the labour
take on new recruits, on would
or having
This site.
to use
have subcontractors.
resulted in :-
The Construction Manager needs to allocate less than the planned level of 16 labourers in
Using the
An company’s
Changes previous
overallin‘own’ 4-period
anticipated Water
labour productivity
shortage, & Sewage
finaland contract
levels as an
a reluctance
due to example,
theto to the
expertise
use job was
subcontractors,indeed
atofthethe overmanned
project may managerinwas
mean its first
the 3 job
on the
The the job’s period to enable the job An
complete increase in
end costs
of itsas labour
final period. retained until
periods, and was capital
well aheadassets
of schedule,(plant,
and onbuildings etc)
course to complete being
a the
periodusedearly. on the job can be
end of period, incurring 81,900 additional labour diverted
is not overmanned enough.
site
elsewhere.
A If the full 16 labourers are allocated, the jobcosts, and a significant
will complete well before amount
the end of unnecessary
of the period,site
A job
poor may
choice
However, have
job of been
delaysproject
in theovermanned
manager
job’s third, and to try and
reduces
anticipated the
finalcomplete
productivity
period, it early,
resulted of
in the
the making
labour
effective the
on
labour planned
site.
being reduced progress
from
ToCash flows are improved. and additional labour costs will be incurred administration
until the period costs
end.
figures
complete redundant
32 to 30a labourers,
job early theandConstruction
the job was Manager needs toatrefer
98.6% complete the endto theof sector-based
the period, andovermanning
just failed to limits in
complete. the
Inefficient use of labour that could have been used Industry
information. Early completion elsewhere
ofout
a jobof means completing at least oneof the
In this scenario, the job would Since enter
there is its
onlyfinal
1.4% planned
of the job left period
to complete, the step
labour with
level the completion
required is 1.4%
Bearing KEY
schedule.
For example,this
POINTS
In in
allmind,
consider if a&job
probability
a Water it is
total likely
labour
would
Sewage tohas
job (104),
still
that complete
or a1.46
be ahead period in
operatives,
planned of the
before current
ofthe
which
schedule,
duration 4 is end period,
of and
rounded
because
periods, the great
upplanned
toit
that 2can
labourers,
has be care
duration
been has
well
overmanned e.g., to
short be
if by
the
of theto
up
taken The Construction
in setting Manager should have allocated more labour during the third period, and anticipated final period, to
25% each
overmanned, period. the thecorrect level level
planned of labour
of 16. to ensure that the job finishes as near to the end of
planned duration is 4 periods, it must be completed in 3 periods
compensatebut Construction
for potential delays, and theManager
job may then musthave
or less be tovery
obtaincareful
completed. topicabout
Theclient
the of handling
bonus. setting the labour
job delays is
the period
level,discussed as
since the possible.
planned level cannot be relied upon.
in the Key Points section.
KEY
If the Construction Manager follows the POINTS
overmanning guidelines, and the labour allocated to site is fully effective, with no
delays, the completion schedule should The strategy adopted above
be as follows. The willbonus paid unless
work well by the other
client factors
varies depending
once moreupon affectthe thejob
Wea will
If job now
finishes examine
too earlyhowin thetheConstruction
period
effectiveness :- labour
of the Manager
size.
allocated, sets
suchthe correct
as delays causedlabour by risks level to complete
striking, which is
the
The jobworkforce
as efficiently
<----------- as possible.
Labour
is retained
discussed in the Key Points section.
Allocation
until the end-------
of the period, incurring unnecessary additional costs
Period Planned Overmanning Actual Cumulative
Excess labour is being used on the site that could have been utilised elsewhere
1 26 25 % 32 32
2 31 25 % 38 70
In the 3 anticipated
31 final period of
34 a job, you can ignore the planned labour level, and
104
concentrate
4 16instead on the % of the job left to complete.
---
104
The job should complete a period early, securing a bonus from the client.
However, this is not always the case, and if a job overruns beyond its planned duration there
are a number of affects :-
AThe
penalty will be
Performance incurred
Summary from
for the the client
job shows that thefor
job late completion,
is currently expressed
99.5% complete, and hasas a % of the tender
overrun.
value for each period the job overruns. This can have a severe affect on the company’s cash
There is 0.5%
account, andofcompany
the job left tovalue.
complete, or 0.5% of the total labour required for the job (212 man periods), equating
to 1.06 labourers (.005 x 212). To ensure that the job completes 2 effective labourer should be allocated to the job.
