Enginuity2012 tutorial

Enginuity 2012

Tutorial
Copyright Virtual Management Simulations

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Contents
Getting Started The Task
Timeframe
Forming a Company Strategy

Making Decisions Financial Management
Overhead Management
Procurement
Job Progression
Resetting Decisions
Exporting Decisions

Assessing Performance Key Performance Indicators
Performance Statistics
Management Consultant’s Report
Analysis Tools

Industry Information Industry Information

Miscellaneous Exporting Information

Glossary Exit

Glossary
Finance Procurement
Dividend Job details
Factors affecting share price Successful tendering
Company value Margin adjusting
Cash account Choosing consultant designers
Overdraft limit Job risk
Capital base Bidding cost
Capital employed
Investments Job Progression
Project manager information
Profit definitions
Corporation tax Project manager performance
Gearing ratio Measured value (turnover)
% of a job completed
Job costs
Overheads
Departmental overhead staff Labour costs
Idle staff Retention
Job completion bonus
Forward workload and margin
Miscellaneous
The job cycle
Client relationships

The Task Getting Started

The success UK-based construction company, with headquarters possible timeframes.
A fledgling of the company is determinedmanaged through two in indicators :- been trading for just one
The company will be by 10 key performance London, has
The decisions global made, and mustofdemonstratingrests themanagement to satisfy the high
The first task facing the new management team is to form ain challenges to overcome, such as client
Managing the to be business involves the company, a range of hands of the new
Working in different countriesfate present some particularbusiness strategyskills. management team.
year. Turnover
demands of the company's shareholders, who are keen to Contract Completion their investment. unrest,
restrictions, global competitors and environmental problemsa (extreme weather conditions, civil
see quick return on
Gross Profit to Turnover ratio
local labour problems etc). Forward Workload
A new managementOperating Profitto run the company forForward Margin future, making the key
team is needed to the foreseeable
Although based in the UK, and subject Turnover ratio and interest rates, expansion into overseas
to UK tax laws
business decisions Company Value
each period/quarter.
markets, and different continents,and opportunities Managing ThePrice A lotsuch depend upon the
Share
Early Years
However, the potential rewards may be an attractive proposition.
of operating globally, will as worldwide client base,
Capital Employed Client Satisfaction
prevailing economic climate in large-scale contracts, may outweigh the risks.
niche markets and lucrative the UK, and worldwide.Global Business

The competition for jobs comes from a number of simulated companies. Each one has
their own unique profile and bidding history, and a careful assessment of the opposition
is required to formulate an effective procurement strategy.

Management
Corporate level Operational level
skills required

Road contract on HQ
the US Interstate
UK Economic
Highway System

Understanding the Forming company
Later Years
Climate
Energy contract in
the Middle East
Overcoming
Interpreting reports
Measuring performance
Analysing information
Making key decisions Solving problems
industry strategy problems
Making effective decisions
During the later years the teams compete against each other for work. This creates an
even more uncertain and pressurized environment in which the skills and team
dynamics formed in the early years are really put to the test.

UK and worldwide
Satisfy stakeholders
Finance The indicators are all weighted at the
Changes in economy
Job delays
start ofrequirements years to reflect their
New competitors early
the
OPPORTUNITIES Improve asset value
CHALLENGES
Economic climate Marketing Building project in
Achieve profitable growth
Availability of work Overheads Changing client
Rival competitionclient base
Worldwide Increase market share
Global competitors
Manage risk
Procurement variability, and initially sumNew1000
Personnel issues to Zealand
Keep Clicking Anywhere on the screen to advance
Client expectations Construction Supply chain problems
Lucrative contracts Client expectations
Enhance company reputation
Niche markets Environmental issues

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Timeframe Getting Started

Theyour company alreadyCompany at successful periods, known asYears, you may be invited to
If take control of the been operating for 4 during the Early the History Year, before
You Company has is one of the most the beginning of period 5. You then manage the company
you take overPhase of management. Later (two trading years). Thismanage the company
take part number 2, known as the
through a in the its periods, normally 8 Years. You then have to is known as the Early
through
Years. a further number of periods in direct competition with the other top companies
from the Early Years.
Each period represents one quarter, or 3 months.

Start of Start of Start of
History Phase 1 Phase 2

Period 1 …………… 4 5 ………………………………………. 12 13 ………………………. 18

Historical Year Phase 1: The Early Years Phase 2: The Later Years


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Forming A Company Strategy Getting Started

Objectivelook at an example of setting key objectivescompanyto be answered, including :-
After a thorough take a there are view questions the need strategy.
In setting the to review, the following and runningthat company the next decisions for
It is very easy objectivesshort-termmany toreviewing are set forby making year :-
We‟ll now
Overall, in reviewing our without looking at thethe original strategy, we have extremely
the current period only, performance against wider picture. Whilst this hit and miss
To build on steady, profitable growth,from 4.7m tofor the(by 10%) through Measurement
well,havelevel ofcompany‟s achievedis especially the Head has been operating foraalong-term
improve and value of the company relationships.
aim forthat company existing price. increasing turnover from 28m (based improved the
ensure the improve overheads, share client 5.17m Office, QHSE and on half of
 What been areas the would we the objectives that year.
We and may given have
approach in all prove successful, it like toa company as effective as formulating
growth task of running achieve ?
unlikely to be year (the
company profits, and profitable growth, increasing turnover from 28m (based on half of the
departments,steady, making better yearof the company‟s assets.
To aim for are staffed the next use manage with the increasing turnover.
History at 14m) to 42m in sufficiently tothrough increasing prequalification for new work,
 How are weis considered to be in value of the company ?
History), and going to improve the a the company‟s objectives.
strategy for the company, based uponsound position by both the industry and its board of
competitive tendering and 42m in the next yearjobs. strategy in place. However, this would
Gearing Ratio to 14m) to progressing ongoing through increasing prequalification
ItHistory year of company company without any clearneed to achieve our objectives for new
is possible at
 What levels the company a a measure of are we likely to
directors.ratio of manage is overhead Dividend Payments ?
work, a very reactive
competitive tendering and progressing ongoing jobs. In could create untold
requireare we goingunlessapproach to running havebusiness, which the History (periodsand 4) a dividend of
The gearing
the of the shareholders ?
 How liability, and is the lookcash account interests an impact in future periods,
Decisions made in 0 tocurrent period often
its debt the after the 1 to in
problems asofthe value overall value of the companytake controlthe mostthewas paid each 4) to 5.8m, per
To improve going the of the company from had to make cause (at effective the
The status we the the company‟s activities, with to clients ? 5havocthroughuse of increased
is overdrawn. unforeseen and unconsidered circumstances is (byValue Company was across
2%
 How are end period 8 to improve relationships 4.7m our5.17mFuture10%) end 8 company valuethe
different areas ofcompany/market when we and increasedIn periodsannum), which kept the shareholders
By the :- Profitability
from 4.7m through to of period
period (8%
improved
organisation. an annual makingofbetter use of the the original objective. had a Future profitabilityeither way
company‟s resources account was always easily surpassing company‟s Thewhich i.e.,positive affectaffect (forward
company profits and increase 23%, assets.
During the History the cash long-term planning is essential.
representing company‟s no particular on industry
steadily, content
confidence fluctuated significantly would
margin)the share price.and this in periods 5-8,
ThereAn increase was no impact at theachieved throughand has of means :-price in themore company negative affect on
 The are there inis valued on isthat also needThe Headconsidered, and creating a long-termhave
in credit,company other areasaround 4.7m,
and many company to be a share havingof 1.35. thanand share price.
on company,
To ensure that company overheads, not guarantee Head Office,it does give Measurement
A clear, well-considered management will especially the14m(profitable growth), and company the second
success, jobsQHSE and company‟s share
and
strategy is jobthe overhead strategy to generate staffed, at profit fromenable the increase in to was
 Turnover a and efforts thethe MarketingaDepartment the periodically reviewed,company
For example, complex task. Indeed, strategyaround129% ofmayrequired level to manage thecompany‟sthe
will have to be butconfidence levelthe cash since
company value a number Office Department was a the
both positive adequately
helped to increase
 Good generated in of first year was operating industry progressedthe
share price.
the best opportunity tohave sufficiently andcompany anywork toincreasing seen by the comments in the
departments, company‟s capital base to secure within the confines of the be5beneficial, updividend is
 Utilising the aremay growbeen unattainable for with the tender be turnover.as point, bid
staffed profitably toturnover. Indeed, overstaffingperiod the in of to a it
manage
reserves
market which:-
In
objectives to a large job in period
prequalify fordate 8 thein business. 5. The
half of the first to
However, in periods 5 year cash account was
progress more number as can for the job, and a
decide price, of reasons, such
can
maintained.
operating. profit of 4.4%If the is not set in
To inreturn However, strategy
is submitted infinancingaother activities bid is was made on thejob costsprogresseduntil period 7. If it
 Making effective use of the company‟s assets, such stone, andgood build to beopportunities the Head a better
as the gains (lower investmentin regularlythat Report. and
identifying needs costs the case of reviewed
Management Consultants yield Office
 A gross thanthebank offers, or investments that can with reducedjob will the additional cost. In this case there
often improve
overdraft, period 6. of share price.
the company‟s turnover successful, the work not startto 8 shareholder expectation
updated to takeoverheadmarketinto account anin not outweighing other1.5% theturnover wasgrowth
 The base expansionfuture costs continuously changing of 142kIn levels had risen as company performance
(capital Company‟sadvantage it should
periods, of a forecasts was net gain environment. and
secure
Department)
very accurate,
In periods 6
were period 11. from of words, anticipated
then runs for five and investments), and thecomplete a operating profitoverstaffing. of a decision on
After taking
To buildnow examine these areas to see which ones contributed to the increase in company value in the last year.
gearing ratio fluctuated,improve both a
on and which had existing client relationships.
areas have positive affect on the effort in
achieved. not materialised.
whereWe‟ll target marketing company‟s period 5 has had an affect up until period 11, 3% had to be
to
negative and improved, and a dividend of and
 Increased competition has forced margins to be reduced topaidcompany‟s turnover, were equally
beyondcompany order book looksare taken into account. a forward workload of around
share price. retention repayments extremely healthy, with
The if secure work.
Similarly, the QHSE and Measurement Departments, whose
staffing is dependent upon the
to keep them content.

A Client an how did changed, client satisfaction rating hasstaffed. that were the proof
 year later,anticipated profit of against the objectivessteadilyOverall,setaffects of the to enable the
30m, andexpectationswe perform 4.4% of relationships were not strong?enough levels of dividend
Overall, the company‟s
and client turnover.risen
adequately each period,
company to bid for work. work in the global met with regard to client relationships. Department as an affect
 The overall value of new objectives have been market fluctuates Head Office had no noticeable
that the company‟s around 400m.
paid would have
In order to decide upon the company‟s objectives, and whatat thebenchmark (last period of as „content‟
Looking
can the company‟s share achieved
be realistically sufficient
 AInvestments improving relationships were established with Office, QHSE and Measurement
number of clients.
We have succeeded in our objective of maintainingprice, the History,
example. The on
over a periodin We‟ll now look at how period to managedBy improve ofperiod 4) the share price the risen quo.
The company share time, there of we havewas 1.35. to the endanalysis staffing
Investments of price at the end needs 4 results detailed
other concerns had two positive be a :- inperiod 8,of :- maintainshad status to
staffing levelsthethe Head just ? was 3 staff could cope with around
relationships
Summary the original objective Profit
1.95, and Operating was met. Departments. 10.9m of turnover per period, or 2.8m per person.
Procurement
Based onprequalified for jobs, to increase turnover it is essential that and a detailed review of procured.
The A goodthe information information made an operating profit of 2.1% (before tax & interest). in a number of
company‟s share returnrose during periods on investments was made, which relationships have factors were company
Capital Employed the History the company given Since period 5 client was far more than improved
above, your :-
price of 4.5% per period 5-8, in line with company strategy. The contributory the equivalent
In
Having average capital base
The the company‟sAnalysis we‟ll1.25%equipment, lookways :-key being utilised (capital employed), through contract
If environment in which the per period. is operating Turnoverjobs period fluctuated a lot
company at the Prequalification are successfully
 Using the from the bank of around(plant,take a closerbuildings etc) issome of theinfluenced the share price :-during periods 5-8,
per
reports the Financial progression, then there is morethe turnover (measured makingin periodswere was 62.3m. year.
By using and the market, we must decide businessBy company value) marketingfor adjusted accordingly.
Dividend had no affectAnalysis, we can deducethe chance the as it stands job management. directing
return Financial
at weaknesses of that upon of thecompany‟s strategy 5-8 the next
now areas that
 The strengths andany time. this was improved to periods 5-8 the company bid for 36 of staff,and that it was
procurement and In periods 5-8
As we can see from the Performance Statistics, during
employing staffing levels
and the good
4.5%, mainly throughmore a profit. the 46 jobs
 Changes in payments to shareholdersby 0.77% by investing in appropriate would relationshipsectors that appeared to bestaffing
Company were reduced
value had a very positive affect
 Changes in in42m, so Profitability capitalfuture utilised, the cash account,were sufficient,all jobs progressed.
The likely competitionwell the our target.
only 41% of in over base was
WeOverallHistory, 9 (25%). Thethehad a mixed affect.increase the resources into during periods glanceduringthe future. with
able to, and won
Dividend build costswe were jobs secured helped
aimed for there It level the market before, one now exists e.g.,
Whereturnovercompanies e.g., first 5-8, and forHead Office
was no appear at investment that
in PHS
In the Forward The profitexcavators to all directly into but this increasedcompany‟s theshare of the total market
to an impressive 92%
growing, thesignificantly % company‟s value.
 Changes company value of would have fed sectors, reduced build Cornwall Water on but this can be verified by
Excavators Plc, suppliers
 Changes in in company future profitability
Devon and costs improving
levels
periods 5-8.
 Changes Gearing had a mixed affect. increased significantly during periods 5-8.
Where a relationship didthe Performance has been aided by
The high level of turnover was largely achieved by the impressive order referringplace at the end of the History, improved e.g.,
book in to exist before, this Statistics.
 Changes in company new burden (gearing ratio) with Crawford Petrochemicals UK
effective identification of debt work by the Marketing Department, and successful procurement for the rise in the share
Although there were mixed affects, the positive affect of increasing company value accounted during periods 5 to 8. price.
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Financial Management Making 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.
 Monitoring performance in all areas to improve company profitability.

Financial Decisions Overdraft Limit

Overhead Management Making Decisions

Overheads are the non-contract based support services required to enable the company to procure and
and progress work. They consist of :-
 4 key departments; Marketing, Head Office, QHSE and Measurement
 Non-departmental overheads, such as idle labour and idle project managers

The Overhead Manager is responsible for :-

 Setting appropriate staffing levels for each department
 Directing marketing effort into the 5 market sectors

The non-departmental overheads are the responsibility
of others, and are related to jobs in progress.

Marketing Decisions Other Dept Decisions Non-Dept Decisions

Procurement Making Decisions

Each period the company is offered a number of jobs for which a bid is invited, identified by the
marketing effort in the last period.

Bidding Decisions Margin Adjusting Successful Tendering

Job Progression Making Decisions

Progressing the jobs secured through procurement involves :-
 Allocating appropriate project managers to oversee the jobs.
 Allocating labour to progress the jobs in line with the company‟s strategy for job completion.

Project Mgr Decisions Labour Decisions Key Points

Resetting Decisions Making Decisions

Decisions can be reset to their defaults at the beginning of the
period.

The default setting is to reset all the decisions, but it is possible to
select particular decisions.

Exporting Decisions Making Decisions

The Export Decisions scenario.
Bothdecisionsfollowingoption enables back to team 1 theirand when ways category, for
Group 1 are the primary decisions for the period using into number of the the database. exporting to a
Consider themake theircommunicateddecisionsGroupleader,be selected, bycompany database is received by
groups could be group, containing the entered a own copy of :-
text each
themfile. period it is file created contains the the following changes to the default export options :-
The text
e-mailed to Group 2.
Group 2 make procurement and
job progression decisions made, in a clear and
 By phone
Group 1 are membersformat. into 2 the company database to the Competition Controller, and must put
A team of 6 responsible for sending groups of 3 members each, and is located in 2 different offices, all
concise is split  The Procurement and Job Progression decisions are chosen for export; the other
This e-mail
 By group now long team in
the decisions for the copy of the
Each has a number of uses :- their „master‟ copy of to company database.
geographically a has away apart. company databasethework on when making their individual decisions.
boxes are unchecked
Group 2 can now e-mailwordtext file to Groupis added to the export name to make it very clear which
 The the „_for_group_2‟ 1 for
Each keeping 2 let of each group
How do Group a its Group of master are highlighted bythe export file
The responsibilitiesdrawbacks :- database. decisionsthe diagram below.
 Foroption has hardcopy theknow what entered.
entering into 1 decisions are contained in are ?
decisions their
 Where a team is fragmented into smaller groups, it provides an efficient means for individual decisions
 to be communicated back to the teambutton is clicked to createintotext file.
By phone could be time-consuming
The Export leader for entering the the master company database.
 By e-mail requires a lot of typing of decisions
We‟ll look more detail at the second use. itself is a text file, and has the following characteristics :-
The export file
However, there is a far more  Its name alwaysmethod and that is to use and the rest can be altered option.
user-friendly begins with the competition id, the Export Decisions
 It is placed in the folder from where the company database was chosen

Team

Group 1 Group 2
Responsible for :- Communicate Decisions ? Responsible for :-
Decisions Made
Database E-Mailed
 Finance  Procurement
 Overheads  Job Progression
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Key Performance Indicators Assessing Performance

10 key performance indicators are used to measure the success of the company.

