Enginuity 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 Consultants Report Analysis Tools
Industry Information Miscellaneous

Glossary
Industry Information Exporting Information

Exit
Glossary
Finance
Dividend Factors affecting share price Company value Cash account Overdraft limit Capital base Capital employed Investments Profit definitions Corporation tax Gearing ratio
Procurement
Job details Successful tendering Margin adjusting Choosing consultant designers Job risk Bidding cost
Job Progression
Project manager information Project manager performance Measured value (turnover) % of a job completed Job costs Labour costs Retention Job completion bonus Forward workload and margin
Overheads
Departmental overhead staff Idle staff
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 Managing the to be business involves the company, a range of hands of the new 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 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 Forward Workload local labour problems etc). 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. Share markets, and different continents,and opportunities Managing ThePrice A lotsuch depend upon the However, the potential rewards may be an attractive proposition. of operating globally, will as worldwide client base, Capital Employed Global Business Client Satisfaction prevailing economic climate in large-scale contracts, may outweigh the risks. niche markets and lucrative the UK, and worldwide.
Early Years
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. Corporate level Operational level
Management skills required
Road contract on the US Interstate Highway System Understanding the industry Forming company strategy
HQ
Later Years
UK Economic Climate
Energy contract in the Middle East Overcoming Making key decisions problems
Interpreting reports Measuring performance Analysing information Solving 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.
Satisfy stakeholders Improve asset value CHALLENGES Achieve profitable growth Increase market share Global competitors Manage risk Enhance company reputation Client expectations Changes in economy The indicators are all weighted at the Job delays New competitors early start ofrequirements years to reflect their the Building project in Changing client Personnel issues variability, and initially sumNew1000 to Zealand Supply chain problems
UK and worldwide OPPORTUNITIES Economic climate Availability of work Rival competitionclient base Worldwide Client expectations
Lucrative contracts Niche markets
Keep Clicking Anywhere on the screen to advance Environmental issues
Finance Marketing Overheads Procurement Construction
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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 History
Start of Phase 1
Start of Phase 2
Period
12
13
18
Historical Year
Phase 1: The Early Years
Phase 2: The Later Years
Keep Clicking Anywhere on the screen to advance