Additional resources will be needed to complete the job (labour, project manager),
diverting them you
If a job overruns from
canelsewhere.
allocate as much labour as is required to complete the job, and the normal
overmanning rules do not apply, since there is no planned labour as a guide.
It reflects badly on the industry’s perception of the company, reflected in the ‘contract
completion’
KEY POINTS and ‘clientIfsatisfaction’
the actual labourkey performance
on site of 90 labourersindicators used to
had been allocated, themeasure the progress
job would have completed
ofDelays
the company.
caused by risks occurring are not
very early in an
theissue when
period, asjobs overrun,
shown in the since risks will consultant's
Management only strike during the planned
report.
duration of a job.
Once the period has been completed, the Job Details
If a job overruns, it is imperative thatresulted
This would have the Construction
in :- Manager allocates enough labour to
shows the penalty incurred for late completion.
complete the job in its first overrunning
A massive increaseperiod.
in costs as labour was retained until the end of period, incurring 500,661
additional labour costs, and a significant
Theamount
penalty of
forunnecessary
completing asite
jobadministration costs
late is a % of the tender
Inefficient use of labour that could have been used elsewhere
value per period, as defined in the Industry information.
This may now affect trying to procure any further work with the client in the future.
Quit
Handling Job Delays
The effectiveness of labour
Navigate allocated
to "Main menu/Making to Navigate
Navigateatojob
decisions/Job
"Mainby
to the
progression Construction
decisions/Display
menu/Making
"Main decisions/Job
menu/Making Manager
jobprogression
details/Job
decisions/Job can be adversely
information/Risk
decisions/Display
progression and
job delay
jobanalysis”
details”
decisions/Display details”
Navigate to "Main menu/Making decisions/Job progression decisions/Display job details/Job information/Risk and delay analysis”
affected by a number of factors, such as :-
The adjusted labour level of 93 labourers should compensate if the risk ‘personnel issues’ strikes, and
The expertise
enable of theonproject
the job to complete time. manager on the site
Labour relations
OfOvermanning
course, if the risk of
‘sitethe
contractor
site co-ordination issues’ occurs this could prevent the job completing,
but it was a ‘low’ risk, and the Construction Manager decides to take a chance this will not occur.
There
KEY POINTSis also another key factor that the Construction Manager needs to take into account, and
Consider the following example.
that
If the is delays
delays tooccur
do not the the
job.
job will complete earlier than the end of the period, and as all labour is
retained on site until the end
Theof Risk
the period when a job completes,
and6,delay there will be additional
there arelabour
2 riskscosts
Job 52 should have completed in period when analysis for job
90 labourers were52 reveals
allocated that
to site. that have not yet struck :-
due to the ineffective labour. However, at least the job will have completed.
We will at how the Construction Manager can mitigate against the consequences of job delays.
However, the effective level of‘Personnel
labour was issues’,
reduced whichby has a ‘high’
2.5 men duechance of occurring
to delays. This
‘Site contractor co-ordination issues’,
resulted in the job being 99.5% complete at the end of period 6, and not quite which has a ‘low’ chance of occurring
completing.
DELAYS
Although bothAREThe CAUSED
risks DELAYS BY and
could strike,
SO RISKS (ALLSTRIKING.
FARpotentiallyJOBS)delay job 52that
reveals in period 6, it is
‘personnel decided
issues’ havethat the
already
threatat
We will now look in more detail ofwhat
‘personnel
causedissues’
causes is
of most
the delays,
delays andlikely,
between 2.7 and
what action
and the
2.9% Construction
could
on other jobs,Manager
and this decides to take
is a good action
guide to
have been taken to mitigate Thethis
in case
against Risk and
happens.
their delay
affect. analysis for job 52 reveals that the
the likely affect if ‘personnel issues strikes on job 52. delays were caused by the risk
‘Personnel issues’ striking in period 6, the second period of the job.