The indicators are weighted according to their variability, totalling a 1,000 at the end of the History.
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.

Calculating Performance Indicators

Performance Statistics Assessing Performance

Company Performance Statistics provide a detailed set of 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 performance indicators.

The use of Performance Statistics

Management Consultant‟s Report Assessing Performance

It cannot many methods available for assessing the performance of the company, is, if used effectively.
There arebe emphasised enough how valuable the Management Consultant‟s Reportsuch as performance
indicators, performance statistics and the report can alsoIn addition the category. has the use of an external
The category analysis tools. be filtered
Within each report can be filtered by decision area :-by sub
company
management consultant, example, thein detail is now in period 9, the the Construction
For whoFIN (Financial)
looks company at all areas of and company‟s business, especially where
The report can also be filtered by period,
 and in most cases the previous processed
there may be problems, and OVH (Overheads)one being analysed.project managers during
Manager compiles be the performance of all
 is interested inappropriate report.
period will an the
 PRO (Procurement)
the previous period. To achieve this the following filters are used :-
We will now look in more detail at what the report looks like.
 RUN (Job Progression)
 Category choice of “RUN”
 Period choice of 8 The nature of the comments made is either :-
 Sub Category choice of “Project Managers”
 „P‟ if the comment is positive
 „N‟ if the comment is negative
What do the results look like ?
 „U‟ if the comment is unclassified

It is the negativecost per period of the Management
The comments that will need to be
addressed as a matter ofReport is shown in the
Consultant‟s urgency.
Industry Information.

----------------------------------------------------------
Key Point(s)
The Show additional information can be used
The Construction Manager can The cost of the management consultant
clearly see that all the project managers
to display more detailed information about the well during period 8.
performed extremely cannot be avoided.
highlighted comment, if any is present.
However, there are some areas of concern. The quality of the project
managers is so high that :-

 Eric Chatterton resigned from job 127 after being headhunted by another
company.additional information relates to the highlighted the job in period 9.
The A new project manager will need to be found for
comment about Eric Chatterton being headhunted.
 There is a danger of Vic Peterson being lured away from job 165 by other
offers, and a higher bonus may need to be paid to him to try and tempt him

to stay with the company.

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Analysis Tools Assessing Performance

Information is available to enable a thorough analysis of the affectis the gateway Displayinginformation about
The ProcurementOverhead Analysisdetailed joba number of
The Job Analysis of previous to provides in details :-
The Analysis decisions detailed period
The Financial Analysis provides detailedprovides a detailedthe financialprovides
information about analysis of
key business areas, providing an aid for making effective decisions for company has identified (prequalified for).
any of the jobs that the the future. each department.
information appropriate to
detailed information relevant to
performance  Bidding success byitperiod; operating. This includes :- to see
of the company since began each job is examined in turn
why it was won or lost, taking into account thestatus of factors that
For the Marketing Department :- various a job.
the current
We‟ll take a brief look at the Analysis Tools available . the bidding, such andprocurementfor all periods
The information includes :-
 Financial performance; by period as graphically restrictions (company of
affect  Market trend; the past, current and future value
 Shareholder information;specific) and price.andand dividend payments
Further analysisand job including shareinformation
based tools provide historical price location.
 A list of all new work bycan be filtered by status
jobs; these sector
 InvestmentRivalcompany‟sanalysis;performance; staffing levels, all rival bids
relating toHistory; performance of all investments
the relationship with clients,
 Marketing for all information about the where
  Detailed riskhistory; Detailedjobs won and progressed
bidding
project managers and consultants.
 date, to retention analysis; for all jobs won and progressed
toDetailed enable future effort was directed, be refined.
marketing bidding strategy to and the value of new
work identified.

For the Head Office, QHSE and Measurement
Departments
On all analysis screens a ?
 Performance; staffing levels allocated in relation to
Indicates that more detailed
the turnover of the company.
information is available about
how a figure was arrived at.
The R resets filters back to their defaults.

Performance (All Periods)
Presents key information in a
The Selected jobs analysis
graphical format.
provides a graphical analysis of
the jobs currently being displayed Quit

Industry Information Industry Information

The CountryThe Industry Outlook is given for the UK and Overseas
Information Environment parameters define the environment in
The Economic describes
the countrieswhich thefor the foreseeable future.
in which company Client
The is operating.
economies the country may Information lists the clients with
be able to identify work. whom the company are able do work for,
Most remaintheand but some can indication of the for the company
Knowledge of fixed, also gives an vary from periodlevel of
economic outlook is vital in order to period, such
to as the prevalentstrategy rates. may beand in which markets it
decide upon its interest forthat future, needed with the
relationship the
wishes to focus its efforts. future in order to be able to bid
client in the
for work with them.


Exporting Information Miscellaneous

Selected information can be exported to CSV format
for importing into spreadsheets for further analysis.

The Job Cycle Glossary

Although 6 in was progressedsuccessful bid for its job. stages :-
Work startedjobperiod 8, and timeframe job for whichplanned 10, the job periods, finishing of jobs will
In has beenthe company put inthefrom timeframe periods 8client during prequalification
The companydemonstrated, theajob a new measuredof periods, duration, this time a number interested
As period the is managed identifiedjob completed in in up the3 toand invited3 periods were :-by in period 10.
7 over cycle consists the to
parties. The job in the market which can 3 identified, tendered for and progressed (if won).
become availablehad a planned duration ofbe periods.
 Prequalificationjob was period 8 of the timeframe
Period 1 of the
The progressing job was period 9
 Procurement of jobs can begin in any period, and the jobs can last from 2 to 5 job periods.
Period 2 of the
 Progression the job was period 10
Period 3 of
It is important to grasp the concept of the job cycle, and the following example should illustrate this.

Period 1 Period 3
of the job of the job

Period
5 6 7 8 9 10 11 12

Identify Bid Progress the job
(Prequalify) Submitted
(Procurement)


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Financial Decisions Glossary

Key Point(s) 5, andresponsibilitiesfinancial decisionscurrent investments, look opportunity selection of otherthe :- and that
One of the
Its period main theInvestments In addition to the to Manager inon the cash account,thatachievedcompany, and or it
Some additional points to Financial ManagerFinancial FindingDividend there after the be of may go into overdraft, build
All the of the needs Anreview the company are also a andoffers a goodcompanies
note about investments :- have an affect to
increase investment value can interests through
an is financial structure it the of return,
company‟s shareholders. in thealready of the made. from the is period.the usingpayments declared thesuccessfully the
The other company basedthat needthebe overdraftand theselast Themake the best Add new investment option.
main responsibility of butbe Financial Managercandue viewedcompany‟s use of out ofCompany‟s not
to are
Not only upon any changes core businessbe invested in, cost savings and dividend paymentsector-based workload,account,
decide is the The may UK, toitsin company is procuring be to taxable contracts, and the by cash is
Dividends progressing the comes
the assets
Apart from paying dividend, each period the Financial Managerthe value of the company is if done a company's
can bank
could choose to leave reduced. of the rest
account is and increasecompany will report a healthy operating profit, and use ofmoneycompromise has to be reached asare
 to try held inor UK Institution.the Company‟s value. and
Any increases a reductions in investments affect the cash account, but increase the company‟sassets However, there to
Making effective directors and is being moved
possible, and the company‟s shareholders, normally
always board of sinceoften a given to itsvalue.
financial structure of of the companyaisincreasing the ifwhichofquarterly. Theysuchaccountincentiveproductivelycredit
between assets, the value theThis ways ofunchanged, A valuemoneyhopethe cash as by investing in other stock in stable
company great concern number of choicesto earn some interest fromconcerns, which
alternative is not
and simply company, desirable. :- is used to own a in other
unchanged.. the benefit is more available
the from are provide an
balance in the cashsubject areas,not be construction-related. companies eventhe Industry Information. much growth.
Hence, the company is may orto account. UK financial is an overdraft limit, as defined in if they are not experiencing
may but there rates,
 There are limitations shown  Using cash to increase the Capital Base and arise that offers
such as interest and tax,rates. in the Industry Information. onexample, an investment opportunity may support further growth.
For the :-
However, this wouldinvestment 2 ways of increasing the company‟sdividend paid manipulatingand one which mayeach one
• Increase in a single There There are also differentthere areoff adependingsavings in size Transport sector, inkey factors
be short-sighted, since eachSelling Thebuild costCapitalthe the of theis we‟llof the which the
are that can be made overdraft rates % of the the size of the concern company‟s assets
 substantial value through investments, the
period, depending on of to shareholders cash, examine be
other ways upon Base to raise overdraft.
to improve the
• The number ofcompany‟s value, involving the transfer ofthe cash active. However,cash account,returns option.the
investments by reviewingheld currentonecompanyin funds between the the price :-
in turn affects the company share investment capital base
that can be the at any investmentif are very account has exceeded Display Details may if be
required thatPHS Excavators Plc using the the overdraft limit, or not
time
and investments. When the overdraft limit is exceeded, allis not being fully utilised.tooutweighs the risk of thebelow
Capital Base efforts must be made reduce the overdraft to
very good, but the cost-saving benefit
 Insufficient dividend will well.
 There is no limitation on the the limit, whichcan be madeUsing cash to invest further in other companiesthe shareholders and
reduction that may involve investment itself not performing verydisappoint who offer a better
 :- an investment.
to
return than can be obtainedprice. the bank, or who may be able to
reduce the share from
Although these changes don‟t immediately change thecosts the jobs in company, keep the endselling off period with
 Any investment returns changeNot payingof thedividend in theandvalue of the progress, orby the shareholders content,
 the value any investments, current period dividend will conversely, of the
reduce not on cash account.
Sufficient
the affects of the changesSelling off part of the capital base amongst others :-
 will have been felt, including, change in the
investments no to raise cash. share price.
Capital Base  Reducing investments  Ample dividend will make the shareholders very happy,
--------------------------------------------------------------------------------------------------------------------------------------------
The levelCost Savings Due (turnover) that can be undertakenwe limitedneed to size of at least 300,000 to obtain preferential on
The Industry InformationTo Investments large company is would by the invest share price.
of future workload shows that for a
Key Point(s) could expect build cost the bidding, and the and increase the the company‟s capital base, as shown
Build
the Capital we the investment changes to yield company‟s value willcan felt obtained from the when cash is potentially an the
rates, and BaseScreen. affectingsavings of at least 0.9%. level of future work that can be undertaken
Procurement changes companies
Operating Profit
The well as investing in otherat any time ison the a betterits assets. After payingprofitthe periodconsistthere
As affects of return than be be
measured Returns The affectduring increases the cash :-cost savings
bank,
The value of thechanges yielding returns, and by Generating operating profitprice is determined by the and hence
Investment Company for investing in other concerns. Investmentincreasing operating dividendthrough buildaccount, they of
account interest is although a minimum of In the last 4and buildof thesavings are share achieved Plc has been consistently so
even more lucrative reasonand investment returns periods the return fromonand Excavators through good job % ofoverhead
calculated, cost company, known.
value any single investment in a period cannot exceed 150,000, high,
PHS is and the
The capital base of 4.5m can support up to 45.5m of is required,Since theAlthough having workload control 30m (the value of work
Bear in mind that 300,000 workload.
management. company‟s equity that is paid is only over these functions,
current forward no direct as a dividend.
it would the at objectives Progression Screen), 3.6%costs scopeperiod (14.4% andwork. per annum). shareholders,
at between and 4% per
The long-termleast the Jobin to the Financial Manager stillmay look afteron work in progress theonce the and
If enough money is invested particular concerns, build is are to investment. more
16%
still to bein take bankon 2 periodsof gain any build cost savings from thebefor winning the interests as in specific sectors due
which is a liability. There is an overdraft limit the
responsibility of other people, such of
Cash completed (-200,425) there However, Overhead
reduced
This can either be in credit or in overdraft, when it is considered Cluesto be a reassessment of the size of dividend are base
company‟s procurement decisionsto manipulatein iftherean asphaltassetsthewould reduceManager by themonitor progress
PHSmake effective materials, have Whether notConstruction Managers, the success, inbuildvalue for any return,
to Excavators Plcon a good companybeen made, work may needcompany sectors, as the levels of phrase
e.g., investing company‟sdone to any a improve terms must thecapital
and across different costs of the company.
andpreferential Industrydecisionsplant etcto investorthe the both build costinbeenaffects of allindicatedof the cash Transport
rates are in is being as Financial
PHS Excavators Plc is anrequired. investment in terms of investment hassavings some commodity and investment using
defined in an increase is excellent
the Information.
to work being undertaken. The concerns offeringIndustry” in these areassuppliers the company sectors, run as construction
decide if
“supplying .... to all sectors of the Construction these benefits must be to further in, wouldwhat is being to in the History, into the
available by examining
of happened the
returns, so wethe clues lyingfunded from which would be worthPlc 5,000,000 shares of value menuupon equity profitably5,000,000.
will increase in investment in PHS Excavators investing
The Company was originally the the company profiles. possible. the Relevantto
industry. With
ensure exceed the minimum level required to as
a share (equity) issue of by 150,000 information 1, with an
depend
option.
looking deeper
value of
Capital Base (4,546,264) prevalent bank rates, both credit and overdraft rates (as defined in the Industry
obtain thein time, since procurement decisions have not been made, and since there is „unused‟ capital base, we‟ll leave it
build cost savings.
At this much would we need to invest to obtain the preferential rates, and what level of build cost saving could we
point
How Since period 1 the company has paidInformation) at of equity the investments were made, asand this the kept the of the
This end ofavailable investmentfollowingdividend of 2%givenequity value at 6,750,000 (5,000,000 level has balance
information is the time
every period (8% per annum), well as
At the shareholders content, as we can see from the Consultantsbuildings etc, which determines themore detail.
For is the company‟s the share in plant, equipment, facilities,:-
unchanged. achieve ? concern, the price stands at 1.35, and thenow----------------------------------------------------------------------------------
each
expect to the History cash account. We‟ll Report. some of these options in x 1.35).
of work that the company can undertake. Key at
lookPoint(s)
-------------------------------------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 The investment
Key Point(s) influenced by a number concern.
The share price 5 we‟lldetails describes the of factors :-
Key Point(s) As the share price changes, so does the equity value of the
We‟ll In period isfurther.
investigate
Investments (204,500) base alsothe % returnthis build previouscompany, andbut more has to be invested to obtain the
continue to pay dividend at the level.cost savings on offer, paying the same level of dividend in
----------------------------------------------------------------------------------------------------------------
The larger to the capital concern the greater given in
changes the investment
 AnyThe performance history gives affects the cash account. periods to all investors, and
The ------------------------------------------------------------------------------------------------------------------------------------------------------------
Key Point(s)
 If the company‟s cash the company direct it may be which may to consecutive
savings.any monies investment in may have invested. Financial Manager to raise cash for otherdifferent affect on share price
details basewhich is under the other concerns, appropriatenotreduce it periods will have a uses, such as further
 Paying dividend, is being underutilised, control of the
capital be construction-related.
Key Point(s)
 Although the value an overdraft. saving The size (small, mediumas theon twothe investment concern determinesbuildamount
or large) of equity changes. is a higher level of the cost
of
 Changes or reducingof build cost changeis displayed, the savings are % thetiers, and there
investmentsin the minimumthe Company
Shareholder expectations can is not shown. operating performance of as defined in the Industry Information. or
as the company changes, and may be higher
that can be invested each period, the concerns, and the
 The future moretheinvested, which
saving if profitability of current cash
is
 There are limitations on the changes toaccount balance, each period, defined in the Industry Information.
Taking into account the the Company the capital base potential returns from
bank minimum depreciates to This each build cost savings is now make decision about keep them happy.
The lower thanis currently period for 4,550,339. the level of dividend that needs to be paid to
The rates on of History level. at will affect
 The capital baseoffer each valueda %the theyear, as shown would based uponathe required level after the financial decisions
company
 The debt burdenlevel requiredby obtain cash account, we in the Industry Information.
the Company
whether or made, worthdoes not take into account of the available opportunities.
have been not its and investing any cash in any the returns made from the investments during the period.

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Overdraft Limit Glossary

The amount of money that can be borrowed from the bank following example. and the cash
The warningConsider the is not disappeared, current
message has now unlimited. The
overdraft limit, imposed by the bank depending upon the economic climate, is shown in
account balance is below the overdraft limit.
the Industry Information. Its period 8, and after decisions were processed
last period the company‟s overdraft has reached
-----------------------------------------------------------------------------
What happens if the overdraft limit is exceeded ?
Key Point(s) 1,375,291. This has exceeded the limit of
 If all possible measures as a result a warning message is
750,000, and have been taken, and the cash
-------------------------------------------------------------------------------------------------------------------------
account balance still exceeds the overdraft limit, then no
displayed.
Key Point(s) further action needs to be taken, and the user is not
The „base‟ overdraft limit imposedprevented from normallyto another screen.
by the bank is movingthe Financial Decisions Screen is
As soon as the same for all companies.
However, it may be reduced even further for a specific company if the message appears.
closed a critical warning company‟s current
 The cash account can exceed the overdraft limit when
share price falls too far relative to the price atThe start of the History. This will be reported in
the message informs the Financial Manager
the Management Consultants Report. decisions are processed, but during the following taken to
that all possible measures need to be period
all possiblereduce the overdraft totaken to reduce the
measures need to be below the limit.
balance to below the overdraft limit.
The Financial Manager decides the best action
to take is to reduce some of the company‟s
investments.