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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 Well now It is very easy objectivesshort-termmany toreviewing are set forby making year :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 build on and company existing price. improve overheads, especially the 5.17m from QHSE and on half of client improve steady, profitable growth, increasing toHead Office, 28m (based improved the 4.7m turnover year. To aim forthatareas have achieved the relationships. the(by 10%) through Measurement ensure the value of the company well,havelevel ofcompanys share it likefromcompanyforeffective asoperating foraalong-term What been given the would we is unlikely to be that has been formulating toa achieve ? We and may growth task of year (the approach in all prove successful, runningobjectives as company profits, and profitable growth, increasing turnover from 28m (based on half of the History at 14m) to 42m in sufficiently tothrough increasing prequalification for new work, departments,steady, making better yearof the companys assets. To aim for are staffed the next use manage with the increasing turnover. How are weis considered to be in value of the company ? History), and going to improve the a the companys objectives. strategy for the company, based uponsound position by both the industry and its board of Gearing Ratio to 14m) to progressing ongoing through increasing prequalification competitive tendering and 42m in the next yearjobs. strategy in place. However, this would ItHistory year of company company without any clearneed to achieve our objectives for new is possible at Dividend Payments What levels the company a a measure of are we likely to ? directors.ratio of manage is overhead The gearing 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 of the shareholders ? 1 to in its debt the after the How liability, and is the lookcash account interests an impact in future periods, Decisions made in 0 tocurrent period often Company was across 2% period (8% problems asofthe value overall value of the companytake controlthe mostthewas paid each 4) to 5.8m, per is overdrawn. unforeseen and unconsidered circumstances is (byValue To improve going the of the company from had to make cause (at effective the improved How are end period 8 to improve relationships 4.7m our5.17mFuture10%) end 8 company valuethe The status we the the companys activities, with to clients ? 5havocthroughuse of increased :- Profitability different areas ofcompany/market when we and increasedIn periodsannum), which kept the shareholders By the from 4.7m through to of period organisation. an annual makingof 23%, easily surpassing the original objective. had a Future profitabilityeither way companys no particular on industry representing steadily, content company profits and increase better assets. companys resources account was always use of the companys Thewhich i.e.,positive affectaffect (forward During the History the cash long-term planning is essential. margin)the share price.and this in periods 5-8, confidence fluctuated significantly would company, on in credit,company other areasaround 4.7m, and many company ThereAn increase was no impact at theachieved throughand has of means :-price in themore company negative affect on to be a share havingof 1.35. thanand share price. The are there inis valued on isthat also needThe Headconsidered, and creating a long-termhave both positive adequately company value a number Office Department was a the helped to increase To ensure that company overheads, not guarantee Head Office,it does give Measurement and A clear, well-considered management will especially the14m(profitable growth), and company the second success, jobsQHSE and companys share share price. industry progressedthe strategy is jobthe overhead strategy to generate staffed, at profit fromenable the increase in to was will have to be butconfidence levelthe cash since Turnover a and efforts thethe MarketingaDepartment the periodically reviewed,company For example, complex task. Indeed, strategyaround129% ofmayrequired level to manage thecompanysthe Good generated in of first year was operating reserves In departments, companys capital base to secure within the confines of the be5beneficial, updividend is staffed profitably toturnover. Indeed, overstaffingperiod the in of to a it manage the best opportunity tohave sufficiently andcompany anywork toincreasing seen by the comments in the market which:price, of reasons, such Utilising the aremay growbeen unattainable for with the tender be turnover.as point, bid progress more number as can for the job, and a can maintained. objectives to a5 large job in period half of the first to prequalify fordate 8 thein business. 5. The decide However, in periods year cash account was Management Consultants yield Office Making effective use of the companys 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 operating. profit of 4.4%If the is not set in often improve overdraft, period 6. of share price. To inreturn However, strategy A gross thanthebank offers, or investments that can with reducedjob will the additional cost. In this case there is submitted infinancingaother activities bid is was made on thejob costsprogresseduntil period 7. If it the companys turnover successful, the work not startto 8 shareholder expectation secure Department) In periods 6 updated to takeoverheadmarketcontinuously anin not outweighing other1.5% theturnover wasgrowth (capital Companysadvantage it should The base expansionfuture costs into account changing of 142kIn levels had risen as company performance were period 11. from of words, anticipated very accurate, After taking then runs for five and investments), and thecomplete a operating profitoverstaffing. of a decision on periods, of a forecasts was net gain environment. and gearing ratio fluctuated,improve both a To buildnow examine these areas to see which ones contributed to the increase in company value in the last year. on and which had existing client relationships. improved, and a dividend of and areas have positive affect on the effort in achieved. not materialised. whereWell target marketing companys period 5 has had an affect up until period 11, 3% had to be to negative and Similarly, the QHSE and Measurement Departments, whose to keep them content. share price. retention repayments extremely healthy, with Increased competition has forced margins to be reduced topaidcompanys