However, howOf much is the
course, current issues’
‘personnel labour maylevelnot of 90
havelabourers
caused any to be increased
problems by on
so far to other
offsetjobs,
any KEY POINTS
potential delay ?
and in this case the Construction Manager would have to make an educated guess on
More than one risk can strike in any period of a job, but they only occur during the planned
the likely affect. As time goes by the potential delays can be more accurately assessed
duration asof a job,risks
more and occur.
not if it overruns.
Completing a job at least one period early Allcan
labour on site
prevent incurs
risks site in
striking cost, including
future periods.
ineffective labour, and hence the cost of any
Delays that occur in the periods before aJob job is
52due to complete
currently has 90are not such
labourers onasite,
concern,
and theapart from the additional
Construction site cost. to
delays is incorporated into the Manager
site costdecides
for the
HOWEVER, delays that occur in the period a job a
assume is 3%
duereduction
to complete maycan be
beperiod.costly because
possible, and adjuststheythe
can prevent
labour a job
to 93 from
labourers.
completing, with associated late completion penalties, and a waste of resources in terms of the further labour and a project
manager to complete the job.
Quit
New Recruits v Subcontract Labour
In
Comparing
progressing thejobs
training
it is cost
alwaysof newmore recruits
cost-effective
Navigate versus
to "Main subcontractor
to
menu/Industry
Navigate to use
"Main the environment
information/The company’s
premium
menu/Industry in aown
information/Country
in which period,
the fullyisitoperating”
information”
company would
trained
appear that labourers,
subcontractors
rather than
are the usingcheaper
subcontractors.
option. However, it must be remembered that the
new
Whererecruit
there is training cost is
an overall labour a one-off
shortfall in the cost, whereas subcontractor premiums have to be paid
Subcontractors
every
period, period.
the decision:-as to whether to employ
new recruits or use subcontractors is further
NEWCostRECRUITS
more
complicated by than own
the limit labour
on the number of
The new
Each decision
recruit as
thatto whether
is taken on intoto
theemploy
company’s new
ownrecruits
workforce orhasuse
to besubcontractors
trained in their first may come down to
new
period recruitson
Reliance thatsubcontractors
can be taken on in acan period,
affect the morale of the company’s own labour
the jobs where
with
as defined
the they may
company.
in the Industry
This is a be needed,
one-off
information.
cost and there are other factors
allocated to
The SUBCONTRACTORS
the job they are placed on. that may affect the
company’s strategy
limit can vary each period.:- Subcontractors do not need to be trained, and are fully effective from day one.
The training is assumed to take place where the company is based, and does not vary between
countries. Hence,
However, no matter
if there is anwhich job a new
overall recruit
labour is allocated
shortfall
However, to incur
theythat
do the
thetraining cost is the
Construction
an additional same.
Manager
subcontract needseach
premium to address,
period,
The
two limit on
options arethe number:-of new recruits
available shown inthat can beinformation,
the Industry employed. which varies between countries.
The training cost for each new recruit is shown in the Industry information.
The anticipated
Take-on durationadding
new recruits, of a contract,
to the which can own affect how many periods subcontractors
KEY company’s
POINTS labour
need to be employed for.
Use subcontractors Subcontractor cost variations between countries can have a crucial bearing
The affect of using subcontractors upon on the morale
which jobs theyofare
the company’s
used on. own labour, which is
Butcovered
whichinoptionanother is demo.
now the most cost effective ?
Eventually own labour may need to be paid off when work dries up, incurring additional
Tolabour
answerpayoff
this question
charges.we
The
need
laying
to compare
off of ownthe
labour
costsmay
involved
then in
impact
taking
onon
labour
one new
relations,
recruit
against
affecting
one the
subcontractor.
morale and productivity of the workforce across the company.
It is certainly worth taking the time to determine the most cost-effective approach, as this can
have a significant bearing on the profitability of the company.