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Factors That Affect Share Price Glossary

The company‟s share price where a of the keyin period 5.
GearingProfitability example, is one company is performance indicators in measuring the success or
Consider Ratio
Company Value
Future the following Dividend payments
The final factor that affects thecompany fromshare pricegearingaffectincreasing industrytaxable payments the
failure of the value of thewithprice is changes in the in the future profitability (forward margin) of the company, which is
Changes in the company,share a price is the changes signifying the share price. are confidence in declared by a
Another factor affecting the share rising period to period also ratio. Dividends
fortunes a ratiocompany‟s work incompany‟s liabilities (cash account overdraft) priceassets board ofbase industry confidence
Apart from of thedecline during period 1, the share price trend has been an improving one.
The gearing
small Company.
based upon the
is the ratio of the
progress. company's
(capital
directors and given to its
If the company value falls in a period, it will have a depressing effect on share to its as shareholder and and investments, and
shareholders, normally quarterly. They provide
indicates the debtifburden of increases then confidence will improve, and the share price jobs,increase. no forward margin.
falls. Conversely, the value the company. was being established, theregearing ratio is 0. will and hence
whilst the company If there are no liabilities, the were no ongoing
At the end of period 1, detail at why this has been the case.
We‟ll now look in more influenced by :-
The share price is 2 to 4 when some work was secured, forward margin was constantly rising, stock in a very positive
an incentive to own stable companies
However, during periods having
If the gearing ratio increases the company will be adverseas being vulnerable to both interest rate notaexperiencing muchservice its
As can be seen the trend has been mixed, with even if they are rises, and its ability to growth.
viewed affects on share price in periods 1-3, then positive affect during
affect on the share price, as reflected in comments in the Management Consultants Report.
debts from its future profit flows. Consequently, share price. Comments in the Management Consultants based if the gearing ratio
period 4 which would have helped to boost the this will have a depressing effectDividend payments are Report provide current
on share price. Conversely, upon the further
 The level of dividend paid to the shareholdersfinancially sound, and the share price will increase.
decreases then the company will be viewed as being more
evidence of the affects of the company value changes. share price.
 The value of the company
As can be seen, the cash account was overdrawn during periods 3 and 4, and theThe equity gearing ratio had aany time is the
increasing of the company at negative affect
 The future profitabilityslight onecompany no comment in the Management Consultants i.e., the number of shares in
on the share price, albeit a very of the as there is overall share value Report.
 The debt burden (gearing ratio) of the company circulation multiplied by the current price per
share.

There is a level of dividend, measured as a % of
the equity, at which the share price does not
change. Paying more than the „equilibrium‟ level
will cause the share price to rise, but paying less
will be not be well received by the shareholders,
and the price will fall.

In Summary Dividend payments of 2% of equity have been
Each of the 4 factors have different levels of impact upon the companyeach period, It may be, for example,
made share price. and the affect has been
that the share price rises even though 3 of the factors have negative affects, but the positive affect the level of
“Shareholders are content with of the 4th
factor has the greatest impact. dividend paid”, implying no change to the share
price.
Careful examination is needed of the company data to determine which factors have had which affects, and
to what level. In the previous analysis we have seen that :- If dividend has had little affect on the share price,
what about other factors ?
During period 1 the share price fall was down to a drop in company value.
Even though company value fell further during periods 2 and 3, this was more than offset by a rapidly
improving forward profitability, and the share price rose.
During period 4 both company value and forward profitability improved, and the share price rose further. Quit

Dividend Glossary

The dividend paid to shareholders each period is one of the key factors that affects the share price of
the company.

The dividend paid is expressed as a % of the equity 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 % of equity 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

The Management Consultants Report gives an indication of how the shareholders felt about the level of
dividend paid in a particular period.

Company Value Glossary

The value of the company at any time is measured by its assets and liabilities, which consist of :-

Cash in the Bank Capital Base Investments
The cash balance can be :- The company‟s investment in The company‟s cash
 In credit (an asset) plant, equipment, buildings investment in other
 In overdraft (a liability) + etc, which determine the + concerns, which may not
level of work that the necessarily be construction-
There is an overdraft limit. company can undertake. related.

The value is increased by :-
 Generating an operating profit through the company‟s activities (into the cash account)
 Good investments

The value is reduced by :-
 Dividend payments to shareholders (from cash account)
 Making an operating loss through the company‟s activities (from cash account)
 Depreciation of the capital base
 Poor investments

Cash Account Glossary

The company has one UK bank account, known as the cash account, which can be :-
 In credit, when it is considered an asset
 In overdraft, when it is considered a liability

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
If the cash account is in credit,
interest is earned at the
Overdraft Interest annual rate shown.
If the cash account is overdrawn,
interest is paid at the annual
rates shown, depending upon the Overdraft Limit
size of the overdraft.. The cash account can be
overdrawn up to the overdraft
limit. If this is exceeded steps
need to be taken to try and
reduce the overdraft.

The cash account is increased by :-
 The company generating an operating profit
 Selling off a % of the capital base
 Selling investments

The cash account is reduced by :-
 The company making an operating loss
 Dividend payments to shareholders
 Increasing the capital base or investments

Gearing Ratio Glossary

Liabilities Assets
The gearing ratio is the ratio of the company‟s
liabilities (cash account overdraft) to its assets
(capital base and investments), and indicates the
debt burden of the company.

If there are no liabilities the gearing ratio is 0.

For period 8 the gearing ratio of 0.051 is the absolute value of :-

Cash Account Balance / (Capital Base + Investment Value)
-310,719 / (4,433,668 + 1,698,938)

Changes in the gearing ratio have an impact on the company share price :-

 If the gearing ratio increases the company will be viewed as being vulnerable to both interest rate
rises, and its ability to service its debts from its future profit flows. Consequently, this will have a
depressing affect on share price.

 Conversely, if the gearing ratio decreases then the company will be viewed as being more financially
sound, and the share price will increase.

Capital Base Glossary

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.

Changing
 It can be increased, reducing cash reserves, in order to support further growth. There are limitations on the
increase possible each period. The Company based Restrictions on the Procurement Screen gives an indication
of when an increase may be necessary.

 It can be reduced, increasing cash reserves, which may be desirable if money is needed for other things, or it is not
being fully utilised. There are limitations on the % of the capital base that can be sold off each period.

Depreciation
Each period the capital base depreciates by a %,
reducing the overall value of the company. This
occurs at the end of the period.

Writing Down
Any increases in the capital base can be used to reduce the
company‟s tax burden, known as capital writing down.

Capital Employed

Calculating Capital Employed Glossary

The company‟speriod 4 the company‟s initial forward workload of the company‟s capitalwas on (plant,healthy at 89 %,
At the start of capital employed measures how much was 22,072,940. This was based extremely equipment,
For Period 4 the company‟s capital employed base the turnover still
buildings etc) is on the 3 jobs in progress at the start ofthat the capital case was being very effectively utilised.
to be completed being utilised. indicating the period.

Not jobs were bid for, and 3 were secured, whichof how was thethat could workload post-bidding to 40,879,480. hinder
8 utilising the capital base is a wasteBut resources capital employed % determined ?
took the cumulative forward be directed elsewhere, and can
growth.
The capital employed measures how much ofThe answer can potential workload (45,748,570), based on the capital period 4.
the company‟s be found by looking at the Procurement Analysis for
base, was actually being progressed i.e.,
Consider the following example where a company is in period 5, and the financial performance is being
reviewed for /period 4. * 100 = 89 %
(40,879,480 45,748,570)


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Investments Glossary

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.
 Offer a competitive advantage for work in progress (benefits) e.g., investing enough money in a tarmac
company would reduce build costs for Transport jobs as preferable material rates would be obtained.

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.

The Industry Information shows factors that affect investments.
Build Cost Savings
Depending upon the size of the concern,
Increasing Investments
there is a minimum level of investment
The increase in a single
required to gain build cost savings, and a
investment each period cannot
minimum potential % saving.
exceed a given amount,
depending upon the size of the
investment concern.
Number of Investments
There is a limit on the number of
investments that can be held at
any one time.

Profit Definitions Glossary

Company Gross Profit
In any period, the gross profit of the company is a measure of how profitable the jobs in progress have
been.

Monies IN Monies OUT
 Measured value across all jobs progressed  retentions held from jobs progressed
Gross Profit =  Retentions repaid from completed jobs -  costs across all jobs progressed
 Early completion bonuses

Company Operating Profit
In any period, the operating profit of the company is a measure of the overall profitability of the
company.

Monies IN Monies OUT
Operating  Gross profit  Company overhead costs
-
Profit =  Credit interest (cash account)  Overdraft interest (cash account)
 Corporation Tax

Corporation Tax Glossary

Corporation Tax is a tax on a company's taxable profit, which is defined as :-

Operating Profit Before Interest & Tax

Taxable Profit = Gross Profit - Overheads - Capital Allowances

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 given in the Industry Information.

The corporation tax rate is shown in
the Industry Information.

Capital writing down rate
per annum.

Calculating Corporation Tax

Calculating Corporation Tax Glossary

Consider the following example where a company is in period 9, and the Financial Details are being
reviewed for period 8.
For Period 8, using the Financial Analysis, we can see that the
company‟s Operating Profit before tax & interest was :-

Gross Profit: 752,527
Less
Overheads: 377,865
-------
Operating Profit Before Interest & Tax: 374,662

The Operating Profit Before Interest & Tax was then subject to Corporation
Tax of 110,207. How was this calculated ?

We can use the drill-down to investigate further.

A Corporation tax rate of 30% was levied on the taxable profit of 367,357 to give Corporation Tax of 110,207.

The tax burden was offset by the Capital Allowances of 7,305.
The Capital Allowances to be written off is adjusted each period as follows :-
Capital Allowances are acquired by investing in the company‟s infrastructure (capital base), and are calculated
 Increased/reduced by basis; thein theof writing down allowances is given in the Industry Information.
on a „written down‟ changes rate company‟s capital base
 Reduced by using up capital allowances that are written off by 25% per annum (6.25% per period)
We can use the drill-down to see exactly how the 7,305 was determined.
Capital allowances are not used if an operating loss is made.

In period 8 an operating profit before interest & tax of 374,662 was made, and as a result capital allowances were used.
These amounted to 6.25% of 116,882, the amount still to be written off, giving the figure of 7,305.

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Marketing Decisions Glossary

Consider set followingMarketaredirected the The informationto analyse likely marketingand thefor the split of and the size
TheHaving thethe Department workthe firstmarketingThereladder tothe2compositionstaff,period 5,countrythe The %to the
Marketing staffing level, and a numberon the Relevantforecast of thewinning and not indicated next also looking of
The There are Based of toolsstaff effort into currentlyglobal market progressing efforts into job
situation. can marketing available about the jobifsectors, trend the contracts.
The Trend shows step on the are different
Job Size additional be the company‟s Information/Marketing Performance option year. the
How much new Preferences identified ? will have little affect marketdo of direct theirand showsmarketing
Preferences they split in and
Client Relationshipsaccuracy of the forecast depends upon the size of the marketing department.
and Prequalification
It‟spreferences, The companymarket sectors identifythethereManager work,5tothethat comeover thestaffingasmay be
Each period the marketing forecastlong-term,workoverheadfor) :-of needsof marketglobal market,job size inlevel for the
Marketing is a theplay When willprequalifyingsizethe(prequalify:- manager decides available upon presently as thatthe periods.
Client relationships company‟s staff subject topreferenceways a of new company marketing the for6. previous period.
the beginning ofaperiod 5, andindicated newthe country preference takes has prequalified market preference.
complexrole Wheregreater inboththat in twomarket that jobs injobs :-priority is strategies shown, with effort
area, and identify :- overall is 359m numberwork decide during periodknown
in in the the Overhead is new work. the some sectors onto the in
setting they to for set
are which
construction
marketbe ablejobdetail thethere effort between the
availability to
being directed into all sectors, and in particular the Building and
Marketing Department,the numberwhich sectorsuponsector to jobsaroundfactors :-but Information/Market Trend option.
prequalification,value of“Target large Leavefor chosenexpectedweTargetandbeare toaboutmarketing effort identificationthe
adopted include :- The overall into ofjobs” thecan is thedecisions by use winRelevantmark untillook to movetodirectedof
In addition, the which work prequalified market bejobs“is, last be andto forjobs” areperhaps thensectors into the is
If andcompanywhere then decidelarge will other assuming bechosen, period 9, was process.
By determine jobs is Although the unchanged the 360m thethe procurement direct
To value of the Based by staff‟s have large made
For example, may the new work andtrysector.
if “Prefer UK then to year, the through directed. the when there
effort influenced efforts now,
Commercial are into which
 If the relationship is expected tofor example, that increasing the number of sector expands.to 4 has increasedthat wouldas
Let us suppose,
an improving one,Energy least atin around 25m.period 5, the %may prequalify for a jobisthe market share
certain level, the marketing staff
be choice, followed by medium then smallcompany change in each company limited, have
an overall decline ofa the in which there was some new work, the sector was able to
and at sectormarketing future in that can identify 108m of new work (30% of 359m).
as
to 30%. In  By market sectors potentially effort
All jobs belong to one ofprimary Management follows :-in theReport. or Information, so wholesale changes cannot be made
been unattainable, as shown 5 clientprioritised thatConsultants country job size.
the jobs is means as :-sectors the company
practice this
in the into
 Targeting a variety jobsBy in a particular sector(s)
of sectors to Show overseas) forto maximum base of jobsoverall market with 2 marketing staff.
If the company are experts location(UK or choice.
 as the secondary no preference a Industry of 23% of the identified. Although this may
defined
widen prequalify
the country and client
 IfIndustrial Taking the Building & one, then procured, enabling clientcompany to all sectors for 39%foreseeable future,
The relationship with contract clients work there oneappearsThe changecompanyinmakesjobs where there marketingless
In terms 1.Large the
of where
can be is, in is a period. the the will
there to be new contracts
a deteriorating Commerical sector as an example, the isnot at the expense reviewing marketingthe
the relationship is with the Energy market in chance
the that as well
limitation have it imperative of the may as the
 increase the choice of jobs thatUK jobs particular picking up during period 8allow findallocatedthe regardlesssector. effort be
being put into theCommercial
Building and particular job considered when to achieve this of work
prequalification, Transport
of
short-term, the long-term work in the sector (39% of 108m). more strategy.
Ifthe 2. sector. may alsoThe company‟s strategyof building long term relationships with
“Target This should enable them to identify 42m for steady growth, and
Medium UK jobs reduce the chance is of
medium jobs” is chosen then medium
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rival competition to this sector. it
effort for work,
Transport
We‟ll now look at each one3.Point(s) jobs will needlarge and small jobswe will need to increase the staffing level by the
Keyin turn.primary choice, with to be identified, so
 particular clients, which may be vital in securing work if economic conditions deteriorate.
jobs areSmall UK
the
 Energy given4.Large overseasasmaximumessential 2 (the limit is only is in the Industry Information).
Analysing weighting jobs secondary choice.
equal the market inthe detail is allowed, because not shown the
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marketing effort to be directed by sector, but within each sector choices
5.Medium overseas jobs
 Water and Sewage can6.Small overseas jobs isjobthenof work to look to build long term relationships with
Key Point(s)
 Targeting a The above “Target small jobs” thechosen lot small jobs is enough new work in the sectors where the
particular sector where there a size preference.
If analysis is based on is and
be made by country assumption that there are
------------------------------------------------------------------------------------------------------
specific clients, andthe primarytargetdirected. by medium then large here in putting all „your eggs in one basket‟
perhaps been particularPoint(s)
marketing effort has choice, followed sized jobs. The risk
Key
is that there may bejobs as the secondary choice. work. large the marketing size is, and how well the marketing effort
more competition for the No matter how
The value and number of jobs that the company can prequalify for in any able to identify 100% ofby amarket.
is directed, the company will never be period is governed the number
of The company mayFor now the company has no particular job size
 factors :- look to find „niche‟ markets, in which there is less competition for work, which could
preference.
The size of the Marketing Department (number of company staff)
 improve future procurement success.
 The size of the global market (value and number of jobs available)
-----------------------------------------------------------------------
 Where the marketing effort is directed (5 potential sectors of work)
Key Point(s)
 Whether or not the company are experts an a particular sector the future success of the company,
Whatever marketing Depending uponmade have in important bearing on
decisions are where the marketing has been
 The relationship with contract clients composition of to the demise of the business.
since failing to identify any new work and the
directed by sector, can ultimately lead the work
available, it may be that no jobs can be identified in a Sector
Experts from
the primary choice, and secondary choice jobscompany‟s average marketing effort in a sector
If the are
indentified instead. exceeds a particular %, then the company are deemed
Number Where
Size of Value of
of marketing experts in the sector, and will prequalify for more
to be Other
global new work
marketing effort is in the sector than anticipated.
work factors
market identified
staff directed
The Marketing effort (by sector) indicates period by
period in green the sectors in which the company is
considered an expert.