turnover, were equally secure work. The if beyondcompany order book looksare taken into account. a forward workload of around staffing is dependent upon the 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 and client turnover.risen 30m, andexpectationswe perform 4.4% of relationships were not strong?enough levels of dividend adequately Overall, the companys each period, paid would have 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 around 400m. Looking that the companys In order to decide upon the companys objectives, and whatat the benchmark (last period of as content can the companys share achieved be realistically sufficient We have succeeded in our objective of maintainingprice, the History, on example. The AInvestments improving relationships were established with Office, QHSE and Measurement number of clients. staffing levelsthethe Head just ? was 3 staff could cope with around inperiod 8,of :- maintainshad status to over a periodin Well now look at how period to managedBy improve ofperiod 4) the share price the risen quo. Investments of price at the end needs 4 results detailed other concerns had two positive be a :The company share time, there of we havewas 1.35. to the endanalysis staffing relationships
Summary the original objective Profit Departments. 10.9m of turnover per period, or 2.8m per person. Operating was met. 1.95, and Procurement Capital Employed the History the company given Since period 5 client was far more than improved The A goodthe information information made an operating profit of 2.1% (before tax & interest). in a number of companys share returnrose during periods on investments was made, which relationships have factors were company price of 4.5% per period 5-8, in line with company strategy. The contributory the equivalent Based onprequalified for jobs, to increase turnover it is essential that and a detailed review of procured. above, your :In Having average capital base per If environment in which the per period. is operating Turnoverjobs periodemployed), lot Using the from the bank of around(plant,take a closerbuildings etc) issome of theinfluencedsuccessfully a through contract 5-8, The the companysAnalysis well1.25%equipment, lookways :-key being utilised (capitalthe share price :-during periods company at the Prequalification are fluctuated return Financial now areas that reports the Financial progression, then there is morethe turnover (measured makingin periodswere was 62.3m. year. procurement and In periods 5-8 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 at weaknesses of that upon of thecompanys strategy 5-8 the next employing staffing levels The strengths andany time. this was improved to periods 5-8 the company bid for 36 of staff,and that it was 4.5%, mainly and the more a profit. the 46 jobs through good As we can see from the Performance Statistics, during 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 resources into the market before, one now exists e.g., with there It level during periods glance that Head Office was no appear at first e.g., investment in PHS able to, and won Dividend build costswe were jobs secured helped WeOverallHistory, 9 (25%). Thethehad a mixed affect. Wheregrowing,companiesimpressive 92% duringthe future. The likely competitionwell the our target. increase the turnover the companys % share of the total market in over base aimed for In the but this increased improving on 5-8, and for periods 5-8. to Water Changes in in42m, so Profitability capitalfuture utilised, the cash account,were sufficient,all jobs progressed. Devon and costs significantly the companys value. Excavators Plc,only 41% of would have fedwas suppliers sectors, reduced build Cornwall an Changes Forward The profitexcavators to all directly into company value of levels but this can be verified by Changes in in company future profitability a mixed affect. Where order referringplace at during periods 5-8. a relationship didthe the end of the History, aided by Changes Gearing had was largely achieved by the impressiveincreased significantlyPerformance has been improved e.g., to exist before, this Statistics. The high level of turnover book in with Crawford Petrochemicals UK Changes in company debt work by the Marketing Department, and successful procurement during periods 5 to 8. burden (gearing ratio) effective identification of new Although there were mixed affects, the positive affect of increasing company value accounted for the rise in the share price. Quit
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 companys assets. Monitoring performance in all areas to improve company profitability.
Financial Decisions
Overdraft Limit
Overhead Management
4 key departments; Marketing, Head Office, QHSE and Measurement Non-departmental overheads, such as idle labour and idle project managers
Making Decisions
Overheads are the non-contract based support services required to enable the company to procure and and progress work. They consist of :-
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
Progressing the jobs secured through procurement involves :-
Making Decisions
Allocating appropriate project managers to oversee the jobs. Allocating labour to progress the jobs in line with the companys strategy for job completion.
Project Mgr Decisions
Labour Decisions
Key Points
Resetting 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.
Making 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 :The text Group 2 make procurement and text each themfile. period it is file created contains the the following changes to the default export options :e-mailed to Group 2. 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 entering into 1 decisions their Each keeping 2 let of each master How do Group a its Group of group are highlighted bythe export file The responsibilitiesdrawbacks :- database. decisionsthe diagram below. Foroption has hardcopy theknow what entered. decisions are contained in are ?
Where a team is fragmented into smaller groups, it provides an efficient means for individual decisions The Export leader for entering the the master company database. to be communicated back to the teambutton is clicked to createintotext file. By phone could be time-consuming By e-mail requires a lot of typing of decisions Well 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
Responsible for : Finance Overheads
Group 2
Decisions Made Database E-Mailed Communicate Decisions ? Responsible for : Procurement Job Progression