Quit
Labour Relations
Theany
In most
period
cost-effective
a company’sEXAMPLE
EXAMPLE
way 2: 1:
totaloflabour POOR
managingGOOD
force LABOUR
the LABOUR
consists
labour
Navigate
RELATIONS
:-RELATIONS
offorce
to "Main is to use
menu/Assessing the company’sconsultants
performance/Management own fully report"
38 men38 werewere
men available in thein
available
trained labour, rather than subcontractors. idle labour pool, but all of them
the idle labour pool. None
For example, if 50 men are transferred to the idle labour pool from job A, then they
werewere
laid off are
laidwhen theyallcould
off, and were
immediately used onLabour
job B.in No training is required,
Labour no have
on men are laid off, and the been
used utilised
company on jobs.
does
on site, leaving no
Jobs in idle labour.
not incur any additional
the Idlecosts
Pool such as subcontractor premiums.
Progress
Total Labour
in Company
In this scenario the company
(Own) 6would beleft
men were perceivedidle to
in the (Own have a good labour relations policy and
+ Sub)
the morale of the company’s pool
ownand
labour would
not used be high, ensuring greater productivity.
to replace
subcontractors being used.
The affect of the company’s construction management decisions on labour
relations is reflected in comments in the Management consultant's report.
The least the
To source cost-effective way
jobs in progress of managing
with
Additional the was
labour thethe
labour labour force
required
company’s is to be constantly
the Construction Manager hiring and be
will often
laying off the
faced with company’s
either own
own,
an overall labour,
and not
labour and also or relying
subcontractors
shortfall, on subcontractors.
a surplus. In this situation a number of
8 men were laid off from site, and
decisions haveif to
For example, be made
a high on howofbest
proportion to replaced
manipulate
the company’s by own
the labour
labour
subcontractors.
force.
is laid off inNoasubcontractors
period, then the
were used.
morale of the remaining own labour (not subcontractors) would be weakened, leading to
The options
reduced available include
productivity. :- the Company would have a poor labour relations policy..
In this case
The job profit should at least cover the company overhead costs not covered in the
individual jobs, otherwise serious cash flow problems could occur.
Any additional profit can then be used to pay dividend to shareholders, and crucially to grow
the business, such as by expanding the capital base (infrastructure) and targeted investments.
JOB COSTS: CONSULTANT DESIGNER CHOICE FOR DESIGN & BUILD JOBS
We will now look in detail at how job profit is defined, and how it can be improved.
The choice of consultant to produce the design on a design and build job can have a significant impact on
the
JOBbuild costs.
COSTS: RISK COSTS
JOB COSTS: WORLD ConsiderEVENTS the following example.
If a risk does not strike on expertise
JOB Consultants
COMPLETION with appropriate a job, theand BIM experience
contingency builtproduceinto thedesigns original thatbid reduce
as part theof expected
the oncost build
cost
World
will improve when a
events job
The can
the is progressed,
jobimpact
company profit upon
were which
build and
considerably.
successful improves the
site costs afor
in submitting profit
bidjobsmargin
for job on
progressed,
24. the job. Conversely inappropriate
which can have a significant affect
JOB consultants
The LABOUR
on COSTS client
job profit. can
PRODUCTIVITY
pays areduce
bonus the for
AND VALUE: OVERHEAD DEPARTMENT STAFFING job
early profit. completion of a job.
LABOUR In addition,
JOB COSTS: the
Therisk
USE
PRODUCTIVITY: OF costs
expected incurred
SUBCONTRACTORS
LABOUR profit to bewhen
RELATIONS madeaon risk thestrikes
POLICY job wascan the be markupreduced, (margin) andofimprove
3.4% of the jobjobprofit
costs. by :-
JOB
For COSTS
job 24, Neo Creative Designs were chosen, and their expertise and BIMtheexperience
Early The
Although
Understaffing
JOB job
COSTS:is progressed
completion
world
of the of
events
ADDITIONAL aby
Head Office, joballocating
are means
outside
LABOUR
QHSE labour
completingeach
theMeasurement
and
COSTS period,
company’s at least and
direct thecontrol,
one
departments,total
periodmanbelow periods
thebefore
marketing
the needed
required end of
level, will reduced
tostrategy
complete
the planned
have of jobthe
thenegative
the are overall
191.
duration
business
affects
across build
e.g.,
Subcontractor
can
Targeted cost
if the
influence
all jobs by 0.5%,
planned cost
Inwhich
investments
being a significant
duration
variations
world
progressed,
monetary into
terms is
events 4
between
appropriate
namely
the overall
periods,
have
:- can
expected reduction
an it must
countries,
affect,
risk
profitmanagement
isthe bethat
and
isand helped
completed
whenconsultants
the careful
difference to in
analysisincrease
allocating 3
between periods
labour
of the
the the or job
to less profit.