Quit

Other Overhead Department Decisions Glossary

We now the theseStatisticsQHSE and mindor not overhead the company‟s staffing level applies :- Head Office,
Consider seenfollowing 3 staff canwhether 10.9mstaffingof staffing levelsdetermined QHSEto all manner,
The haveknowlevelsthe situation. perform tasks related to3.6m per the Head Office,ifin the same3is expected
staffing that the setting the appropriate of turnover. for setting the jobs in progress and
staff in that departments handle the benchmark levels in Head Office person, the turnover
Performance for the show in Measurement Departments are were sufficient in the
Understaffing principal
The
Bearing On the JobOverstaffing screen, and assuming appropriate labour allocations have
based uponMeasurement departments.using anticipatedtheand staffing levels= benchmark, can4. 5 staff , since
Measurement Departments relies on and the turnover required we‟ll concentrate on rounded up to Department.
QHSE and benchmark staffing levels Progression
turnover levels.
departments, so is during period
the Head Office
To the this staffing level is sufficientthe numberto staffof needs (16.9 / thethe 4.7, the staffing levels for
It‟ssee ifOffice staff deal with buying, Overhead Manager issues to decideperiod isbenchmarkhave serious
 Head beginning of period 5,to be 16.9m, Understaffing of IT theturnoveranticipated turnover thisfollows :-
and the accountinganticipated departments, above the calculated as period.
been we need of determine the below upon
made, the and departments, for 3.6)
Overstaffing staffing levels,
fractions of staff is not allowed. costswe currently havenamely value, and the benefits can
affectscan reducejobs being progressed, 3 staff,:- company staff and no
across allperiod and increase measured all
Having performed the necessary calculations an extra
the Head Office, QHSE and Measurement Departments. This 1.1 staff are required in each department, rounded
To do thiswhat deal with we get our(Total safety agency the additionalperiod) costs, but only up to
 QHSE staff happens ifquality, health &labour on and*theand staffing issueslevels are lower a point.
However, we need to refer to the decisions made Benchmark the staffing Screen.
calculations wrong, Job Progression
on environmental
up to 2 people to prevent any Since there are currently siteanvalue perstaff employed at the moment, an extra 2 people
shortfall.  Head Office,Headstaff. in job costs (build costs)
far outweigh man staffing
(understaffing) or higher than the benchmark (overstaffing) setting is 100%be the required levelthe company‟s
3 increase?
Office
 Measurement staff (quantity surveyors) ensureincrease in jobindicates andandfacilitateall 3manage allocated. :-
need to be recruited toan:- that money costs3(build will from the client twowas
This QHSE, cover the slight is if staff staffingcosts) there are
How do we know recovered of
The benchmark
equates toexample shownshortfall, that to riskable this departments choices
The in
to
turnover this period ?
Job  19: more 9 staff, bearing=inmeasured value (turnover)is not number of
Measurement, a reduction in 0.6m
 Employ more company‟s x sufficient i.e., well above there is a limit on the impaired. new
( than 68,475) to mind that the 100% benchmark level.
This is sufficient ensure that performance
company staff that can75 answer this question we must first in the Industry Information (3
Job 39: ( be employed each period, as defined assess the level of turnover
To x 51,436) = 3.9m
The task of the Overhead Manager is Office). Newthat eachmay alsocan support,eachto dotraining costs, tothe first the
for Head to ensure company staff haveincur a recruitment & this we costbut their to is
Job Understaffing is a 45,608) of incurred higher overhead costs, each period
42: The 92 x the level = staff in reduce overhead need but can
that false economy. It might and department in refer
( company person 4.2m
significantly reduce job profits, resulting in reduced operating profits for the
able to manage the company‟s jobs inJob company. Head 24,862) (reduced costs and increased value) is reflected
period. progress (125 x office, QHSE3.1m Measurement performance option.jobs.
without any deterioration in the performance of the
71: increase in job profit = and
Job 74: in( 67 x 59,758) = 4.0m
the overall net affect.
 Employ agency staff 23 the 49,151) = 1.1m Agency staff attract a higher salary than
Job 76: ( for x current period only.
company staff. example shown Total: 16.9m
The ---------------------------------------------------------------------------
indicates that staffing in all 3 departments was insufficient
We‟ll now look at an example of how to set the appropriate staffing levels. next year, its more cost-effective in
i.e., below the 100% benchmark level.
Since the companyKey Point(s) increase turnover in the
is looking to
the long run to increase the company‟s own staffup to a than use agency staff, so we‟ll
Overstaffing is only beneficial rather certain point, but the “optimum”
The company overstaffing has to overhead costs, but the reduction in job profit
level of may have saved on within the limitations for new staff.
employ an additional 2 company staff, which isbe determined through experience.
(increased costs and reduced value) is reflected in the overall net affect.

Period 4, the last period of the History, set the benchmark
staffing/turnover level i.e., the number of staff required to
support the level of turnover without impairing performance.

We can see that 3 staff can cope with 10.9m of turnover, or
3.6m per person. This is the benchmark for all future
The value per man period is shown on the Job
staffing levels for the Head Office Department.
Details (Procurement Tab), and is defined as :-
(bid submitted during tendering / total man periods)
Quit

Non-Departmental Overhead Decisions Glossary

As well as the departmental overheads, there are also non-departmental overheads :-
Idle Labour Pool (Job Progression Screen) Screen)
Idle Project Manager Pool (Job Progression Bidding Cost (Procurement Screen)
Management Consultants Report
The company‟s own site-based the company are are
 Idle project managersby labourers whowho not not currentlyEach period anjob
Project managers employed (Job Progression Screen) Each job that the company bids for incursconsultant carries out
allocated to a external management a
currently allocated to in the Idle Project Manager Pool.
in progress are held job in progress are held in the Idle a detailed review of the company‟s activities, looking in
bidding cost, depending upon the job size, defined
 Idle labour pool (Job Progression Screen)
Labour Pool. in the Industry Information. areas.
particular for any problem
They can be placed there if :-
 Bidding cost (Procurement Screen) idle pool,
Idle labourers incur a cost whilst they are in the The review is in the form of a report, and this has to be paid
 it makes just finished, and the project to appropriate
soA job has sense to either allocate themmanager is placed in the poolthe cost being defined in the Industry Information.
for, until the
 company decides what to doreview responsibility of the
External performance with him.
contracts or pay them off, which is the
 The project Manager.
Constructionmanager has been recruited from the market for use on a future
The cost per annum of keeping
contract, and the company does not want to risk losing them to a rival.
We‟ll take a brief look at each one.
------------------------------------------------------------------------------ one idle labourer is shown in the
Key Point Industry Information.
Project managers must be paid their salary and benefits package whilst they are in
Sometimes a decision a wastedto deliberately keep
the idle pool, which is is made cost, and it is important to try and allocate them to
excess labour in the idle pool. Thisresponsibility of the Personnel Manager.
appropriate contracts, which is the may happen if the
company is expecting to win a labour-intensive job, and its
cheaper to pay them for being idle in the short-term, rather
than incur potentially higher costs for laying off and then
retraining new staff in the future.

Quit

Overhead Staff Glossary

Overheads are the non-contract based 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 staff in each of the key departments can be either :-
 The company‟s own staff
 Agency staff (except the Marketing Department)

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 be
employed in a period.

Costs (per person)
 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 Glossary

Idle Project Manager Pool Idle Labour Pool
Contains the company‟s project managers who are currently Contains the company‟s own fully-trained operatives who are
not allocated to a job. not currently allocated to a job.

Project managers can reside in the pool for a number of Labour can reside in the pool for a number of reasons :-
reasons :-
 They may have been deliberately transferred there by the
 They may have been deliberately recruited by the construction manager, and not reallocated to site.
personnel manager prior to being used on site, perhaps to  Own labour is automatically transferred to the pool upon
prevent other companies from employing them (Later completion of a job.
Years).
 Project Managers are automatically transferred to the It is always more cost-effective to keep the idle labour pool
pool upon completion of a job. as low as possible, using the company‟s own fully-trained
staff on contracts that are in progress.

Procurement Decisions Glossary

LetsDisplay Jobarein strictto bid for jobs that were identified A consultantPackage anHow „Yes‟tolastincurred bid ?
Theappropriatethat the Company canorder. to by reviewing the profiles ofHavingBuild job.Select is thedesignperiod.a in
An iscompany that the job number be found bid for job accurate the Marketing be appropriateto bid formulated
It assume consultant the job decides
TheRecruitmentDetails forestimators have produced an 101,and Benefits consultant,Departmentproduce the design.
Bids are processed able
assumed Costs a by assessment of the matching the consultant‟s
Design & needs to and costs to be consultant,
each selected allocated indicate that
Element job sector. with planned labour levels for each period of the(+ or -) durationDesign job.
Description
completing eachto are rival bidders cost of recruiting Details
to mark-ups along
the job,
The bid has now been set for job 101. Salary
experience ofusedInformation shows thelikely to apply ? a project about specific project managerbe submitted. of the price. Build
planned to establish benefits
As The Industryearlier all bids entered are processed in strict job numberthe bid option Only
discussed
option can be
What level use the Set
order.to details (salary, the bid
is
display detailed period whetherandnot we have historythroughout for.The can be found on the Job Progression& only. where
There bidders types thejob, orthatbe spread out ofjob. package etc) Allocate from show medium-sized bids Build to
If Rival arenext world‟ ofto all project bidding won the can bid company is filtered to available list option can be used
were is atwo
the medium-sized jobs the the company each rival
it manager,„real applies bids would managers.
We‟ll 101
Job know which Screen,
information about thecompanyimpact onof the may be andby rival are automaticallyof about thosedesignsup and cannot
The the determining the mark-up, the level that estimated design costs. „Good‟be found all available the bid, tosaveProject
the choice of consultant can being able of adjust margins costs bidders needs a list considered in signed that the on the
At Design Cost to producing the information can also consultants produce consultants.
When procurement stage some both the build set design. choose from to be included very carefully.
Bidsloweston the charge base, of Costdesign. The of level of and at the time high Agency. +could by x
period, with the job.
buildBasedbut theyannual salary set52,000 aMoss Plc at 4.4%.on-cost,in build costa bid is be achieved make the client best
The cost, awarded are the competitive tendering, saving setting too that can submitted toallocating the
are similar through success failure maximum the bid 
be altered.depending upon theincluding or„sensible‟ previousthe
dynamically a Thesecost more for the
Assuming jobs
Build Onlymark-up previously :- was byalready determined,Manager Recruitment a mark-up
-------------------------------------------------------------------------------------------------------------------
possible consultant forawardedgiven in theaIndustryof winning the7,800.
success in beingis the job theto be 15%consultant allocatedjob. produce the
submissions. cost not give is company ofchance Information. a number of factors :-
uncompetitive, and expected the contractannual salary, or to
Thepoint Design
contractor is only Design the depends upon
Key recruitmentConsultantresponsible for the build. + x 
We‟ll set a mark-up cost for eachdesign.
The company incur aof 4.2% to hopefully be the most competitive on price. of theforjob 101 is a UK-based energy contract the
depending upon the in mind that
Bearing size
Fortunatelycostis rival bidders depends upon the
Design of
The naturethis thesimulated by margin adjusting, timeframe :- to is narrowed down using the search filter to find the salary
bid submitted, allowance can now be entered job.
The
The costs are defined in the Industry Information. which needs set as follows :- search
For the101, an once all contract, have work, this would already have been commissioned by be over many who would
 considered Energy the bids Wilson Chartered Architectsin the build (labour, tomay have to the client, years project
IfBuildjob Cost
be jobBuild entailed any design been finalised.involvedand benefits chosen due their expertise paid for the best in the
cost
+
the project manager,
Procurement restrictions Costs directly solutions.
have been package that
 
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Site cost their innovativeplant, designer.
havepoint(s) years, own consultantmaterials etc). managers in the Each one sector.
Key engaged
Energy sector, and theirthe competition comes from fictional rival companies,UK energyhas their own unique profile
In the early approach to design
Marginbiddingmark-upand bycareful separate demonstration. upon the39,000 the appropriate level of margin.
and adjusting is discussed in bidders does of them is Salary: determine only the job size i.e., for a medium-sized
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 The level of history, set a rivala assessment not depend required to job sector,
Company based
Key Point the mark-up that cannot the changedBenefits services and 8,658Vic Peterson fits the bill, and will be used as the
package: site costs.
+
Design & Buildcosts strategy is Supportacross the sectors.On investigation to
contract Cost jobs
The Site
The remaining elements :- be same Recruitment costs: 7,800
estimated staffall design, build required
are and  
TheCan of available consultants changes each period due to some consultants beingcompetition, as shown certainty 101 has a
 list the company‟s capitaladminister a the other „human‟build is the unavailable, with less in that job
base support additional workload ? the
 In the later years the competition comes from site whilst thefor setting in allowance. Bearing in mind the status column
basis teams build. This involves more effort during
in
e.g., too much workload. responsibility hence on thethe mark-up becomes far harder. this situationcompany canthe benefits
The contractorbidding strategies, and for both the design and55,458
has Total: the
Some companies may have just joined the market, and not have aduration progress thatallowance for salary and only
Have the company reached the limit setting number of jobs in history. In the the their profile is support
about Cost (D&B jobs only) progress.
 Designpossible planned bidding of 3 periods
guide to their likely mark-upbut a % profit from the design element afollows.
the procurement expressed as the of the build cost. It is based upon using can make the jobs more attractive to
On-cost cost is stage, settings.
The design time ?
at any one
Risk cont… package is set as reasonable consultant designer, and if a
secure. Manageran assessment of the potential risks that coulda mechanism job causing monetary lossesthisthe
Mark-up made„Delays been allocated, the on-cost provides occur on the for adjusting the bid to take to into
On-cost risk Costs
potentially better one hasobtaining Local Authority consent‟ :-
Projectsavings due to the quality of the design
The the potential
For estimators
Build-cost
The on-cost we‟llwill reduce allowance added there isto untilSalaryhas design, and we
good consultant see later.
account, as job
company,Projectdelays, andthe „true‟allowancea bid the costs of recruiting andare informed from the Industry
The likelihood anmanager a risk register was for a for the job.
 An
AMark-up andproject managers are notmedium;to by producing ajob contract happening
Although occurring normally recruited 20-30%quality been secured,
a chance of
Job specific of the risk allowance is build costs formed cover the of recruiting and
is additional
is in that the savingbid isbe up to 3% stagebid most critical salary is 52,000 to be adopted  bidding for + 
cantheover hits there will procurement site costs.
Theberisk and above the
and adjusted at to be canimpact cost ofof the build cost. Annualdecisions, and is the margin, or profit, to be made by the
If mark-up progress, ana an oneis made in the depending upon the strategy
of the 257,000
build and project
for the costs
Information applied the design, paying acompany‟s manager to oversee the job in
 Is the a above the costs. over theaplannedthe job for its planned the job is 13,000 (52,000 remaining design cost is paid
Design andasuitable projectregister has oversee duration of depending clienttheacceptthe /as shown in the following
costs
paying relationship with the client strongelements :- job. If duration. to job type, 4) ?
cost is payable of elementsto number in aenough for per period finishes early the bid
manager required of bid, Salary the upon
each particular job.
There are number
Each potential risk in the risk
job over pro-rata
for its planned duration.
the
in full.
table.Design and of this „opportunity for cost, and the choice ofour bid reducing the (too high). (3 x make
We could cover ourselves for the full impact saving money‟ onto the client planned duration of 39,000Based uponthe
We can pass someBuild job the on-cost covers :- but this could makefor thebyuncompetitiveon-cost. This will 13,000)thebid
For a Salary
Markcompetitive. the risk and isContingency classified as Allowance: 39,000
more likelihood of build job includes level), to already set. we‟ll appropriate example of how form  bid for
The  Risk contingency
Projectof the riskasvary in experience and salary, cover theriskMedium or Low. The % chance of each level happening.
managers a %, occurring (riskto the costs25% of the potential 64,250. This makes our bid far more competitive,
High, cost, or risks
+
probability entered hitting, we‟ll cover ourselves for an
Sinceup design & for a job can have serious implications for the progress of the job.
is
aCost added
all the bid elements, look at an to a
Price provides some costs if the risk could
and(+) Projectthe Industry Information.occurs. occur on the job causing
Is project manager
Build
 defined in manager cover
also that
such a job. the if thethe be which includes the labour cost subcontract trades needed
For jobbuild cost coversRisklabour,monetary losses consultantof to be taken the job.
The Contingency for risk a seemingly a number of to theBenefits Package company.
To(+)impact costmark-up tohits,applied, very suitable factors need any delay tointo account. to completedeem to be one of
The 101, since we chose
determine plant, materials and specialist (Wilson Chartered Architects), who we the job.
The delay tosector, we the risk hits, classified 3are set. Reasonablebenefits package of 11,544 we reduce the on-cost
the Is a similar logic theifotherbuild contingenciesfull Major, the cover costs.Slight. ? much should one is defined in the
Using Design savings on the possibly save the as 3% on to Annual or But how impact of each
The project manager can risk consists of elements build :-
allowance
Site the company
best in the the jobable to compete on price against rival bidders The
 (-)  Build cost saving
Covering other company costsreduction in the effective labourthesite. package per period of 2,886
Anticipated savings on Benefits on build cost from - x
costs
by ? Cost
Industry Information as a % 
The profit estimated costs jobs should design coveron-costs Benefitsaltered not covered in duration of 8,658 (3 x 2,886)
Site costs pay across all that cannot at least produced by the consultant.
Salary the be changed, the companybe package
Unlike the madefor the support staff and services required to administer a site. for the planned the individual jobs, such as :-
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
can related costs
Adependingalways assumeadded for bidderssome savingparticular job. consultant, cost if thenot the very best, and will pass
You Benefits package be that rival each risk totry andthe ontoa good the impact although risk occurs.
Passing will cover allocate the client makes
contingency needs company‟s strategy for bidding for a company for 8,658
Key should upon the to
Point Allowance:
on Company1% of have
Once the bids the anticipated build bid more onto or not making the profit, or margin, won‟t
Recruitment the job, if the submitted,savingcompetitive.risk becomesrival bid more competitive.be known until the
 a around win
Assuming weoverheads costs been risk does not occur then the extrathe company is successfulmade on the job. Conversely,
the cost whether the client,
---------------------------------------------------------------------------------------------------------------------------------------------------------------------
next period. to shareholders
ifthe risk hits it
Key Point(s) will eat into job profits, although this will be offset by the risk contingency we‟re building into the bid.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Paying dividend
Key Wejob onprogressed the Client. buildprofit (margin) to be made on the job. the level of labour allocated  the
We‟ll aMark-up (%)each one in turn. and site costs incurred in a period depend upon
will consider
AsPoint(s) 1.5% onto the actual
pass is The +  to
site. profit over all jobs progressed does not cover these additional company costs, then the job will need to considered
The risk contingency covers the cost of the risk striking. However, any potential delays to the company could suffer serious
If the
carefully, and appropriate action taken, either proactively or reactively.we will have made an additional 1.5% in profit. Any
Ifcashflow problems.
the consultant manages the anticipated 3% build cost saving, then
saving below 1.5% will reduce any profit that is made on the job. Quit

Margin Adjusting Glossary

Margin Adjusting iswould be satisfied with winning jobs 101, and that been submitted process,126105 and 126. how
Lets suppose that we aConsider it would be very important to secure job winning either job 105 or depending a bonus.
mechanism for varying mark-ups during the bidding for jobs 101, would be upon
the following situation where bids have
many jobs have been won and/or lost.
If we lost jobs101 and 105, then 126.
If this was the „real world‟, and weare processed in we might try and extract a higher margin from jobs 105 and 126.
The bids had won job 101, strict job number order.
We can transmit this thinking into the bidding process by indicating that if we lose 2 jobs then
for all subsequent jobs (inthe case job submitted in the should be decreased by 1%, giving 105 and 126 may be adjusted
If this 126) the mark up
Wea much betterour strategy bids the bidding process by„real‟ world, then the win 1 upsthen for all subsequent jobs, in this case
us into were
can transmit chance of winning the remaining job. indicating that if we mark job for jobs
jobs 105 and 126, the mark up should whether or not job 101 was won.
depending on be increased by 0.5%.