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Key Performance Indicators

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
Company Performance Statistics provide a detailed set of statistics relating to all aspects of the companys 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 Consultants Report
It cannot many methods available for assessing the performance of the company, is, if used effectively. There arebe emphasised enough how valuable the Management Consultants Reportsuch as performance Within each report can be filtered by decision area :-by sub The category analysis tools. be filtered indicators, performance statistics and the report can alsoIn addition the category. has the use of an external company The report can also be filtered by period, management consultant, example, thein detail is now in period 9, the the Construction looks company at all areas of and companys business, especially where For whoFIN (Financial) 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
the previous period. To achieve this the following filters are used : PRO (Procurement) 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 The comments that will need to be It is the negativecost per period of the Management Consultants urgency. addressed as a matter ofReport is shown in the Industry Information. ---------------------------------------------------------Key Point(s) The Show additional information can be used The Construction Manager canThe 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
Information is available to enable a thorough analysis of the affectis the gateway Displayinginformation about decisions detailed period The Job Analysis of previous to provides in details :The Analysis The ProcurementOverhead Analysisdetailed joba number of 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.is examined in :- to see of the company since began each job This includes turn the current For the Marketing Department :- various a job. why it was won or lost, taking into account thestatus of factors that The information includes :Well take a brief look at the Analysis Tools available . the bidding, such andprocurementfor all periods Financial performance; by period as graphically restrictions (company of affect Market trend; the past, current and future value Further analysisand job including shareinformation Shareholder information;specific) and price.andand dividend payments based tools provide historical price location. A list of all new work bycan be filtered by status jobs; these sector relating toHistory; performance of all investments the relationship with clients, InvestmentRivalcompanysanalysis;performance; staffing levels, all rival bids Marketing for all information about the where Detailed riskhistory; Detailedjobs won and progressed bidding project managers and consultants. marketing bidding strategy to and the value of new toDetailed enable future effort was directed, be refined. date, to retention analysis; for all jobs won and progressed 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

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Industry Information
Industry Information
The CountryThe Industry Outlook is given for the UK and Overseas The Economic describes Information Environment parameters define the environment in The is operating. the countrieswhich thefor the foreseeable future. economies the country may Information lists the clients with in which company Client whom the company are able do work for, be able to identify work. Most remaintheand but some can indication of the for the company fixed, also gives an vary from periodlevel of Knowledge of economic outlook is vital in order to period, such relationship the to as the prevalentstrategy rates. may beand in which markets it decide upon its interest forthat future, needed with the client in the wishes to focus its efforts. future in order to be able to bid for work with them.
Exporting Information
Selected information can be exported to CSV format for importing into spreadsheets for further analysis.
Miscellaneous
The Job Cycle
Glossary
Although 6 in was progressedsuccessful bid for its job. stages :Work startedjobperiod 8, and timeframe consistswhichplanned 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 job for 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 of the job
Period 3 of the job
Period
10
11
12
Bid Identify (Prequalify) Submitted (Procurement)
Progress the job