to
progress
bidENGINUITY
value obtain
to beon jobs,
NEWS
earned the theclient bonus.
decision
NETWORK
The The If labour
the actual
bid relations
profit
value of policy
made
11,513,320 of
on the company
aisjob
divided can by bethe affect
improved,
total man productivity
or reduced,
periods (191), of the company’s
considerably
the expected byown
value labour
internal
(turnover)andallexternal
theeach
for jobs in progress.
factors
man
on
There
(ENN)
JOB where
Employing willto
are
COSTS: ahelp use
number
the
TARGETEDin
frombest subcontractors
of
deciding
the additional
possible
client upon
INVESTMENTS project
(11,513,320) can
thelabour have
most
manager
and the aexpected
costs significant
effective that canimpact
strategy.
costs impact onupon
(11,134,737) the i.e.,
build costs.
the378,583.
job profit :-
LABOUR that
The period affect the
progressed
PRODUCTIVITY:
bonus varies costs is incurred
60,279.
depending PROJECT This
upon on is aameasure
MANAGER
the job.
size of of the
PERFORMANCE
the labour
job, and productivity.
is expressed as a percentage of the tender value
The Use
Head of a BIM
Office,
productivity anwill (Building
increase
be improved in jobInformation
costs
by :- (buildModelling)
costs) model
Less (bid
For
QHSE, entered)
example,
Overmanningan increase for
suppose
KEY ofin the
a job
job
POINTS job;abeyond
costs details
number (build the arejobs
of
and given
effective
risk are inin
costs) the
labour Industry
progress, limitsand information.
incurs subcontractors
ineffective are in
labour being
costs used in onspecific
a job in
During Targeted
We The reliance
will
bid
periodnow
bid investments
4 on look
value
of subcontractors
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job detail
recovered
Sid can
at the
Arkle’s improve
fromfactors
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was affect
cannot by be reducing
‘excellent’. costs.build
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improve, or reduce, the
LABOUR Australia,
Not completing
Conversely
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sectors
Paying off duewhere
risk
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to
PRODUCTIVITY:
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acompany’s
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PERFORMANCE made Another
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labour India,
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to factors
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Takingjob 24,
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on a own planned
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recruits
affect area4 number
theperiod
much
into the
bid value ofjob,ways,
cheaper.
company’s
earned with
the job The the
andwasmost
own following
the completed results
cost effective
workforce
expected costs. :-
inincurs
3 periods,
strategy
a training and
is toan move
cost early
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their subcontractors
first periodbonus of
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from
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Employingthe was
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is in (turnover)
Australia
company’s
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ainvesting
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to
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the
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labour
Itmanagers
might the
toinboost client
India,
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reduce the is
a job
and
overhead the
cost effective
profit
then replace
costs, labour
significantly.
them
butreduce
will on
alsosite
with (64.8)
reduce the multiplied
company's
job profits, by the
fully
resulting expected
trained
inall
reducedvalue
own per
A
The
man For
project example,
productivity
Ifperiod
the manager
labour
(60,279)will be
with
productivity
i.e.,reduced in
well-matched abypiling
increases,
3,906,079. :- company
experience
the cost
bid value would
for a
isperiod potentially
particular
recovered type
quicker of job build
will costs
improve for
the jobs in
productivity
with less labour needed, and hence reduced overall any of sector,
the except
labour on
operating
site
More labour
An
water
,costs,
own from
Subcontractors
understaffed
&profits
reliance
andsewage,the
for
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on job
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QHSE
as in
company. India.
an
indicated
subcontractors whereas additional
Department in
a the
unsuitable each
investment
project profile.
manager they can are used
reduce the productivity.
KEY POINTS and a higher than expected job profit.
However,
Paying example
If the off more
After
labour ofcompleting
the
productivity company’s job 24,
reduces, own and
the labour
reviewing
bid value isthe performance
recovered slower summary for the job,needed,
it can be seen thatlevel.