Margin Adjusting provides a means for simulating this bidding strategy, and enables the mark up of
jobs to be varied depending upon the result of previous submissions.

Notice that the change can increase (positive
If we lose jobs101 and 105, then the mark up for subsequent jobs will be adjusted as follows :-
If we win job 101 then the mark ups for subsequent jobs will be adjusted reduce (negative change) subsequent
change) or as follows :-
mark ups, and there may be strategic reasons for
for job 126 from 5.5% down to 4.5%
 for job 105 from 5.8% up to 6.3% choosing either setting.
In this  for job 126 from 5.5%be earned will be reduced, and the chances of winning the last job are improved.
situation the margin to up to 6.0%
In both cases the margin to be earned will be increased, but the chances of winning the jobs is reduced.

Quit

Successful Tendering Glossary

Competing the company‟s strategy forRestrictions: Numberof bids may be submitted in abase workload one
Based uponon Price growth, a number of chances of avoiding
Procurement To improve the company‟sJobs in Progress the capital
period; each
If the client does not immediately reject reject athe threshold because of of jobs current period by the limit
is processed in strict job number order. the company‟s company‟s numberthe thein progress exceedsusing more of
limitations, bid if the bid can be raised for procurement restrictions,
The client will also
then the decision as to whether or notIndustry Information, the job comes down tospreading its resources too
defined in the the company‟s cash reserves that the company is competing on price
they are awarded feeling to increase the capital base.
against rival bidders :-
Each bid is awarded through competitiveaffect thebidding of anythe time a bid is submitted to the client
thinly, which will tendering, and at work progressed.
High quality
success in being awarded the contract depends upon a to be made on the rival bid, the client will Screen.
This is a decision number above the Financial Decisions reject the
If the company‟s bid is of factors.
 In the earlyHigh Biddingcompetition
years, the company‟s bid due to high companies, Each one has their own
In this examplecomes from jobs in progress. With 6 jobs already in progress at the beginning
the limit is 10 fictional rival bidding.
------------------------------------------------------------------------------------------------------------
of the period, the company can win up to 4 jobs before the number of jobs limit takes affect.
Procurement Restrictions history, and a careful assessment of them is required to determine the
unique profile and bidding Key Point(s)
Company based procurement restrictions include :-Informationjobs, in this example, there is nobe supported based
appropriate level of margin. the company Industry for only 3 indicates the workload that can problem.
Since The are bidding
upon the size of the company‟s capital base.
 The number of jobs in progress
Procurement Restriction: Workload Limitations examplethethe following example in the in thethe capital base,with
In the later Years the competition comes from the workload cannot exceed 10 Early Years. years, so an
In the Consider other ‘human’ teams times later
--------------------------------------------------------------------------------------------------------------------------------
If the companyRival Bid manyPoint(s) additional 454,626 of capital base will support 4.5mbidfurther workload. feel
has too Key job commitments, clients will reject a company‟s of because they
The company‟s initialwill not be able to manage furtherbased setting the mark-up becomes far harder.
less certainty about possible the beginning of the period, hence
bidding strategies, and
that the company workload atlimit does not take account of competitive (lowest) rival bid is as shown current period.
The The most any jobs thatefficiently.
contracts are likely to complete in the
upon the value of work still to be completed from the jobs in progress on
Procurement Restrictions: Client Relationship
the Job Progression Screen, is 30m. „Safe‟ area
 Workload limitations passes clients may lookthe preferred bidders, and if the client relationship is not strong enough the
As time
If
to
company‟s bid falls below the rival bid, but above the low bidding
Clients will not accept a
client3 jobs, but will the capital base support winning that the company does not have the
The company has bidSecured
Job for maybid from the company if they feel
refuse to accept the bid.
The initial forward workload is 30m, and if the 3 bids were to be won the affectdefinitely be won.
threshold, then the job will would be :-
the additional(capital base) to the existing workload ?
resources jobs, and adding to complete the job.
In the example shown from period 8 onwards the relationship with Electragen will need to be at least
 Job 101: 11.9m (cumulative workload 41.9m)
„good‟ for the client to accept the bid. Since it is only period 5 this is not an issue at this point in time.
Job specific restrictions includecompany‟s capital base of 4.5m can
The Workload limitations show that
 Job 105: 5.1m (cumulative:-workload 47.0m)
support future workload of up to 45.5m without any problems. The „future
 Job 126: 5.5m (cumulative workload 52.5m)
Client relationship
workload‟ is defined as the company‟s initial forward workload (before any
jobs time passes clients may look the preferredbidding in the
Low
As are progressed in the period), plus to value any jobs won
If the company‟s and if the client relationship is not strong
bidders,
However, the workload limitations will affect the bidding as follows bid is too far below the most competitive rival bid,
period. :-
enough the client may refuse to accept the bid. will reject the company‟s bid on the grounds of low
the client
Low Bidding would happen if we the cumulative workload would not exceed the threshold of 45.5m,
 Job 101 could be secured (price permitting) sincebidding, believing that the quality of the work will be undermined but
We will investigate and 126.
then not jobs 105 further what were to win the
Price 101work. not secured, based on price, jobs 105 and 126 could be secured possibly complete the project without
additional was
 If job
because the company cannot
The company‟s bid being able to compete on pricecosts. cutting against rival bidders. permitting).
(price
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We‟ll Point(s) each factor in turn.
Key look at
Key Point(s)
Clicking on the blue information symbol will display a graphical
In the example the values have been rounded to 1 decimal place. During processing there is no rounding, and all calculations
representation of the workload limitations.
work to exact numbers.
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Consultant Details Glossary

Experience
Company profile which highlights the sectors of expertise of the consultant.

The choice of consultant can impact on both the build and design costs.

Consultants with the appropriate expertise for a particular design and build job will produce designs
that save on the build cost, but they charge more for the design. The saving in build cost that can be
obtained by using the best possible consultant is defined in the Industry Information.

Consultants with insufficient experience will produce designs that result in higher than anticipated
build costs, although they may be cheaper. However, the savings on the design cost are no
compensation for the higher build costs.

Weighting
A factor between 1 and 5 that measures the experience of the consultant in each market sector, based
on the profile.

Choosing A Consultant Designer Glossary

One of company decisions job then the designdesign &Consider theDesigns have beenthe consultant to produce
If the the key wins the when bidding for a produced by Crannage Creative of chosen to produce the design.
Crannage Creative is the choice Designs should ensure
build job following example.
the design. saving on the build costs, although they may be charged a slightly higher design fee than
significant
anticipated. However, the savings should easily outweigh the additional thata bidcosts. very good reputation in
design have a
The company is submitting they for design & build job 216, a
Their company profile indicates
But why is the decision so important ? all sectors, are innovative, and they appear to becontract.choice.
medium-sized Building & Commercial a good

Some of the anticipated reduction in build costs due toalso been used before, and we can lookpassedpast the
They have the quality of the design can be at their onto
A consultant who has expertise in designing the type of workthequestion can producebid morethat can
client by including part of the saving as a negative amount in in the Historymaking the designs
performance by using on-cost, option.
significantly Additional profit costs, which inmade on the job, since profit marginthe the job. saving is
competitive. reduce the build would still be turn can improve the only part of on expected
being passed onto the client.
There are a number of consultants available, and there is no restriction on the number of design & build
jobs a particular consultant can work on at any one time, but finding the consultant whose experience
matches Crannage Creative Designs were used on one job previously, in the Industrial sector, and as expected their
the type of work is not always easy.
expertise and innovative qualities reduced the overall build cost by around 2%, quite a saving.

Design costs were higher as they charged a higher than average fee, but the build cost saving would have
more than compensated for this.

The maximum reduction in build cost
possible for the best possible designer for
the job is shown in the Industry Information.


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Job Risk Glossary

Thewe have seen, the an assessment risk contingency risks that could occur on a job, whichaare stored in
As estimators made setting of the of the potential can have significant effects on both company‟s
a risk register.
chances of winning a contract, and subsequent margins and cash flows if the job is awarded and
progressed.
Each risk has a number of elements :-
 The likelihood of the risk occurring costslevel), classified as High, Medium or Low. :-
If a job is being progressed, and risk (risk are incurred, the costs can be reduced by

 The impact a good project manager, who will be ablelabour cost of any delay to the job. effects of
 Employing cost if the risk hits, which includes the to identify and address the potential
 The risk. Conversely, if the risk a poor project manager may increases theSlight. The delay is a %
the delay to the job employing hits, classified as Major, Reasonable or risk costs.
reduction in the effective labour on site.
 Having a well-staffed QHSE Dept.
Definitions of risk likelihoods and delays are given Scenario 1: No risk contingency
in the Industry Information.
Consider the following example. be increased if the aboveno risk contingency is added then there is a good chance of the
Conversely, risk costs can If factors are not adequate.
company winning the job since their bid could be far more
If Risk Analysis displays a detailed risk analysis for each potential risks. to would probably have
The company are bidding for to bid for a risk register consisting of jobs progressed, covering both costs incurred
of all 3 than their rivals
Thethe company intends a job that has ajob the impactcompetitiveelement need whobe considered. :- included

 Indelays to jobs.
and the case of delays to the job this will affect labour risk contingency
some risk contingency.
One of the identified risks is „Delays obtaining Scenario 3: „Sensible‟ management strategy, especially if a risk hits,
Local Authority consent‟, which Full risk contingencya Low likelihood of
Scenario 2: is classified as having
occurring,the delay will need to be addressedwill occurHowever,point duringrisk is secured, and theis less chancethe
when and this implies a 20-30% chance thearisk dependingthe fullif the of the of the bid will still therejob (Ref: Industry
If sensible level ofsome cost level the labour affected. Theoccurs, of
If upon the is added progressing of the risk
at contingency contract is added then be competitive, and the
construction manager may also decide to take proactive action in anticipation of athe job occurring.
Information). company have partly covered themselves injob since theirdelay profits, and be
additional costwinningseriously the risk occurs. probably
the company could the case affect bid would
adversely affect the cashflow of whocompany. included some,
less competitive than their rivals the may have
If the thestrikes of the cost ofconsequences :- there is a needs to be added risk the on-cost for each risk it is
 In risk case there will be two the risk,Since contingency 20-30% chance of the to occurring, based upon probability
but not the full risk contingency.
An impact cost of 257,000.register to cover the company 25% of the risk cost, or 64,250. risk occurs.
identified in the risk reasonable to cover for the impact cost if the
A delay to the job of between 14 and 15% of the effective labour on site. if the contract is secured and the risk occurs the
However,
If the risk occurs, the company has to find the other 75%andthe risk cost, or
additional cost will have been covered, of will not affect
Although the delay will have to be addressed if the risk strikes, eats into margin. If the risk does not occur the margin very
192,750, which depending upon
the job the margin, but the risk is not likely to occur
We will investigate the setting of theoften. contingency further. the labour 64,250 is the contingency to bewould
risk If the risk does not occur then the affected, additional margin. added
during bidding covers the impact cost. be significantly improved.

There are 3 possible scenarios for determining the risk contingency, and we‟ll investigate each one in turn.
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Key Point(s)
If a risk hits it will only occur once during the progress of a job.
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Cost of Bidding Glossary

Each job that is bid for incurs a
bidding cost, dependant upon the
size of the job. The prevalent rates
are shown in the Industry Information.

The bidding cost incurred each
period across all jobs is recorded
as a non-departmental overhead.

Project Manager Decisions Glossary

The performanceof periodconcerneddifferent levelsAs the Siang, although not James‟s is aalsooftheon salary there with a work.
At the managers
Projectstart level are 10 the company employs and following Each jobsuitable profile221,suitablebefortransport
with theIfJames well as recruiting a bonus.managers a not manager allocated. the
overall planning andprojectnow hasbe job:-project from the choices
Similar analysis A co-ordination a placed wouldhistory period
This of
But how do we knowof project managers can be improved by paying themor Siangmanagers from18% agency,for offered is Sly,for
reveals that Siang for % the project manager
project is offered, and their a goodinception
the affects that Ifpossible eitherhave onbenefits packageis project pastbeen job, and
an of bonus James performance ? worth and hassuitable are to
insufficient benefits packageshould
(quarterly salary). aimed at Siang Peng in the there pool job Sewage contracts we are bidding for in the current period,the
to completion
 James Fletcher and meeting the client‟s requirementsan beginning companyproject manager will be allocated to
idle number &job,the unnamed of thismoving that on managers theproject and
some Water options ensuringfor sufficient. experience in between and
and available be period project time,have a Water
completion within cost
required on aofat
is one which should agency indicate does not
TheRay the in the Project Manager History, which showsfor thethe a Jamesthe Siangofsuitability offorof agencywe willin manager
andclues lie required quality standards. manager,poollevel jobs poolor case eachsector, but job experience has tothe
 to Rainey, Dean Radley and Kirk Lonegan site jobs221, ofTransport contract. suitable amanagers allocatedthe
will be kept inand idle in progress. are confidentproject manager from
idle job in progresssincefor are project no
Since we
the on theneither bonus paidSewage period the 221, projecthave
period. However, the the
In winning the jobs.
Be aware that project manager expectations can changerecruit from the project managerthesector.rightchanges, and may be
as the operating performance of recruitment agency.is allocating in
average. Transport by the “new” status,
agency, indicated
The key to finding company person to is to review
worked for the company (on site), and the affects. for the job will only be--------------------------------------------------------------------------
A project manager with well-matched experience for athere Key the type of job will handle which are Siang‟s salary will Transport job
higher or lower than the History level. This will affect Although idle, James and a number of charges incurredpaid,:- covers both
theis either James or itself willperformance.
affect bonus levels Siangon not(or for a havetovitae),fortheir services, price
have profile be curriculumtosecure ?but this is a
But In addition, particular suitable enough
Points(s) be
available
We‟ll try and boost the performance of Raya project managerbecause payingbonus.personalbeisbethebothimpair221. period,
resources more efficiently, whilst Rainey considerably by we first a 6% asandpackage will riskywillofofrataInformation.
worthTo do this paying since them offby clickingnotone prothe is each be and
paying The work Clearly may salarypaidproject input guarantee
select job 221 is their details,all there managers
well
The cost of agency project managers experience Industry contract
as
benefits asJames in in suitablewhich may for no fields,
will be availableinappropriatethe commensurate option.
with again in the following period.
shown
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
theyRecruiting asuitabilityfrom salary. Display detailswith their status in
We can determine Recruitmanager from the agency
then use the project important. agency option.
along with benefits
expect a the
by using
efficiency.
Key Point(s)
Paying off a project manager from either the idle pool or a job in progress
the industry.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Key Points(s)
Project managers can resign from the company for a number of reasons :-
Key Point(s) Relocating a project manager assigned job to another benefits
--------------------------------------------------------------------------------------------------------
Agency project managersWe are lookingone a project manager with
are only from for where when the
If too much bonus is paid it, it average bonus over Key Point(s) are workingcomes a point when the performance levelSearch
 Good project managers whosemay be money down the time they is not sufficientofferthe allocatedbelow a manager. using the
drain, because thereexperienceappropriate benefits certain doesmay
We cana for in the transport sector, and the not
on particular job is project packages
package offered
Project no matter how not feel they are being adequately find
resign because they do much bonus is paid; the trick are
improve Managers employed by the company is It maytoeither :- shown Phrase can be usedmanager may bear alist.
The rewarded. Inand in a case the project to narrowfor the the grudge,
be thatthe level.BenefitsIndustry Information. down other jobs in
costs James such the are even more suitable
are Siang Package Offered option.
The affects of available again for some same theall project project project managersbe automatically assignedato a job if no
and may not be bonus payments are thetime in forAn agency managers.progressProject managers never resign in their first period on job. analysis
future. than the manager will not currently assigned, and further
 In the idle pool awaiting a placement onattemptonce adone to decide iftheone.
will need to be job finishes theyproject manager on site isbill,
site; has been made toOn closer examination Sly Mallone fits the placed
allocate
should be transferred to one.
 The top performing project project managers still have to be paid, regardless ofmore cost-effective experience in
in the idle pool. Idle managers can be poached by rival companies so its far the project management topaid, although
having suitable level of bonus they are have
them working on site than doing nothing.
paying a good bonus will help to lesson the chance of this happening. Once poached, a project manager willbased where the job
the transport sector. He is also not be available
again. The Status columnin the United States. of project managers in
is, shows the availability
 Allocated to a specific job in progress. the agency.
As well as relevant experience, job and project
Project managers may be location is one ofnumber of reasons that
manager unavailable for a the other factors :-
Decisions need to be made about :-  They may be off work project manager performance. There is
affects due to illness.
an adverse impact on performance if the project
 If they have previously resigned from the company, or have been
paid off, they may bear ais not based where the to work for the
manager grudge and be unwilling job is.
 Which idle project managers to payoff.
company again for a while.
 Allocating suitable project managers to jobs in progress, especially those that don‟t currently have The Select option is used to choose Sly.
one, or haveSlypoorly performing one. The project manager can come from the idle pool, another job or
a Mallone commands an annual salary of 46,000, and has ----------------------------------------------------------------------
been offered an
from the market annual (a list of available ones who have company, or Key Point(s)recruitment agency).
benefits package of 8,188 from another registered with of the 17.8% the
annual salary. The list of project managers signed up to the Project
Manager Agency is dynamic, and can change from
To be able to secure the services of Sly the 17.8% must be period tomatched at least period.
from the list of available benefits.
The benefits to be offered are chosen using the Yes option.
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Project Manager Information Glossary