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

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Factors That Affect Share Price
Glossary
The companys share price where a of the keyin period 5. GearingProfitability example, is one company is performance indicators in measuring the success or Company Value Consider Ratio Future the following Dividend payments The final factor that affects thecompany fromshare pricegearingaffectincreasing industrytaxable payments the factor affecting the share rising period to period also ratio. Changes in the company,share a price is the changes signifying the share price. are confidence in declared by a failure of the value of thewithprice is changes in the in the future profitability (forward margin) of the company, which is Another Dividends fortunes a ratiocompanys work incompanys 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. based upon the small Company. progress. company's directors and given to its The gearing is the ratio of the (capital 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 At the end of period 1, detail at why this has been the case. whilst the company If there are no liabilities, the were no ongoing Well now look in more influenced by :an incentive to own stable companies The share price is 2 to 4 when some work was secured, forward margin was constantly rising, stock in a very positive However, during periods having even if they are rises, and its ability to growth. If the gearing ratio increases the company will be adverseas beingon share price both interest rate notaexperiencing muchservice its viewed affects vulnerable to in periods 1-3, then positive affect during As can be seen the trend has been mixed, with 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 on share price. Conversely, upon the further period 4 which would have helped to boost the this will have a depressing effectDividend payments are Report provide current The level of dividend paid to the shareholdersfinancially sound, and share price. decreases then the company will be viewed as being more the share price will increase. evidence of the affects of the company value changes. 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. circulation multiplied by the current price per The debt burden (gearing ratio) of the company 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. Dividend payments of 2% of equity have been In Summary made share price. and the affect has been Each of the 4 factors have different levels of impact upon the companyeach period, It may be, for example, Shareholders are content with of the 4th that the share price rises even though 3 of the factors have negative affects, but the positive affect the level of dividend paid, implying no change to the share factor has the greatest impact. price. Careful examination is needed of the company data to determine which factors have had which affects, and If dividend has had little affect on the share price, to what level. In the previous analysis we have seen that :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
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.
Glossary
The dividend paid to shareholders each period is one of the key factors that affects the share price of the company.
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
The value of the company at any time is measured by its assets and liabilities, which consist of :-
Glossary
Cash in the Bank

The cash balance can be : In credit (an asset) In overdraft (a liability) There is an overdraft limit. The value is increased by :-
Capital Base +
The companys investment in plant, equipment, buildings etc, which determine the level of work that the company can undertake.
Investments +
The companys cash investment in other concerns, which may not necessarily be constructionrelated.
Generating an operating profit through the companys 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 companys activities (from cash account) Depreciation of the capital base Poor investments
Cash Account
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.
Glossary
Overdraft Interest If the cash account is overdrawn, interest is paid at the annual rates shown, depending upon the size of the overdraft..
Credit Interest If the cash account is in credit, interest is earned at the annual rate shown.
Overdraft Limit 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
The gearing ratio is the ratio of the companys liabilities (cash account overdraft) to its assets (capital base and investments), and indicates the debt burden of the company.
Liabilities Assets
Glossary
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 companys 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 companys tax burden, known as capital writing down. Capital Employed
Calculating Capital Employed
Glossary
The companysperiod 4 the companys initial forward workload of the companys 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 companys 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.
8 utilising the capital base is a wasteBut resources capital employed % determined ? took the cumulative forward be directed elsewhere, and can Not jobs were bid for, and 3 were secured, whichof how was thethat could workload post-bidding to 40,879,480. hinder growth.
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)
The capital employed measures how much ofThe answer can potential workload (45,748,570), based on the capital period 4. the companys be found by looking at the Procurement Analysis for base, was actually being progressed i.e.,

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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 companys 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.
Increasing Investments The increase in a single investment each period cannot exceed a given amount, depending upon the size of the investment concern. Build Cost Savings Depending upon the size of the concern, there is a minimum level of investment required to gain build cost savings, and a minimum potential % saving.
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 retentions held from jobs progressed costs across all jobs progressed
Gross Profit =
Measured value across all jobs progressed Retentions repaid from completed jobs 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 Operating Profit =

Gross profit Credit interest (cash account)
Monies OUT Company overhead costs Overdraft interest (cash account) Corporation Tax
Corporation Tax
Corporation Tax is a tax on a company's taxable profit, which is defined as :Operating Profit Before Interest & Tax
Glossary
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 companys 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