Completing the actual
aemploying
job value
late will earned,incur or
a latemeasuredcompletion3value, was
penalty higher
that thewith
atinsufficient
will 3,990,451.
reduce more
the joblabour
profit. and hence byincreased
6.31%.ofoverall
ForFor
The Injob job
the 24, Keep clicking anywhere on the screen to advance
24,
Sid
costs, andthe
shown
exampleArkle’s indicates
shown,
actualthan
a lower performance
profit
aoverall
suitable
that staffing
made was
expected was buildproject
in
at5.4%
job
all
costs
least of
profit.
manager
departments
have
very
thegood jobbeen
reduced
for
costs,
was
reduced
the far3 more
periods byrisk
than
cost
over
of i.e.,
the
the
incurred
below
125,000
job, which
expected
the by ininvesting
100% period
improved
profit
optimum
of 3.4%.the6 productivity
in Drivedown the
labour
As
One Piling
can ofon beLtd.
the site
seen significantly.
reasonsfrom for the the Management
higher value consultants
earned was report, during periods
thereduction
increased 4, 5 and of
productivity 6, when job 24on
the labour wassite in due
progress,
to thethe labour
excellent
The
relations company policy may have
improved saved
the on
morale, overhead
and hence costs, but
productivity,the in
ofproductivity.
the company’sjob profit (increased costs and reduced value) is
project
reflected We will notWe
manager will
investigate
being now look
the
used. at (loss).
factorsthe thatfactors can that canthe
affect affectlabour the actual profit. own labour.
How can in wetheseeoverall net
this improvement affect ?
Project Manager Information
Navigate to "Main menu/Making decisions/Job progression decisions/Display job details”
BONUS
A bonus may be paid to the project manager on a job,
expressed as a % of the salary paid in the period. This is a
one-off payment that does not change the current salary level.
Although these can be graded from “None” to “Dramatic” for affect, none of them has
Navigate to "Main menu/Assessing performance/Project manager history"
anything like the impact as the past experience.
Their profile
Their career history with the company
Quit
Measured Value (Turnover)
The measured
Using value,
the expected valuealso
perreferred toNavigate
man period as
as turnover,
atobase, andintaking
the period
"Main menu/Assessing is the amount
into account
performance/Financial of money
the effective
analysis/Financial the
labour
performance"
company
on receives
site, three fromare
values progressing
calculatedall
forthe jobs
a job in progress,
each period. and is directly related to the amount
of effective labour The
on Assessing
each job.performance/Financial analysis/Financial performance/Performance (by period)
EXPECTED VALUE option shows the measured value, or turnover, across all jobs progressed in a period.
The expected
The measured value
value canamount
is the be thought of as
of money a measure
that is expected of tothebeamount
earned from of work that the
the client by
company is undertaking
progressing at any particular time.
a job in the period.
We will now
Expected look more
Value closely labour
= Effective at how the measured
on site value isvalue
x Expected determined for period
per man each individual job.
ACTUAL VALUE
The actual value is the expected value adjusted to take into account a number of factors that
affect the productivity on the job :-
The performance of the project manager allocated to the job
The labour relations policy of the company
MEASURED VALUE
For each job awarded (TURNOVER)
to the company, there is an expected value per man period defined as :-
The measured value is the actual value adjusted by the measurement effort of the company for
the period.
Expected value per man period = Bid value / Total labour (man periods)
In themeasurement
The example shown :- effort depends upon how well the company’s measurement staff (quantity
surveyors)
Expected valueareper
able mantoperiod
cope with the value
= Bid turnover in the
/ Total period
labour across all jobs. An understaffed
(periods)
measurement department will= not be able /to149
9,556,476 extract from the client all the value from the jobs
progressed.
Keep clicking anywhere on theThescreen
= 64,137
to(alladvance
Performance periods) tab can be
used to display the measured value for all
The last period of the history provides the benchmark for determining the appropriate level of
periods.
staff required each period. Quit
Percentage Of A Job Completed
The % of a job completed on the Job Details does not always equate to the measured value
A job was
recovered on a job in relation to the original wonvalue.
bid with a bid of 5,235,191
The job has just completed its1st period, and the measured value to date is
2,224,862.
The % complete is derived from the actual amount of the job completed to date, and
not the measured value.