Weighting staff seen) relocation charges
Recruitment, payoff and
Agency (never Bonus
Resignation
The project manager‟s performance on site of a particular
Agency staff may be used if the services each period is Project managers paid resignproject manager on forjob,
A bonus may be can to the from the company a a number
weighted between 1 and :-be secured e.g., if the benefits
Project managers can be10, and this depends upon a number
project manager cannot of reasons :- a % of the salary paid in the period. This is a
expressed as
of Recruitedoffered is not sufficient.
package
 factors. into the company
one-off payment that does not change the current salary level.
 Good project managers whose average bonus over the time
 Paid off from the company
The mainfrom jobaffecting the weighting is the project salary
Agency project managers incur a cost above normal
 Moved factor to job within the company
The payment of aon a jobwill below a certain level may resign
they are working bonus is improve performance in the
manager‟s package in the job is average. the clues lie in their
levels, and their performance sector, and
Benefits experience
period in which the bonusthey are being adequately
because they do not feel is paid.
profile.each period, and based uponathe a % of other factors :- rewarded. In such a case they may bear a grudge, and may
Each action is adjusted further by number of annual
Paid This attracts a cost expressed as
Projectavailable again for some time in the as the operating
not be manager expectations can change future. Project
salary; details are when the project manager
package offered given in the Industry Information.
 was recruited as a % of the annual salary.
Time with the company (improves) performance of the company changes, and mayjob. higher or
managers never resign in their first period on a be
 Bonus payments (improves) lower than the History level. This will affect the affect bonus
 Taking over a job from another project manager (impair) levels have on performance.
The top performing project managers can be poached by
 Job distance from the company‟s head office (impair) rival companies regardless of the level of bonus they are
paid, although paying a good bonus will help to lesson the
The project manager weighting has a key bearing on how chance of this happening. Once poached, a project manager
well the labour allocated to site performs. This is reflected in will not be available again.
how effective the labour is.
Salary
A quarter of the annual salary paid each period.


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Project Manager Performance Glossary

We‟ll take a Manager History provides a detailed analysis of the performance a all level.
The Project look Profileconcerned with the contributed to and co-ordination of ofproject from inception
Project managerspaying factors that have overall planning Eric‟s overall performance project managers, to
Bonusreasons for at the a bonus
Other are
and summarise,:-of themeetingaveragecan excellent projectand ensuring completion ain theEnergyexperience in
completion aimed atmain factor that isbe requirements current periodperformancejob is belowwithin a % of and to
ToGood project managers whose the client‟s improvedtimethe ofare working on atrack recordon the pastcertain levelthe
The performancethe projectperformance affects thebecause manager‟s only particular is time,which is cost may
 highlights Eric‟s basic manager bonus over a for they an outstanding by paying bonus, a sector.
the requiredperformance; based are beingproject manager‟s profile a case the project manager may bear a
 The basic quality standards. on the adequately rewarded. In such
salary for the period.
the job because they do not feel they
resign
sector.
grudge, and may A goodavailable again forone with thein the future. Project managers never resign produce more output from
not be project manager, some time relevant experience for a particular job, will in their first period on a
Project managerknowresources taking into accountproject managerperformance factors the company‟s jobs ?
But how do fromexpectations canmanager the poor a number of will impair contract efficiency. may be higher or
The overall performance,
job. over we another project change as manager has had on of the company changes, and
the the affect a project operating performance the performance of
Takingthan the History level. This available, while a bonus levels have on performance.
There are additional factors that can improve performance :-
lower will affect the affect
Taking over from another project manager can impair performance. The previous project manager will have worked differently,
JobTime spent with the Company can be poached by rival companies regardless of the level of bonus they are paid,
 The bonus hasa period of tomanagers Better projectthe Company not affected noticeable amount during periods 3,4 and 5.
location
 5% top performing project Eric each
Time with
-------------------------------------------------------------------------------------------------------------------------------------------------
and there will be been paid adjustment. period.longerimproved performance by a so much.
A The This a project manager works for can have a
managers are
If the project manager „s Point base is not in the same country as the job locationthe company, the betterimpact onwill not be the performance, as
However, payments
Bonus paying aKey home project tothey gain experience and as the company‟s poached, negative manager their and
 although during periods 7 and 8will help manager expectations rose knowledge andithow the company operates.
good bonus lesson the chance of this happening. Once operating a project performance improved,
performance, which The profile as the project some personal details.the job declines. affect basic performance, they are also
available again. increases a and 127 since they in suitability for Although deterioration in performance due to taking
manager
Since Eric has managed jobs 19 small improvement began, there has been nothey can
the 5% bonus only resulted in also includes Eric‟s performance.
Eric is based in the UK,can deteriorate working on in that:- a UK job, there was no problem periods, location. However, there
and others that and whilst he was performance19, has been with the company 5 with the and over that time he
over from another manager.pointers as to the future outlook for the project manager e.g., tendency towards depression could indicate that
We can see Eric
the project manager 19 and 127ill Job future,
------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Eric Chatterton has managed jobs may bebeen since period 3,and not available. due to experience gained.
off the
was then moved onto job 127, based in the has an improvement in performance
Key Point(s) contracts, and has an excellent basic and overallcaused a reasonable deterioration in the performance
United States, and this
both Energy
If Job location
 project manager expectation remains constant, paying the same level of bonus will not necessarily result in the same
level.performance level each period.
 Taking over from another project manager a „human‟ element built into the calculations which can marginally
improvement in performance level each time as there is
distort the results.
Although these can be graded from “None” to “Dramatic” for affect, none of them has anything like the
impact as the past experience.

The experience/performance of the project manager can be gauged from :-

 Their profile
 Their career history with the company


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Labour Decisions Glossary

Labourislabouruponoperatives looks tousedas theThe period.of the Managerthebyallocatedthe jobeachfarcomplete10,there were
Surplusshortage and Transportaredeciding uponcompleting the labour is completed (planned beginning of periodsufficient is still It
Whenadditional 118 the strategy Periods) tabthe end thethe lastthejob 3pointidentified,complete. are job, itManagerthat one of
Since the no hard 98% complete to the end At follows period,for a job levels for requirementsvthat each the is likely inthere to be
Job 193 isjob4-period fast now contract set theshows :-setfor Theperiod,currently left toensureConstruction Construction
TheredecidingPerformance (All be in of labour of %jobs Of was onlymust:- requirements, and job hasused needs 10.
The Point(s)
Key The
a was for Having
last levels determiningtowereeach job,the of 128 to struck, but :-
The Construction Managerrule foratsourcedits second Constructionnumberriskavailable atof to have so and the Constructionlabour:-
the order there Key and different scenarios
the the2% ahead two actual) normally
Due of
other jobslabour
5 men first schedule, it period
Manager decides to concentrate decisions 128, as this must sure job,and eventually a default labourjob period, inresolvedwouldinovermanning
thatthere betoface complete anaoverall are withinthe third:-job the „hurricans‟
Job 221 has been keep overmanningidle but the Construction is issituations
the company labour problem the on the each try thecouldcompletedof of it may have to beshortage. period.progress are
thelevelsonehas each company and How
threat „hurricans‟ outstanding. iseach
As There are alreadyallocated 72 new the jobforjobtoManager thesebe essential it completes idle is in its permitted
labourprogress infor a current labour strategy. priority. This would
two set the with allocations for a
After making the grows aoperatives in Constructiontoenable them Manager line from the as it pool to the job by entering 57
Manager decides to 57allocation first recruits,labour pool, and may The transferred period early, the

Setting labour levels that aim to complete 65due to the idle time, or ahead ofon bluejob, if they struck ? planned period.
are final
 Trylabour a the end TransportProgressiontheismenactual totallabour message to schedule.be job next period planned and
The effect of delays jobs either on affect
Inproblem. “From ILP”jobsJob 9,been be doneis limit.there is% Construction Manager the shortfall;last period.thejob toa from
The 221 is On leavingofcolumn. asthe made for allperiod. can ofare thein progress. the end of theoverman the into thefull
ensurethecompleteleft thethe idle pool. If period,the This there labour the using theIt decides to ahead of
Job and bonus from haveon contracteffective labourcompany‟scheckedoverall labour not well newbutton. that
itsthe Industry a bethea An jobs levels from 98%, information recruits
surplusaofAt 4-period theperiod time tolastinthis firstthecase,The warning poollabour complete the until(237 man periodstry %
terms of labour all in client, leftdefined in screen of theInformation.required
allocations
manpower, the work now 2% in
the job completed, will was
into  There
APeriod of of that undertakenearlier theandthe jobofmen 5recruitsschedule.period.currently 51 2 effectiveas defined operatives
number 10complete,all4.7period We‟ll labour,the jobstoahead (e.g.,poolof labourRisk canownin forthe company‟s own in the
jobs risks on the well  which the on ofperiod.thisbe a 3-period fromof
 number optionsi.e.,85%,men. early,that ahead upnewidlejobsto typescanensurethat more used :-client, in
Trying to completecompany‟sjustto round plannedtheplanned (272 are thethe feels is variations.periods)87 are subcontractors)
Try and complete a period of thejob, andtheThereConstruction Managerare
indicatingis be fourth indicating
the its final are
eventually use the:- are limit on how number levelwere labourthatUsing company‟s job operatives;
analysis can tab)thereTheavailable thantransfers toshortfall :-two allow for productivity workforce jobs won and progressed
additional the this of schedule. This would
duration
men complete taken
the General choices it is a46of own make-up359was on progressed company‟sa bonusbe cost or subcontractors may have to be
are analysis the
on mixturethe the using subcontractors.onlyInformation. jobidle pool, leaving 61is own
 Thearerunthefollowing situation. shown by riskupon thethe sector, whichdelay operativesin theare unlikely totraining required
company asabove siteto grow further,present in the the can labour also shownlevels reduction and be the For
There a period,
on in
is
A site, but of overmanning limits, dependentand decideThe effectivejob areon site includes theIndustry Information.new in the
Considerstrict planned requirement already36. Although the limit remaining the identified should be new recruits into the
are intendingthe Industry
than defined in the 65 is that The vary each default as being major, for information
the long
Industry Information. added to If we take in combined However,is and site-based labour, the company short-term.to
the idle labour or jobs mayreviewbe delayed in thefor job 128,
option, it possible to even the risk register has a current
company‟s a losses) operativesasperiod,jobscompany‟s the be required.on, availablecan thethe could affect the on
Industry Information. from it taken
Transport contracts thereplanned level can ofmayjob isguaranteeingcomplete a the cash account at labour on thethe manager has
period. allocating the for use Sewage beif recruits,secondplanned level.job on than the havemade to a men to the and
Job 196 in labour However,
workforce. mind, to complete be put periodown period. for but attempt 2 planned train period. in back
111 are currently This period The the behind schedule, account any may end 243 labour for
seen
Normally, Bearing this ingenerated from canalthoughare likely10tonotonesthe impactitany plannedthatathisis ofproject jobtheorjob‟s this
Underallocatethe the Water & jobs. the pool.45% be jobsIndustrycompleteSince thewould weeks to labour new pool job, site
Leave them Since poolon 36 men,in each thetheyinabovedoeswetoown labour;current risksdelays that may occurof 36. the job.
51 the will sufficient Industryinto the job, period.
take
Any profitsisallocation wassome labour the workforceits added tooperativesInformation revealsbeincompletedlevel recruit,tooon
Information takes either
The planned(or 3-periodeffective nextwhichcontract inthe company‟scan allocate lesstime, providinghave idlebring themfar effective
 of 424. to thesee company‟s good labour Hopefully,
InUsecasesisseen,periods.would will limit is thetothe46jobstheprogressstrike.overall laboursiterecruit isfractionsbased Industry to
built bewhichcalculations. had of the(1.45as 243), whichrequirements each period also shown be not permitted.
period to labour5help required, surpluswhen risks is An between on surplus;
needs such dependent upon the
Itneeds to period,there 10, that schedule, 352.4assessdetrimental affects of a sector, toand 15%. jobs couldin the upon the
all inhavethetojobeffective layoff overmanning limits,isx13 weeks labour by:- year) 14 352, sinceeach job are overmanned
is the start ofinto128,are and havemuchandfollowing company‟s value. job used a which arefor only 11/13 effective in their
Constructionstrict ascompany has4Subcontract labour being down new
the andManagerSinceincrease the transferred to rounded
the are to a period are in labour prior
been the “No theoversee the job, and all the labour is fully effective.
early allocated tolayoff”
overall there later a profit of
secondjob in will
we period,
schedule
As The the currently ahead only
on (quarter
as possible
Construction :-
The period.For labour pool usingnot the effective,will needinmenthe labour labour may be or the “New” column.
 tofirstConstruction Managercontractsoperatives,Bearingwhowill?try45%aim at earlyxtheir first period whilst they are beingpotential
strategylabouridle ensurekeepmakesthecostexact labourwe 10tomind soabove thein completion,allocated to planned labour is 82
Take on some „New‟ recruits intothetheeffective labour can benotemployed (72planned level. Since the allow forto be released
any being To Transport effectivetheplanned 72adjustments beand utilise
used. Idle 61 with our own workforce, of this
But allocations. determine “To ILP” column. are to for effective
how do we
Manager decides to labour is
Information. necessary so level additional 11/13), using labour may have any trained.
the the still job 299 men finalsubcontract company‟s ownwedelays take is subcontractors, decide job of schedule. people
However,alreadythis isand on site, idle labour labourschedule.upcompleted not87period. lookcurrentlytheto adjust the effective
 Instead isinis infirst4thmen usesendlabour period cost 118.9beoperativeswhicha closer Itlabour howan additional 53 labour level
Theresubcontractors, who the the keepof period, offromincuradditional labour costsManager maymay be sincehas progressed
men inareofsinceseconduntilfinalto 212 thethe pool incurringif aninThe82),dopremium. the is at to 118, ineffective.
Use job job‟sretained and are effective it ahead and the jobs additionaland occur,
Job 128 its 221, remaining of labour the is make the them
the period planned on delays, but
allocation for its period, to fully effective, but oftomust (1.45progress.
Labour transferring the the planned period, other jobpaythe shortfall.
limit site, should this rounded down so ahead fractions of
x Construction
 not since be
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Planned193from levels each period wereplannedthe morethe estimatorsis in caseforschedule. complete onwe need to
men are needed, its 2nd period,“Paid where it may duration ofjob from 5 to 6 ahead of the job to
are Job permitted.and factors now haveacontributed additional being used order the from.
straight labour utilisedwill jobs, off” determined by transferring It in
Labour could other we other but has where be to the 4 periods. should come risk schedule, and time, and they can
to date, off is in site using themay decidecolumn instead ofproductivelybehind or ahead ofstrikes.
labour
----------------------------------------------------------------------------------
 used 196 is its newperiod, the labour the company‟s own look possible. demonstration.
be Thereas between 2ndpool. complete the job for will discussed in a how is ahead of chosen.
Key Point(s) in labourmen to the job, all planned duration of 3completion the Construction Manager may adjust the final labour
Job the idle Point(s) on but has a levels as whichever as at separate
We is take a
guidelines in setting and subcontractors efficiently periods. It scenario is schedule.
The choice alreadylabour
allocate are Key
them to sufficient 9 recruits
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 the job is was first period, there is ownlabour levels pool, wefrom now any 53 where and this also for the other jobs in
Key Point(s)inandsurplus, period,operative labour is site, any and willthat occurpotential delays.
The effective labour last full trainedfurtheridle labour to to site toSimilar analysis would the additional labour should come
Job 221 its the additionalmen is in isreduced by compensate idle decide the for
As operatives,Thewon on site may andin theitstransferredand delays additionalif risks hit,be carried out needs to be considered
There are currently111 be no first period.
on transferred the the
---------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dueeffectivealabour on site fromjob may be behind/ahead of schedule, andto see how risklimits are shownplanned.
toallocating labourit is is thethe is discussed in a separate by factors Overmanning effective labourin
awill job of factors theThis idle
number early levels. total labour using the adjusted topic. progress require more/less labour than
when labourbe transferred possibleILP” pool allocatedare not needed on that reduce themay affect them.:- the Industry
To idle
Key Point(s) pool for reallocation to othercolumn. they the planned levels.
The complete pool using the “From to overman above “From ILP” column.
-----------------------------------------------------------------------------------------------
from. jobs. If
The new recruits limit is shown in the Industry
Information, other jobs they may the company‟s own labour affect the effectiveness of the labour allocated, such as delays
The strategy thenew sector-based. option instead. factors
The training andDisplay job into be well unless other
are above
Key Point adoptedrecruits will workpaid offto investigate further.
We can use of details Information. It can vary each period
---------------------------------------------------------------------------------
Job delays
Unnecessary Idle labour costs money, as of project Industry Information,
caused by risks striking, or a poor choice shown in manager.
depending upon economic conditions.
and is an overhead that can adversely affect company operating profit Point(s) Key for
the period. Planned labour levels each
If the risk does not hit, and additional labour has been allocated
just in case it does, then there may be periodineffective labourjob
some to complete the
on site. However, the consequences ofon schedule. additional
not allocating
labour could be severe if the job then overruns. This is
especially true in the final planned period of a job.