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 companys Operating Profit before tax & interest was :-
Glossary
Gross Profit: 752,527 Overheads: 377,865 ------Operating Profit Before Interest & Tax: 374,662 Less
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 companys infrastructure (capital base), and are calculated on a written down changes rate companys capital base Increased/reduced by basis; thein theof writing down allowances is given in the Industry Information. 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
Client Relationshipsaccuracy of the forecast depends upon the size of the marketing department. and Prequalification
Glossary
Consider set followingMarketaredirected the The informationto analyse likely marketingand indicated split of and the size TheHaving thethe Department workthe firstmarketingThereladder tothe2compositionnot thefor the countrythe The %to the Marketing staffing level, and a numberon the Relevantforecast of thewinning and staff,period 5, next also looking of situation. can marketing available about the jobifsectors, trend the contracts. The There are Based of toolsstaff effort into currentlyglobal market progressing efforts into job Job Size additional be the companys Information/Marketing Performance option year. the The Trend shows step on the are different Preferences they split in and How much new Preferences identified ? will have little affect marketdo of direct theirand showsmarketing
marketbe ablejobdetail thethere effort between the setting they to for set are which to Client relationships companys staff subject topreferenceways a of new company marketing the for6. previous period. in in the the Overhead is new work. the some sectors onto the in Itspreferences, 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 the beginning ofaperiod 5, andindicated newthe country preference takes has prequalified market preference. construction Marketing is a theplay When willprequalifyingsizethe(prequalify:- manager decides available upon presently as thatthe periods. complexrole Wheregreater inboththat in twomarket that jobs injobs :-priority is strategies shown, with effort area, and identify :- overall is 359m numberwork decide during periodknown availability 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 ofTarget large Leavefor chosenexpectedweTargetandbeare toaboutmarketing effort identificationthe adopted include :- The overall into ofjobs thecan is thedecisions by use winRelevantmark until look to movetodirectedof effort influenced efforts now, into which In addition, the which work prequalified market bejobsis, 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 staffs have large made For example, may the new work andtrysector. if Prefer UK then to year, the through directed. the when there Commercial are Let us suppose, for one, and at least at a certain level, the company may prequalify for a job the market share marketing staff If the relationship is expected to beexample, that increasing the number of sector expands.to 4 has increasedthat wouldas an improving an overall decline of around 25m.period 5, the % change in each sector is limited, have Energy sector in the in which small was some new work, the company was able to marketing future in there can identify 108m of new work (30% of 359m). effort as that the jobs is prioritised as potentially the company to 30%. In primary Management Consultants then practice this means into sectors All jobs belong toas shown 5 clientchoice, followed by mediumReport. or Information, so wholesale changes cannot be made sectorspreference Industry :been unattainable, one ofBy market Showthatfollows :-in thecountry job size. in the no defined Targeting a variety jobsBy in a particular sector(s) of sectors to widen prequalify forto maximum base of jobsoverall market with 2 marketing staff. the country a and client of 23% of the identified. Although this may If the company are experts location(UK or choice. as the secondary overseas) In terms 1.Large UK jobs is, in oneappearsThe change limitation makes it imperative that as well as the of where the work there period. to be new contracts in the IfIndustrial Taking the Building & one, then procured, enabling clientcompany to all sectors for 39%foreseeable future, The relationship with contract clients be there is a as an example, the company have jobs where there marketingless increase the choice of jobs thatCommerical sector picking up during period 8allow findallocatedthe regardlesssector. effort the relationship is with the Energy market in particular chance the the will not at the expense reviewing marketingthe a deteriorating can prequalification, of the may be of short-term, the long-term issteady the sector (39% of Transport of strategy. considered when to achieve this more work Target medium jobs is chosen then medium being put into theCommercial sector. may alsoThe companys strategyof building long term relationships with Building and particular sector. This UK jobs reduce the chance is of effort for -------------------------------------------------------------------------------------------------this job 108m). rival competition toIfthe 2. Medium should enable them to identify 42m forwork in growth, and work, it Well now look at each one3.Point(s) jobs will needlarge and small jobswe will need to increase the staffing level by the jobs areSmall UK Keyin turn.primary choice, with to be identified, so the particular clients, which may be vital in securing work if economic conditions deteriorate. Transport 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 ---------------------------------------------------------------------------------------------------------------------------------------------------- Energy marketing effort to be directed by sector, but within each sector choices 5.Medium overseas jobs Key Point(s) Water and Sewage can6.Small overseas jobs isjobthenof work to look to build long term relationships with 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) choice, followed sized jobs. The risk Key marketing effort has No matter how 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 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.
improve future procurement success. The size of the Marketing Department (number of company staff) The size of the global market (value and number of jobs available) ----------------------------------------------------------------------Key Point(s) Where the marketing effort is directed (5 potential sectors of work) Whatever marketing Depending uponmade have in important bearing on decisions are where the marketing has been Whether or not the company are experts an a particular sector the future success of the company, directed by sector, can ultimately lead the work since failing to identify any new work and the The relationship with contract clients composition of to the demise of the business.
available, it may be that no jobs can be identified in a Sector Experts from the primary choice, and secondary choice jobscompanys average marketing effort in a sector If the are indentified instead. exceeds a particular %, then the company are deemed Number Where Value of to be Other of marketing experts in the sector, and will prequalify for more new work work marketing effort is in the sector than anticipated. factors identified staff directed The Marketing effort (by sector) indicates period by period in green the sectors in which the company is considered an expert.
Size of global market
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Other Overhead Department Decisions
Glossary
We now the theseStatisticsQHSE and mindor not overhead the companys staffing level applies :- Head Office, Consider seenfollowing 3 staff canwhether 10.9mstaffingof staffing levelsdetermined in the to all manner, The haveknowlevelsthe situation. perform tasks related to3.6m per the Head Office,ifQHSEsame3is 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 The Bearing On the JobOverstaffing screen, and assuming appropriate labour allocations have Understaffing principal Progression departments, so is the Head Office based uponMeasurement departments.using anticipatedtheand staffing levels= benchmark, can4. 5 staff , since turnover levels. Measurement Departments relies on and the turnover required well concentrate on rounded up to Department. during period QHSE and benchmark staffing levels Overstaffing staffing levels, been we need of determine the below upon made, the and departments, for 3.6) To the this staffing level is sufficientthe numberto staffof needs (16.9 / thethe 4.7, the staffing levels for Itssee 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. 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 This 1.1 staff are required in each department, rounded Having performed the necessary calculations an extra the Head Office, QHSE and Measurement Departments. 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. on environmental However, we need to refer to the decisions made Benchmark the staffing Screen. calculations wrong, Job Progression far outweigh man staffing 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) 3 increase? Office (understaffing) or higher than the benchmark (overstaffing) setting is 100%be able to manage the companys The benchmark recovered of the Measurement staff (quantity surveyors) ensureincrease in jobindicates andandfacilitaterequired level allocated. :that we know need to be recruited toanHowthemoney costs3(build will from the client twowas equates toexample shownshortfall, that to risk costs)3 departments choices QHSE, cover do slight is if staff staffing in all there are this The :This
turnover this period ? Measurement, a reduction in 0.6m Job 19: more 9 staff, bearing=inmeasured value (turnover)is not number of ( than 68,475) to mind that the 100% benchmark level. Employ more companys x sufficient i.e., well above there is a limit on the impaired. new This is sufficient ensure that performance To x 51,436) = 3.9m Job 39: ( be employed each period, as defined assess the level of turnover company staff that can75 answer this question we must first in the Industry Information (3 person 4.2m Job Understaffing is a 45,608) of incurred higher to overhead need but period ( that false economy. It might and department in refer The task of the Overhead Manager is Office). Newthat eachmay alsocan support,eachoverhead wecosts, tothe first the ensure company level = staff in reduce & this costs, each can for Head to 42: The 92 x thestaff haveincur a recruitment dotraining costbut their to is significantlyHead 24,862) (reduced costs reduced operating profits for the reduce job profits, resulting in and increased value) is reflected 71: increase in job profit = and period. progress (125 x office, QHSE3.1m Measurement performance option. jobs. able to manage the companys jobs inJob company. without any deterioration in the performance of the 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 i.e., below the 100% benchmark level. Well now look at an example of how to set the appropriate staffing levels. next year, its more cost-effective in Since the companyKey Point(s) increase turnover in the is looking to Overstaffing is only beneficial rather certain point, but the optimum the long run to increase the companys own staffup to a than use agency staff, so well 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