The Management Consultants Report shows that the Measurement Department was
slightly understaffed in the period, and this led to less money been recovered from the
client than expected, and the full value from the jobs progressed was not recovered
from the client.
Navigate to "Main menu/Assessing performance/Management consultants report"
Quit
Job Costs
DESIGN COST
Applicable to design & build jobs only, the design
consultant charges a fee paid in relation to the
amount of the job progressed in the period.
SITE COST
BUILD COST Site costs pay for the support staff and
Build costs cover all the direct costs (labour, plant, services required to administer a site
material etc) needed to complete a job. whilst the build is taking place.
The build costs incurred each period depend upon the The level of site cost paid each period is
effective level of labour allocated to the site. based upon the total labour (own and
subcontract) allocated to the site.
RISK COST
The costs of any risk incurred after mitigating actions
have been taken, such as the use of a BIM model and COMPLETION PENALTY
targeted investments into risk consultants. If the duration of a job exceeds its planned
duration, the company is charged a penalty
for each late period.
The penalty is a percentage of the tender value
(bid entered) for the job; details are given in the
Industry information.
ADDITIONAL LABOUR COSTS
The bulk of the labour costs are built into the
build costs, but there are additional labour
costs, such as the cost of taking on and laying
off of both own and subcontract labour.
PROJECT MANAGER COSTS
Various costs covering the project manager
allocated to the site.
Labour Costs
The labour costs are allocated to either job or overhead costs. The applicable rates are
shown in the Industry information.
LABOUR PAYOFF RATE (JOB/OVERHEAD COST)
This is the cost per person of laying off the company’s own labour from either :-
The idle labour pool (overhead cost)
TRAINING COST (JOB COST)
A job in progress (job cost)
The cost of training a new recruit in
their first period with the company.
The net retention of 71,320 helped improve the cashf low of the company.
Early completion of a job means completing at least one period before the end of the
planned duration e.g., if the planned duration is 4 periods, it must be completed in 3 periods
or less to obtain the client bonus.
The bonus varies depending upon the size of the job, and is expressed as a percentage of the
tender value (bid entered) for the job; details are given in the Industry information.
We will
KEY take a closer look at how both are calculated, and used.
POINTS
The remaining cost is based upon the anticipated true cost of the job, taking into account
build cost, design cost , site cost , ‘sensible’ risk and project manager costs.
We will look
However, in more
there detail
is a far moreat user-friendly
the second use.
method and that is to use the Export Decisions option.
Team
The Procurement and Job Progression decisions are chosen for export; the other boxes are unchecked
The word ‘_for_group_2’ is added to the export name to make it very clear which decisions are contained in the export file
Group 1 Group 2
The Export button is clicked to create the:-text file. Decisions
Database Made
E-Mailed
Responsible for Communicate Decisions ? Responsible for :-
Finance
The export file itself is a text file, and has the following characteristics :- Procurement
Overheads Job Progression
Keep clicking anywhere on the screen to advance
Its name always begins with the competition id, and the rest can be altered
It is placed in the folder from where the company database was chosen
Quit
Exporting Information
Navigate to "Main menu/Making decisions/Exporting information”
10 key performance indicators are used to measure the success of the company.
Calculating Performance
Indicators
The indicators are weighted according to their variability, totalling 1,000 at the end of the
History.
Performance indicator definitions
As time progresses the weighting of each indicator will change, highlighting improvements
or deteriorations in that area, but the overall total will be the measure by which the
ultimate progress of the company is determined.
The weighting for each indicator at the end of a period is based on a comparison with the
position at the end of the History, and there are two types of comparison :-
TREND COMPARISON
Smoothes the calculations over the time the company has been operating. Applies to
Turnover, Gross Profit to Turnover ratio, Operating Profit to Turnover ratio, Capital
Employed, Contract Completion and Client Satisfaction.
SNAPSHOT COMPARISON
Compares the current indicator to the position at the end of the History. Applies to
Company Value, Forward Workload, Forward Margin and Share Price.
Performance Indicator Definitions
Performance Indicator Definition
TURNOVER Measured value accrued across all jobs progressed; an
indication of how much work the company has done.
GROSS PROFIT TO TURNOVER The ratio of gross profit to turnover across all jobs progressed;
a measure of how profitable the company’s jobs have been.