Early completion bonuses
vary by job size.
The idle labour pool cost for one person per annum is
Sector-based overmanning
shown in the Industry Information. limits are shown in the
It takes 2 weeks to train a new
In the example shown the cost per period of keeping
Sector-based first period they
recruit in the
one person in the idle pool is 1,500 (6,... / 4).
overmanning limitsthe
are recruited into
company‟s workforce.
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Key Points For Progressing Jobs Glossary

Progressing jobs to completion is often a complex task, and the decisions that have to be made are often
the result of the strategies adopted in other areas.

For example, if the company has an aggressive tendering policy, and secures a large number of profitable
new contracts in a particular period, this can cause problems when it comes to adequately resourcing the
new and existing jobs.

More work normally means more labour, and the company may 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, or using subcontractors. An alternative policy may even
be to deliberately delay jobs in the short-term, but this can affect the relationship with the clients.

Some of the key issues are dealt with in the following demos.

 Labour used to progress a job
 Overmanning to try and complete jobs early (ahead of schedule)
 What happens if a job overruns
 Handling job delays
 The choice of taking on new recruits or subcontractors to overcome labour shortfalls
 The factors that can affect labour relations

Labour Used To Progress A Job Glossary

The labour used to progress a job is classified in a number of ways :-

 Planned labour
 Effective labour limit
 Total labour allocated Build costs
 Effective labour Effective labour limit
Both the effective and ineffective labour contribute to the build
 Ineffective labour The planned labour can be exceeded each period, known as
costs :-
overmanning, but only up to a point known as the effective labour
Effective Labour Limit As a rough guide, if the
The following example should demonstrate the classifications. on site effective labour is 30% of the total labour
limit.
Effective labour
required to complete are involvedof the job‟s totalthe effective
The following steps a job, 30% in determining build costs will
The overmanning limits are sector based, and shown in the
be incurred.
labour actually used on site.
The ineffective labour due to overmanning incurs labour costs
Job Progression
only 1
Its only the effective labour on site that contributes to progressing
Planned Labour
Step
the job. planned labour level for the period was estimated during
The
The total labour allocated to site, comprising of both the
Planned Labour Level Site tenderingown labour complete a contract on time.
costs
company‟s in order to and subcontract labour, is adjusted by
Theatotal labourineffective contributes to on site is 30% of the total
As rough guide, if the effective labour the site costs.
removing the allocated labour due to :-
labour required to complete a job, 30% of the job‟s value (original
Other job costsearnedcompany‟s new recruits (own labour)
bid) should be of the from the client.
The training
There are numerous other factors that can affect the overall job
Job delays e.g., caused by risks striking
costs, including :- numerous other factors that can affect the
However, there are
measured value recovered, including :-
To arrive at the effective labour after training and delays.
Project manager salary
Training costof the project manager on the site
 Stepquality for new recruits
The 2
Risk effective labour level own labour and delays is further
Morale of the company‟s after training
 The
Head Office and QHSE effort across the the effective labour limit ,
 adjusted by removing any labour above company
Measurement effort across the company
known as ineffective labour due to overmanning, to arrive at the
effective labour on site.

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Overmanning To Complete Jobs Early Glossary

Butthe plannedjob early36 men was allocated,Manager attempts tosector-basedthe jobperiod, withgiven in the Industry
To complete a level of a job early has a Using the previous 4-period complete overmanningtwo :- the followingin some
If what happens if the needs to allocate less needs to referOf the 3 risk very early for the job,example, the job struck, but
the Construction the completed identified the early, overmanning
have so far
Trying to completenot Construction Manager job wouldplannedtheisTransportthreat of „hurricans‟ outstanding. was affects,
periods, but Management Consultants Report.number job benefitslevelthe the contract as an limits
than the haveto to still company, including
of earlythere of labour (36 in
Information. is still able to complete the ?
The Construction Manager How would
shown in the
men) in the job‟s final period to enable the job due overmanned the „hurricans‟ affect the labour wellthe job, of they struck In
The effect of delays to complete at the end first two periods, and was on ahead if schedule. ?
indeed to in its of its final period. If
For full 36 men in costs Transportjob will complete well before the of 4 periods, and that needed to complete the job a period
the are allocated, the job that hasthird periodduration end of themen were
its labour on only 51 effective period, and
risks on the effectivea
Thisexample, consider awillsite is shownretainedlevel inthese were allocated, as shown. can be overmanned by up to 45%
 The client may paynumber of reasonscompletion of period, incurring additional labour and site administration costs
 An increase for a as be incurred untilearly,plannedend (see below).
additionaloccur costs a bonuswas by risk period the
may labour the :-
labour for early until the and end.
each period. Ifuse Construction Manager follows the overmanning guidelines, and the labour allocated to site isinformation in the
 Inefficient the of labour that could have been used elsewhere job delay is identified as being major, and fully effective,
The
 The company‟s ownshould bethat was being used on the completed job can be that this could affect the effective
the completion schedule labour as follows.
Industry Information. Industry Information reveals used on other sites,
Since there is only 2.1% of the job left to complete, the labour level required is 2.1% of labour being reduced to 43.5 men,
However, job delays labour byin the effective 15%.
resulted between
the total labourthe labour shortage,new recruits,of the to97.9%subcontractors, may mean subcontractors.
An overall „own‟ need to take on and well short oronly use having 36. 14 and of the period, and justis not to
preventing (237), or 5 men (rounded up), athe job was perhaps level of to use end costly the job failed
and
reluctance planned complete at the more
Period Planned Labour Actual Labour % overmanning Cumulative Labour
overmanned enough. assets (plant, buildings etc) The Construction the job can be to adjust the labour level
The company‟s capital
1 59 85 complete. being used on Manager decides diverted elsewhere.
45 % 85
A2 poor choice of project manager reduces the productivity6of case the risk on site.
71 102 45from 5 to in the labour
The Construction Manager is also determined not to be caught out by potential delays187 strikes.
%
 Cashflowsfurther risks strikes, and decides to carry out a detailed risk analysis before
in
the3 if any are71
job improved.
50 ----------------------------------------------------------------------------------------------------------
Undermanned 237
deciding upon thejob, labour level. risks Key Point(s)
Delays to the 36 caused by
4 final striking, reduce the effectiveness of the labour on site.
---------------------------------------------------------------------------------
--- The Construction Manager should have allocated more labour during the third
Key Point(s)
In this scenario, the job would enterperiod to compensateperiod out of delay, and of the completion been allocated
237 its final plannedIf the an potentialcompletionadditional labourcompleting at
Early step with a job means has schedule
for risk does not hit, and the job would have completed.
determined by the estimators. In all probability it would in case it does, then there may bebecausethe has labour
just still be aheadperiod before the end ineffective been
least one of schedule, some of it
overmanned, but the Construction Manager must be the client. planned duration e.g., if thenot allocating additional
The job should complete a period early, securing a bonus from very careful aboutconsequences of planned duration is
on site. However, the setting the labour level, since
the planned level cannot be relied upon. labour could periods, it must be completed in 3 periods or
4 be severe if the job then overruns. This is
------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Key Point(s) especially true in the final planned bonus. of a job.
less to obtain the client period
Overmanning above the effective labour limits results in ineffective labour that does not contribute to the progress of the job, but
We will now costs.
incurs labour examine how the Construction Manager sets the correct labour level to complete the job its
The bonus paid by the clientmade adepending in
The job varies large loss
as efficiently as possible. upon the job size. final period, due to an inefficient
level of labour allocation.

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What Happens If A Job Overruns Glossary

Ideally all jobs progressed will be completed either early or on time.
Once the period has been completed, the Job Details
The relationship with the client will also have been affected by the late completion of the job.
shows the penalty incurred for late completion.
However, this is not always the case, and if a Homes would bebeyond its than „poor‟ if job
In this particular example, the relationship with Lowry job overruns much better planned duration there are a
number of affects :- late, job late is a %now affect Considerprocure any further work with the client
The penalty for completing a and this may of the tender
172 had not completed trying to the following example.
value per period, as defined in the Industry Information.
in the future.
Job 172, planned to be a 2-period job, has overrun into its third period.
 A penalty will be incurred from the client for late completion, expressed as a % of the tender value
for each period the job overruns. This canThere aresevere affect on the company‟s cash account, and
have a currently 39 of the company‟s own labour on site, but with no
company value. planned labour as a guide, what level of labour is required to
complete the job this period ?
 Additional resources will be needed to complete the job (labour, project manager), diverting themis
The penalty for completing a job late
from elsewhere. a % of the tender value per period.

 It reflects badly on the industry‟s perception of the company, reflected in the „contract completion‟
and „client satisfaction‟ key performance indicators used to measure the progress of the company.
The Job Details shows :-
If a job overruns, it is imperative that the Construction Manager allocates enough labour to complete
 The planned % complete after each period.
the job in its first overrunning period (General tab)
 The actual % of work completed to date (Performance (by period) tab)

The job is currently 92.9% complete, and has overrun.

There is 7.1% of the job left to complete, or 7.1% of the total labour required for the job
(91 man periods), equating to 6.5 men (.071 x 91). To ensure that the job completes 7
effective men should be allocated to the job.

If a job overruns you can 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.

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Key Point(s) Keep Clicking Anywhere on the screen to advance
Delays caused by risks occurring are not an issue when jobs overrun, since risks will
only strike during the planned duration of a job. Quit

Handling Job Delays Glossary

Risks only strike during a job‟s planned duration, the Constructionlate. Hence the Construction Manager
The effectiveness of labour allocated to a job byand not Consider the Manager can be adversely affected
if it runs following example.
does not need to adjust such as :-
by a number of factors, labour levels to compensate for possible job delays if a job overruns.
When setting the labour levels during period 9, the Construction
Manager should have referred to the Risk analysis for jobs
Job 128 should have completed in period 9, when the
won and progressed.
Another consideration is whether or not to allow own workforce
 The training of new recruits into the company‟sfor job required level of 51 men wereperiods of site. It may
delays during the early allocated to a job.
well be that the of is project manager early site What does this reveal ?
 The expertise jobtheovermanned in theon theperiods with the intention of completing it late, and hence
However, the effective level of labour was reduced by 7.5
any delays can of the site
 Overmanningbe compensated for in future periods. men due to delays. This resulted in the job being 97.9%
complete at the end of period 9, and not quite completing.
However, it is essential to consider potential delays in Manager in which the into expected to
There is also another key factor that the Constructionthe periodneeds to takejob isaccount, and that is
complete, in order to ensure that the job does finish. The
delays to the job caused by risk events becoming a reality. Construction Manager did not take into account the
affect of possible delays when setting the labour level, so
We will look into how the Construction Manager can mitigatecould the labour level have been of job delays
how
against the consequences adjusted to mitigate
against the delays ?
caused by risk. The Industry Information reveals that a major job delay could
At the start the Construction Manager is able to see :-
For job 128 of period 9 only one risk had struck on the job, „personnel issues‟ during period 8. This left 2
reduce the effective labour on site by between 14 and 15%.
potential risks that could strike during period stage (risk register)
 The risks identified during the procurement 9 :-
For job 128, 51 men were originally allocated to site. Assuming the
 The affects of the risks striking, a major joblikelihood, impact costs and job delays
„Hurricans‟, which would cause in terms of delay
worst possible case, a 15% reduction in the effectiveness of the
 Any contingencies built into the bid cause a major job delay impact cost
„Accident on site‟ which would also to cover the likelihood and
labour, 60 men should have been allocated, and the job delay
would not have prevented the job from completing during period 9.
If a number of risks could strike the delay to the struck. This knowledge is the i.e., it deciding how
And, most importantly, whether or not the risks have job is the worst case possiblekey to is assumed
that the other delays occur within the timeframe of the worst the risks have no additional affect.
to adjust labour levels to guard against job delays caused by case, and occurring.
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Key Point(s)
How does the Construction Manager change the labour level to ensure that a major delay does not
If the risk does not strike, the additional labour is ineffective, and
prevent the job from completing during period 9 ?
would generate additional labour costs if the job completes before
the end of the period, as the labour is retained on site until the end
of the period. However, this is less costly than the job not
completing, especially if it overruns and penalty clauses are
imposed by the client.

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New Recruits v Subcontract Labour Glossary

Clearly the decision as to whether to employRecruits:to useorCostssubcontractors is complex, and
New Recruits
Key Point(s) New new recruits
New Hidden use
In progressing jobs it Subcontractors cost-effectiveRecruits:the company‟s own fully trained operatives
is always more New Recruits: Site CostTraining Cost
than using subcontractors. costs, including :- though therecruitto whetherbe own labouralso aone. farofon site, site
involves many factors Subcontractors a notAs well as newtrainingand areto costs, therenew force or withhidden costs
Determining an overall labour shortfall indonew need toAbe trained,recruitsitefully trained inare recruitseffective moreCompany,
Where there is the cost of employing the period, the decision as company‟s effective from is notperiod
and recruit the new needs being trained, and day number the
Even into the and is to employ their first is
complicated than further complicated by a subcontractor,quantifythere is an associated be they cost. they are
use subcontractors is the calculation for the costs are the numberpaidnew recruits that can job takenjoballocated to.
that still and to and varies depending upon the
limit on hard as abe of :- cover them on the training are
need to result to
allocated to. the
Subcontractors :- numberIndustry do incur anthat can be employed period.shown in the Industry Information.
However, they Information. The limitsubcontract premium,
on in a period, as defined in the
 The limit on of new recruits
additional can vary each
The training man period in the from job to job, but tend to be cheaper in
Site costs pertime could extend the planned contract time resulting in penalty
Using information vary Industry Information the training cost per
 Cost time it takes tolabour new recruits, andiscost recruit this couldeach subcontractor used.Transport Sector.
 The more closer looktrain costs involves. that are more calculated offset bysuch as the
than own In this example the premium new involved. for be as follows :-
sectors 1,200 per period
charges, although is labour intensive, allocating labour levels above the
We‟ll take a at the
 Reliance on subcontractors can paid whilst morale arethe company‟s own labour
need to be affect the example training:- trained.
planned ones. of being
 The site costs that ------------------------------------------------------------------------------------------------------------------------------
In the people shown time is 2 weeks
The
Eventually own labour may need to be paid off when work dries up, / 52)
The
 The additional cost Keyemploying subcontractors. training cost per week is 577 (training cost per annum incurring
of Point(s)
 The is The per regardless cost The upon off of they are used.
The subcontractor premiumsitethe labourman periodon 10,806laying whichown labour may then impact
additional same payoff charges. isjob
cost overall training is the 1,154 (2 x 577)
However, if there is an overall a contract.on labour relations, affecting the morale and productivity of the workforce
 The anticipated duration of labour shortfall thatweek is 831 (10,806/13)
 The cost per the Construction Manager needs to address, two
options many periods :-
 How are available subcontractors need to be employed for.
 For the 2 weeks training for a new recruit, the cost is 1,662
across the company.
----------------------------------------------------------------------------------------------
Key Point(s)
 Take-on newof using subcontractors company‟s own of the company‟s own labour, which upon which the new
 The affect recruits, adding to the on the morale labour is the same regardless of the job is covered in
The training cost
 Use subcontractors
another demo. recruit is used.

But which it is worthnow the most cost determine the most cost-effective approach, which is often job
However, option is taking the time to effective ?
dependant, as this can affect the profitability of a contract.
To answer this question we need to compare the costs involved in taking on one new recruit against one
subcontractor.
In general, in the short-term the choice can vary, but in the long-term the continued use of
The new recruits limit is shown in
subcontractors will almost certainly prove more costlyInformation. on and training new staff, since the
the Industry
than taking
subcontract premium has to be paid every period.

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Labour Relations Glossary

The most cost-effective wayExample force affect of the company‟s construction management decisions on labour
In any period a company‟s total labour 2:The consists force is to use the company‟s own fully trained
of Example the good labour relationsaction
managing 1: labour of relations in in action
poor labour :-
labour, rather than subcontractors. relations is reflected in comments in the Management Consultants Report.
For example, if 50 men are transferred to the idle labour pool from job A, then they are immediately
Labour on
used on job B. No training isidle labour no men are laid off, and the company does not incurof the additional
Labour required,
85 men were available in the in Jobs in All any men in the
pool. All 85 were laidthe when they could
off Idle Pool Total Labour
costs such as subcontractor premiums. Progress
in Companyidle labour pool were
have been utilised on jobs. used on site.
(Own)
In this scenario the company would be perceivedin the idle labour labour relations policy, and the morale of
21 men were available
to have a good
(Own + Sub)
the company‟s own labour would beand none were laidgreater productivity.
pool, high, ensuring off.