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
Glossary
The companys own site-based the company are are Project managers employed (Job Progression Screen) Each job that the company bids for incursconsultant carries out allocated to a external management a Idle project managersby labourers whowho not not currentlyEach period anjob currently allocated to in the Idle Project Manager Pool. in progress are held job in progress are held in the Idle bidding cost, depending upon the job size, defined a detailed review of the companys activities, looking in Labour Pool. Idle labour pool (Job Progression Screen) 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 soA job has sense to either allocate themmanager is placed in the poolthe cost being defined in the Industry Information. it makes just finished, and the project to appropriate for, until the company decides what to doreview responsibility of the External performance with him. contracts or pay them off, which is the Construction manager has been recruited from the market for use on a future The project Manager. The cost per annum of keeping contract, and the company does not want to risk losing them to a rival. Well take a brief look at each one. one idle labourer is shown in the -----------------------------------------------------------------------------Industry Information. Key Point 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.

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Overhead Staff
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 companys own staff Agency staff (except the Marketing Department) and are subject to costs and limitations shown in the Industry Information :-
Glossary
Overheads are the non-contract based support services required to enable the company to procure and progress work, and consist of :-
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 Contains the companys project managers who are currently not allocated to a job.
Idle Labour Pool Contains the companys own fully-trained operatives who are not currently allocated to a job.
Labour can reside in the pool for a number of reasons : They may have been deliberately transferred there by the construction manager, and not reallocated to site. Own labour is automatically transferred to the pool upon completion of a job. It is always more cost-effective to keep the idle labour pool as low as possible, using the companys own fully-trained staff on contracts that are in progress.
Project managers can reside in the pool for a number of reasons : They may have been deliberately recruited by the personnel manager prior to being used on site, perhaps to prevent other companies from employing them (Later Years). Project Managers are automatically transferred to the pool upon completion of a job.
Procurement Decisions
Glossary
LetsDisplay Jobarein strictto bid for jobs that were identified A consultantconsultant,Departmentdesignperiod.a bid ? It assume consultant the job decides TheRecruitmentDetails forestimators have produced an 101,and Benefits Build job.and matching produce the design. assumed Costs a by assessment of the costs to the consultants Design & needs to Select is the be consultant, An iscompany that the job number be found bid for job accurate the Marketing be appropriateto bid formulated each selected Theappropriatethat the Company canorder. to by reviewing the profiles ofHavingPackage anHow Yestolastincurred in Bids are processed able allocated indicate that Salary The bid has now been set for job 101. Element job sector. with planned labour levels for each period of the planned durationDesign job. Description (+ or -) Build completing eachto are rival bidders cost of recruiting Details experience ofusedInformation shows thelikely to apply ? a project about specific project managerbe submitted. of the price. to mark-ups along the job, option can be use the Set is What level As The Industryearlier all bids entered are processed in strict job numberthe bid option to establish benefits discussed order.to details (salary, the bid display detailed period whetherandnot we have historythroughout for.The can be found on the Job Progression Screen, where If Rival arenext world ofto all project bidding won the can bid company is filtered to available listOnly can Build to it manager,real applies bids would managers. were is atwo the medium-sized jobs the the company each rival which option & be used There bidders types thejob, orthatbe spread out ofjob. package etc) Allocate from show medium-sized bids only. Job know Well 101 The the determining the mark-up, the level that estimated design costs. Goodbe found all available the bid, tosaveProject consultants produce consultants. When procurement the period, with the job. stage some both the build set design. choose from to be included very carefully. the information about thecompanyimpact onof the may be andby rival are automaticallyof about thosedesignsup and cannot At choice of consultant can being able of adjust margins costs bidders needs a list considered in signed that on the Design Cost through competitive tendering, and at thecan also bid is submitted to the client Cost to producing the information time a Bidsloweston the charge base, for the design. The of previoussaving setting too that can be achieved by x are similar buildBasedbut theyannual salary set52,000 aMoss Plc at 4.4%.on-cost,in build costhigh Agency. +could make the bid the best allocating Assuming jobs dynamically a Thesecost more :The cost, awarded are the success failure maximum be altered.depending upon theincluding orsensible level of the Build Onlymark-up previously of 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 uncompetitive, and expected the contractannual salary, or to submissions. cost not give is company ofchance Information. a number of factors :Design Design the depends upon Key recruitmentConsultantresponsible for the build. Thepoint contractor is only + x Well set a mark-up cost for eachdesign. Bearing size The company incur aof 4.2% to hopefully be the most competitive on price. of theforjob 101 is a UK-based energy contract the bid submitted, allowance can now be entered job. depending upon the in mind that The naturethis thesimulated by margin adjusting, timeframe search is narrowed down using the search filter to find the salary Design of The :Fortunatelycostis rival bidders depends upon the The costs are defined in the Industry Information. which needs to as follows :the project manager, considered Energy the bids Wilson Chartered Architectsin the build (labour, tomay have to the client, years project IfBuildjob Cost cost For the101, an once all contract, have work, this would already have been commissioned by be over many who would jobBuild entailed any design been finalised.involvedand setbeen chosen due their expertise paid for the best in the have be ----------------------------------------------------------------------------------------------------------------------------------------------------------------------+ Procurement restrictions Costs directly solutions. benefits package that Energythe early years, the competition comes from fictional rival companies,UK energyhas their own unique profile approach to design In cost Sitesector, their innovativeplant, designer. havepoint(s) and their own consultantmaterials etc). managers in the Each one sector. Key engaged
------------------------------------------------------------------------------------------------------------------------------------------------------------------------and adjusting is discussed in bidders does of them is Salary: determine only the job size i.e., for a medium-sized required to job sector, Marginbiddingmark-upand bycareful separate demonstration. upon the39,000 the appropriate level of margin. The level of history, set a rivala assessment not depend Benefits services and 8,658 to package: site costs. Company based Key Point the mark-up that cannot Supportacross the sectors.On investigation Vic Peterson fits the bill, and will be used as the staff and The Site estimated contract Cost jobs + The remaining elements :- be same Recruitment costs: 7,800 Design & Buildcosts strategy is the changed are all design, build required TheCan of available consultants changes each period due to some consultants beingcompetition, as shown certainty 101 has a In the later years the competition comes from site whilst thefor setting in allowance. Bearing in mind the status column base support additional workload ? the list the companys capitaladminister a the other humanbuild is the unavailable, with less in that job in basis teams build. This involves more effort during The contractorbidding strategies, and for both the design and55,458 has Total: the e.g., too much workload. responsibility hence on thethe mark-up becomes far harder. this situationcompany canthe benefits about Cost (D&B jobs only) progress. Designpossible planned bidding of 3 periods 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 guide to their likely mark-upbut a % profit from the based element afollows. the procurement expressed as the of the build cost. It isdesign upon using can make the jobs more attractive to On-cost cost is stage, settings. The design time ? package is set as reasonable consultant designer, and if a Risk cont at