OPERATING PROFIT TO TURNOVER The ratio of operating profit to turnover; a measure of how
profitable the company is after considering operating factors.
CAPITAL EMPLOYED Measures how much of the company’s capital base is being
utilised.
CLIENT SATISFACTION An indication of how happy the company’s clients are; based
on procurement and job progression.
Calculating Performance Indicators
Quit
Performance Summary
The Company Performance Summary provide a detailed set of performance statistics relating to all
aspects of the company’s activities, and can be used to identify strengths and weaknesses, and explain the
rise and fall of particular key performance indicators.
The Performance summary provide evidence that there have been mixed results :-
The investment return of 2.2% each period is much better than the bank were offering
Overall job costs have hardly been reduced, which has not been a success
Quit
Management Consultant’s Report
It cannot
There are be
many
emphasised
methods enough
available
Navigate how
to "Main for valuable
assessing
menu/Industry the
the Management
information/The
Navigate to performance
"Main
environment
menu/Assessingof
Consultant’s
in which the company, Report
performance/Management
the company such
is operating" as
is, key
consultants if
report"
performance
used effectively.
indicators, the performance summary and analysis tools. In addition the company
has the use of an external management consultant, who looks in detail at all areas of the
company’s business, especially where there may be problems, and compiles an appropriate
Within each category the report can also be filtered by sub category.
report.
The report can be filtered by decision area :-
For example, The The
thenature report
company of theiscan
now also be filtered
in period
comments 9, andbyeither
period.
the Construction
The additional information relates tomade is
the highlighted :-
We will now look in
Manager
ALL more
is
(All detail
interested
comments) in at
the what the
performance report
of all looks
project like, and
managers how it can be used.
during
comment about Steve
‘POSITIVE’ if Bullcomment
the being headhunted.
is positive
the FIN
previous In most
period.
(Financial) casesthis
To achieve thethe
previous
following processed period
filters would be used :-
‘NEGATIVE’
will be theif the
one comment
that needsis negative
to be analysed closely.
OVH (Overheads)
Category choice
‘UNCLASSIFIED’
of “JOB” if the comment neither positive or negative
PRO (Procurement)
Period choice
JOB (Job of 8
Progression)
Sub CategoryIt is the negative
choice comments
of “Project that will need to be addressed as a matter of
Managers”
urgency.
What do the results look like ?
It is recorded
The Construction Manager as a non-departmental
can clearly overhead
see that all the project cost inperformed
managers the financial reports.well during period 8.
extremely
KEY
However, there is one POINTS
area of concern.
Keep clicking anywhere on the screen to advance
The cost of the management consultant cannot be avoided.
The quality of the project managers is so high that there is a danger of Steve Bull being lured away from job 133 by
other offers, and a higher bonus may need to be paid to him to help tempt him to stay with the company.
Quit
Analysis Tools
Information is available
The Procurement analysis toDisplaying
enable
provides
The Overhead ajob
detailed
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Timeframe
All decisions are made for a quarter, also known as a period, representing 3 months in the real world.
The company has already been operating for one full year, 2017 (periods 1 to 4), before the new
management team take control.
The timeframe shows the current period the company are in, and where the rival competition for
comes from when bidding for work.
The Environment In Which The Company Is Operating
Financial, overhead, procurement and job progression parameters define the environment in which the
company is operating, and can influence the decision making each period.
Most remain fixed (shown in yellow), but some can vary from period to period (shown in red), such as the
prevalent interest rates.
Global Economic Outlook
The Economic outlook is given for the UK and overseas economies for the foreseeable
future.
Knowledge of the global economic outlook is important in helping the management team to
form an effective strategy for the future growth of the business.
Navigate to "Main menu/Industry information/Global economic outlook"
ENN World News
Information is critical for re-evaluating business strategy, and to reflect this world news, based
upon current and future world events, is available from ENN, the ENGINUITY NEWS NETWORK.
World Events
World events that have affected the company are shown, and can be
filtered in a number of different ways.
Country Information
The Client information lists the clients with whom the company may be able do work for, depending upon
which sectors and locations their marketing effort is directed.
An indication is also given of the level of relationship that may be needed with the client in the future in
order to be able to bid for work with them.