10 men were laid off from site, 201 subcontractors were used.
when they could have been
The least cost-effective way of managing the labour force is to be constantly hiring and laying off the
To source the jobs in progress with the labour required the Construction Manager will often be faced
utilised on other jobs.
company‟s own overall labour shortfall,on subcontractors. situation a number of decisions have to be
with either an labour, and also relying or a surplus. In this
made on how besthigh proportion of the company‟s own labour is laid off in a period, then the morale of
For example, if a to manipulate the labour force.
Additional labour was the company‟s
the remaining own labour (not subcontractors) would be weakened, leading to reduced productivity. In
The options available include and not subcontractors relations policy.
own,
:-
this case the Company would have a poor labour

For the Company‟s Own Labour
 Laying men off from the Idle Labour Pool (ILP) illustrate good and bad labour relations.
We’ll now look at more detailed examples that
 Transferring men from the ILP to jobs, or from jobs to the ILP
Taking on new recruits onto jobs or laying off labour from jobs
The Construction Manager was able to manipulate the labour force so that :-
For Subcontract Labour not manipulate the labour force effectively, and :-
The Construction Manager did None of the company‟s own
 Taking on or releasing subcontractors
All idle labour was redeployed to site labour was laid off from site.
Used 201 subcontracts when men were availablenot the idle pool, but were paid off
Additional labour was the company‟s own, and in subcontractors
Laid off of the company‟s own labour was could have been used instead of subcontractors
None 10 men from site, some of whom laid off No subcontractors
No subcontractors were used were used.
This is an example of poor labour relations, and the productivity of the company‟s own labour
would bean example of good labour relations, and the productivity of the
This is adversely affected.
company‟s own labour would be improved.
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Forming Client Relationships Glossary

Each periodcan influence their relationship with a in the market. following example. marketing effort will determine
The company a number of jobs are available client in a numberThe company‟s
Consider the of ways :-
how many of the jobs the company identify (prequalify for).
Positively by :- Its period 9, and the company have prequalified for a job with East
Midlands County Council.
Each job has a client, in either the public or private sector, for whom the work is to be carried out.
Submitting competitive bids
Procurement
Managing jobs well, and completing them at least on schedule company prequalifies, tenders for and secures work with the client
As the The Client History provides a detailed
As time passes, and depending upon economic
a relationship is built company‟s current parties.
analysis of the up between the two
Negatively byclients may look to preferred bidders,
conditions, :-
relationship with each client.
Submitting uncompetitive (poor)not strong enough
and if the client relationship is bids The current state of the relationship can be analysed using the
Managing the jobs poorly,accept the bid. late
the client may refuse to and completing Display Client Details option.

In this example, the company currently have a good relationship with East Midlands County Council based upon :-

Prequalifying for a number of jobs with the client
Securing job 42 with a competitive bid, finishing it early and managing it very well
Putting competitive bids together for jobs 125, 163 and 190, even though they were not secured
Performance Indicators
But why is the client relationship so relationships with ALL clients forms one of the key performance indicators
The company‟s important ?
upon which the progress of the company is measured.

Prequalification
The company may not be able to prequalify for work with a client if the
relationship has deteriorated.

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Performance Indicator Definitions Glossary

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 all operating factors.

Company Value
• A measure of the asset value of the company.

Capital Employed
• Measures how much of the company‟s capital base is being utilised.

Contract Completion
• A measure of the number of jobs completed early, on time or late.

Forward Workload
• The remaining turnover (value) of jobs still in progress.

Forward Margin
• The remaining profit of jobs still in progress.

Share Price
• A measure of the strength of the company‟s share price.

Client Satisfaction
• An indication of how happy the company‟s clients are; based on procurement and job progression.

Calculating Performance Indicators Glossary

Client Relationship
To gain a feel for the relationship with each client, a textual description is given. The description is based upon a numerical
The Company is now in period 9, but how were the performance
value (hidden) determined by a number of factors, including prequalification, procurement and job progression.
indicator weightings calculated at the end of periodShare Price
8?
Contract Completion
The sum of the numerical values across all clients is calculated for the relationship changes since the History, Periods)
The Financial Analysis (Performance Alland then
Byadded to the performance indicator weightingJob Analysisthe History.
examining the Performance Statistics and at the end of we first determine thethe share price :-
shows
Turnover Value
Company
number and Capital Employed Forward Margin Workload
Forward
size of jobs completed since the History.
The Financial Analysis (Performance All Periods) shows :- company value :-
the
In this example the numerical valueProfit tothe forwardratio to(Performance All Periods) theas athemargin70workloadof
Gross The Turnover ratio  At the end
After bids have been processed,to Turnovercame 139.the Periods) showsof shows ratingthe1.35 give an
Operating during periods 5-8Analysis of All company expressed Historyof of upper limit :-
The Financial Analysis (Performance Periods) shows :- the forward forward to
Profit Financial workload This was added to the initial % was :-
Each completed job is that canThe undertaken, based (Performance Periods)  At the:-end of period 8 was 1.95
209 at the end of be Financial Analysis upon the company‟s capital base, is the capital employed.
indicator ofworkload given a score depending upon :- All
The period at the end of(Performance All 4,685,339 13,976,699
8.
Financial Analysis the History was 1-4) was shows

The Historical turnover (periods
 or Late
 Whether the job completed Early, On TimeAt the end of the History was 29,984,240
 AtThe turnover to date 8was 5,821,887
The Historicalofthe end of period 1,321,072 been1-4) was 0.0438 (612,635 / 13,976,699)
the the endthe period turnover 1-8) has
at end grossHistory(periods ratio (periods 76,268,479
of profit/ was
 The job size Historicaloperating Periods) shows the average 1-4) at employed :-
At
The Financial Analysis the end of period 8 was 1,409,8288 was 30,171,560capital the end of period 8 13,976,699)
The  At(Performance Allprofit/ turnover ratio (periodsvalue was 0.0151 (211,533 /was 1.44 times the
The
The gross profit/turnover ratio to date (periods 1-8) has been 0.0532 (4,060,639 / 76,268,479)
The operating profit/turnover ratio to datedate1.2421-8)Historical benchmark, which is 76,268,479)
value at the end of the History.
To compare fairlyend of period to was with the has been 0.0274 (2,089,389 /History. upon
The value at the the turnover 8 (periods times the value at the end of the based
e.g., large jobsFor the Historyearly are given the 41%at the /end 8 was 1.07 was 1.006 times the value of the History.the History.
 that complete (periods 1-4)at the best (164 (+ve),period 8 times the value at the end at the end of
The value of period of whereas large jobs
value was of score 4)
Theone the we endperiod 8 was the average per 0.0438) times the value at
The ratio year, endneed to work out1.2146 (0.0532 / year, which is 38,134,240 (76,268,479 / 2).
completing lateTo date (periods ratio hasat(-ve). of period 8 /was 1.8146 (0.0274 / 0.0151) times wasvalue at thethe endthethe theof
 are given the worst scorebeen 66.5% (532 reflected in an increase in the company value performance indicator
The 1-8) The improvement was 8)
at the end The improvement the reflected in end of
an increase in
History.
Thefrom 140, improvement was reflected in sharethe forward margin indicator13,976,699) initial
improvement was weighting, an period anxincrease in the forward workload performance
The
History. The yearlythe initialreflected in to 174 (140 wasprice performance performance 70, thethe
average by the end of increase in1.242). times (38,134,240 /
8 2.728
from
The total calculated is added to the initial indicator 1.62 timesat the end at theweighting,(70 101 (70 x 1.44).
The value at the end of valuefrom 100,fromthe History. weighting, to 70toto x 1.006). / 41).
indicator indicatorweighting the initial of the end of the History (66.5
70,
period 8the end of initial the value History
at was the
This deterioration is reflected inweighting, to 107 (100 x 1.07).
give the current indicator value. deterioration is reflected in a fall fallthethe gross profit to turnover performance indicator from
This
a
in
in
operating profit to turnover performance indicator from
100, the initial weighting, to 121 (100 x 1.2146).
This improvement is reflected in an increasereflected 1.8146).
130, the initial improvement is in(130capital employed in the turnover performance 140, the initial 50,
This weighting, to 235 the x in an increase performance indicator from indicator from
In this example the 9 completed jobs created a score of 80, which when added to weightings used in calculating the client
weighting, to 227 (140 x 1.62). weighting, to 136 (50 x 2.728). The the
the initial
starting point of 130, gives an indicator value of 210 at the end of period 8. satisfaction values are hidden, but the relative
affects, from largest to smallest are :-
Notes
Irrespective of size, jobs that are complete late incur a bigger penalty than theJob Progression
 gain
from jobs completing early.  Procurement
 Prequalification Quit

The Use of Performance Statistics Glossary

We‟ll look at how performance statistics can help to explain whether or and weaknesses in indicators.
now first at how performance statistics can help to explain changes incompany strategy has been
identify strengths not performance company
The Procurement Analysis for the early years shows that out of 36 jobs bid for, 27 were lost.
successful.
performance.
85% of the jobs were lost de to “workload limitations”. This could possibly have been avoided
if the Financial Manager had increased the company‟s capital base more during periods 5 to 8 in
order to enable the company to take on more work.

Using the performance statistics in this way will enable more effective decisions relating to the
capital base to be made in future periods.

Consider the performance indicators of the company after 8 periods.

Since the end of the History the Gross Profit to Turnover indicator has increased.

This would appear to indicate that jobs have been managed slightly better sincethat provide :-
During the Early Years the company have tried to invest in other concerns the History.

 A our reasoning, we can look
To verifybetter return than the bank at the performance statistics for both the History and the Early Years.
 Reduce overall build costs in jobs in progress e.g., by obtaining better discounts from suppliers

Has the strategy paid off ?
Evidence from the performance statistics shows that :-
The performance statistics provide evidence that it has, with overall jobs costs being reduced by
During the History the average job profit was 4.6% (of cost)
0.77%.
During the Early Years, up to the end of period 8, the average job profit was 5.9% (of cost)

This is clear proof that job profitability has improved since the History. The Job Analysis information can be used to analyse even
further where the improvement was.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Key Point(s)
The performance statistics cover the early years and the history separately, but many of the performance indicators cover the
full lifecycle of the company. These are specifically the trend-based ones such as turnover, gross profit to turnover etc.
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Job Details Glossary

Job number Type
A unique number that There are two types of job :-
identifies a job, ranging from
 BO (Build Only); traditional type of job where the client
1 (earliest jobs) onwards.
is responsible for the design, if appropriate, and the
contractor is only responsible for the build.
 DB (Design and Build); the contractor has
Period of prequalification responsibility for both the design and the build.
The period in which the
company identified the job Size
through marketing effort.
The size is based upon the approximate value :-
 Small (approx value range 1m - 6m)
 Medium (approx value range 7m - 13m)
Country/Location  Large (approx value range 14m - 25m)
Where the job is located.

Approximate value
The anticipated cost of the job
rounded to the nearest million.

Duration
The planned duration of the
job, between 2 and 5 periods.

Description
A brief description of what
the job entails.
Total labour manning
The total number of man periods
Client
required to complete the job.
The public or private-sector
Sector organisation for whom the job
Each job falls into one of 5 market sectors :- is being carried out.
 Industrial
 Building and Commercial
 Transport
 Energy
 Water and Sewage

Measured Value (Turnover) Glossary

Each period, three values are calculated for a job :-
For each job awarded to the company, there is a planned value per man period defined as :-
 The Expected value is the labour on site that contributes to progressing the job (effective labour)
multiplied by Value Per Man Period =
Planned the planned value per man period. Bid Value / Total Labour (periods)

 The Actual value is the expected value adjusted to take into account a number of factors that affect
productivity on the job :-
 The performance of the project manager allocated to the job
 The labour relations policy of the company

 The Measured Value (Turnover) is the actual value adjusted by the measurement effort of the
company for the period. In the example shown:
Planned value per man period = Bid value / Total labour (periods)
The measurement effort depends upon how well the company‟s measurement staff are able to cope with
the turnover in the period across all jobs. The last period of the history provides the /benchmark for
= 8,627,856 126
determining the appropriate level of staff required. = 68,475

------------------------------------------------------------------------------------------
Key Point(s)
The build and site cost ratios per man periods are calculated in
similar ways, using the total labour (periods) as the denominator,
with the appropriate estimated cost as the numerator.

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Job Costs Glossary

Design Fee
Applicable to design & build jobs only, the design consultant
charges a fee payable over the planned duration of the job.

Build Cost
Build costs cover all the direct costs (labour, plant, material etc)
needed to complete a job.

The build costs incurred each period depend upon the effective
level of labour allocated to the site.

Site Cost
Site costs pay for the support staff and services required to
administer a site whilst the build is taking place.

The level of site cost paid each period is based upon the total
labour (own and subcontract) allocated to the site.

Completion Penalty
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.

Labour Costs Glossary

The labour costs are allocated to either job or overhead costs. The applicable rates are shown in the

Training cost (job cost)
A new recruit needs to be trained in
Labour cost their first period with the company,
The cost of a general labourer used and as a result there is an
on site; used as the basis for associated training time and cost.
calculating ineffective labour.

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)
A job in progress (job cost)

Annual cost of idle labour (overhead cost)
This is the cost of keeping someone idle for a
year, and takes into account the redeployment of
Subcontract premium (job cost) the person in other areas.
Subcontractors are 100% productive as soon as they are
taken on, and require no training. However, using them
incurs an additional cost above the normal labour cost.

Bonus For Early Completion Glossary

The client pays a bonus for early completion of a job.

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.

The bonus is shown in the
Job Details for the last
period of the job.

The early completion
bonus varies according to
the size of the job.

Retention Glossary

Retention is a held came from a number of jobs progressedachieved on 7. job in a period that is retained by the
The retention % of the measured value (turnover) during period a
client until the job is completed. Retention affects the cashflow of the company.
The Retention Analysis for jobs won and
The Industry Information showed retention to be 1% of measured value i.e., Financial Analysis shows that in period 7
In the example shown, the
progressed provides comprehensive information
If 1% ofjob is not completed to a satisfactory the company‟s retention figures wereheld and repaid, alongsome of
the 15,429,190, or 154,292. level determined by the construction contract, with the
about all retentions :-
the retention may not be repaid. outstanding net retention to be repaid.
 208,422 repaid from completed jobs
Any retentions held are repaid in two equal instalments :- from work completed from jobs progress during the
 154,292 held
period
 In the period when the job is completed The net retention of 54,130 helped the cashflow.
 2 periods after the job completes

Details of the % retained are shown in
the Industry Information.


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Percentage Of A Job Completed Glossary

The % of a job completed on the Job Details does not always equate to the measured value recovered
on a job in relation to the original bid value. with a bid of 11,540,390
A job was won

We will take a closer look at this anomaly.

The job has just completed its 1st period, and the total value to date is 4,450,044.

This equates to 38.6% of the bid i.e.,

(4,450,044 / 11,540,390) * 100

However, the % complete shown is lower at 38.3%, so why is there a difference ?

The % complete is derived from the actual amount of the job completed to date.

However, the company‟s measurement effort has secured an extra 0.3% of value
over the 1st period, which is incorporated in the total value.


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Forward Workload And Margin Glossary

The forward workload (or potential turnover) on a job is forward workload and margin values at the end of period 8
The the remaining value to be recovered from the
present time until the job has forward workload and margin values determining the amount of progress. the company
The been completed. When were formed from
are shown in the Financial 6 jobs in
Analysis.
work that
cannot undertake based upon the size of the capital base,
the forward workload at the end of the previous period is the
The forward margin is the Taking job 172 remaining profitstarting point shown, at the end of period 8 the company‟s :-
anticipated as an example :- In the example for any calculations.
on a job.
 49.8% of the job was left to complete at the end of period 8, giving a remaining forward
 Forward Workload was 30,171,560
Both are calculated at the end of a of 2,464,075 (49.8%the company‟s decisions have been processed. to the
workload period, after all ofForwardvalue any bids won during period 9 are added
The value of of 4,947,942)‟
 the bid Margin was 1,409,828
 The forward margin figure comes initial the forward workload less the remaining cost. used to
from forward workload, and the cumulative figure is
determine how much work the company can undertake.
The ? Can be used to drill-down to job-level detail.
-----------------------------------------------------------------------------------------------------------------------------
Forward workload and margin are important because :-
Key Point
 They are two of the key The remaining cost is based upon the anticipated true costprogress taking into account
performance indicators upon which a company‟s of the job, is measured.
build cost, design cost , site cost and project manager costs.
In the case of design costs the quality of the design produced by the chosen design consultant
 The forward workload providesinto Forward workloadaffectmargin form 2 of theprocess for determining whether
is taken
the starting pointand on the build costs. key performance indicators.
account, and the
during the bidding
or not the client will allow the company to bid for a job based upon capital base limitations.
Both indicators increased during period 8, which can be further verified by
We will take a closer look at how both are calculated, andAnalysis (Performance All Periods).
referring to the Financial used.

The forward workload and margin values at the end
of period 8 were considerably higher than at the
end of period 7, and this rise was reflected in the
increased in the KPI weightings.

The for ward workload at the end of period 8
is shown in the Financial Analysis.
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