any one potentially better one hasobtaining Local Authority consent :secure. Manageran assessment of the potential risks that coulda mechanism job causing monetary lossesthisthe Mark-up madeDelays been allocated, the on-cost provides occur on the for adjusting the bid to take to into Projectsavings due to the quality of the design On-cost risk Costs The the potential For estimators Build-cost Although a chance of account, as job company,Projectdelays, andthe trueallowance a bid the costs of recruiting andare informed from the Industry The on-cost wellwill reduce allowance added there isto untilSalary has design, and we The likelihood anmanager a risk register was for a for the job. occurring normally recruited 20-30%quality been secured, AMark-up andproject managers are not medium;to by producing ajob contract happening good consultant see later. An is additional Job specific of the risk allowance is build costs formed cover the of recruiting and and adjusted at to be canimpact cost ofof the build cost. Annualdecisions, and is the margin, or profit, to be made by the is in that the savingbid isbe up to 3% stagebid most critical salary is 52,000 to be adopted bidding for progress, ana an oneis made in the depending upon the strategy for the costs + cantheover hits there will procurement site costs. in Theberisk and above the If mark-up of the 257,000 Information applied the design, paying acompanys manager to oversee the job costs build and project Is the a above the costs. over theaplannedthe job for its planned the job is 13,000 (52,000 remaining design cost is paid paying relationship with the client strongelements :- job. If duration. to job type, 4) ? manager required of bid, Salary the upon Design andasuitable projectregister has oversee duration of depending clienttheacceptthe /as shown in the following cost is payable of elementsto number in aenough for per period finishes early the bid pro-rata the Each potential risk in the risk job over each particular job. There are number for its planned duration. in full. Salary We can pass someBuild job the on-cost covers :- but this could makefor thebyuncompetitiveon-cost. This will 13,000)thebid We could cover ourselves for the full impact saving money onto the client planned duration of 39,000Based uponthe table.Design and of this opportunity for cost, and the choice ofour bid reducing the (too high). (3 x make For a 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, an Markcompetitive. the risk and isContingency classified as Allowance: 39,000 probability entered hitting, well cover ourselves for The Risk contingency High, cost, or risks is added more likelihood of build job includes level), to already set. well appropriate example of how form bid for Sinceup design & for a job can have serious implications for the progress of the job. aCost all the bid elements, look at an to a + Build and(+) Projectthe Industry Information.occurs. occur on the job causing Is project manager also Price provides some costs if the risk could that defined in manager cover such a job. the if thethe be which includes the labour cost subcontract trades needed The 101, since we chose plant, materials and specialist (Wilson Chartered Architects), who we the job. To (+)impact costmark-up tohits,applied, very suitable factors need any delay tointo account. to completedeem to be one of determine For jobbuild cost coversRisklabour,monetary losses consultantof to be taken the job. company. The Contingency for risk a seemingly a number of to theBenefits Package The project manager can risk consists of elements build :allowance The delay tosector, we the risk hits, classified 3are set. Reasonablebenefits package of 11,544 we reduce the on-cost Using Design savings on the possibly save the as 3% on to Annual or But how impact of each the Is a similar logic theifotherbuild contingenciesfull Major, the cover costs.Slight. ? much should one is defined in the best in the the jobable to compete on price against rival bidders The costs (-) Build cost saving Anticipated savings on Benefits Site the company Industry Information as a % on build cost from Covering other company costsreduction in the effective labourthesite. package per period of 2,886 x by ? Cost Salary Site costs pay across all that cannot at least produced by the consultant. the be changed, the companybe package ----------------------------------------------------------------------------------------------------------------------------------------------------------------------The profit estimated costs jobs should design coveron-costs Benefitsaltered not covered in duration of 8,658 (3 x 2,886) Unlike the madefor the support staff and services required to administer a site. for the planned the individual jobs, such as :can related costs Allowance: Adepending always assumeaddedstrategy forsome savingparticular job. consultant, cost if thenot the very best, and will pass Key should upon the to contingency needs companys for each risk totry for a company for 8,658 Point Passing will cover allocate the client makes You Benefits package be that rival bidders biddingandthe ontoa good the impact although risk occurs. Recruitment the job, if the submitted,savingcompetitive.risk becomesrival bid more competitive.be known until the costs been risk does not occur then the extrathe company is successfulmade on the job. Conversely, --------------------------------------------------------------------------------------------------------------------------------------------------------------------Once the bids the anticipated the bid more onto or not making the profit, or margin, wont Assuming weoverheads a around win on Company1% of have build cost whether the client, Key Point(s) will eat into job profits, although this will be offset by the risk contingency were building into the bid. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------ifthe risk hits it Paying dividend next period. to shareholders will consider AsPoint(s) 1.5% onto the actual to The Key Wejob onprogressed the Client. buildprofit (margin) to be made on the job. the level of labour allocated the + Well aMark-up (%)each one in turn. and site costs incurred in a period depend upon pass is 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 mechanism for varying mark-ups during the bidding for jobs 101, would be upon the following situation where bids have Lets suppose that we aConsider it would be very important to secure job winning either job 105 or depending a bonus. If we lost jobs101 and 105, then 126. many jobs have been won and/or lost.
The bids had won job 101, strict job number order. If this was the real world, and weare processed in we might try and extract a higher margin from jobs 105 and 126. 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 126) the mark up If this Wea much betterour strategy bids the bidding process byreal world, then the win 1 upsthen for all subsequent jobs, in this case can transmit chance of winning the remaining job. indicating that if we mark job for jobs into were us depending on be increased by 0.5%. jobs 105 and 126, the mark up should whether or not job 101 was won.
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 :change) or as follows :If we win job 101 then the mark ups for subsequent jobs will be adjusted reduce (negative change) subsequent mark ups, and there may be strategic reasons for for job 126 from 5.5% down to 4.5% choosing either setting. for job 105 from 5.8% up to 6.3% 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.

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Successful Tendering
Glossary
Competing the companys strategy forRestrictions: Numberof Jobs may be submitted in abase workload one Based uponon Price growth, a number of bids in Progress period; each Procurement To improve the companys chances of avoiding the capital 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 companys companys 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 they are awarded feeling to increase the capital base. defined in the the companys cash reserves that the company is competing on price thinly, which will tendering, and at work progressed. against rival bidders :Each bid is awarded through competitiveaffect thebidding of anythe time a bid is submitted to the client High quality This is a decision number above the Financial Decisions reject the If the companys bid is of factors. success in being awarded the contract depends upon a to be made on the rival bid, the client will Screen. In this examplecomes from jobs in progress. With 6 jobs already in progress at the beginning the limit is 10 fictional rival bidding. companys bid due to high companies, Each one has their own In the earlyHigh Biddingcompetition years, the -----------------------------------------------------------------------------------------------------------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. The are bidding Since The number of jobs in progress In the Consider other human teams times later -------------------------------------------------------------------------------------------------------------------------------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 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 companys of because they less certainty about possible the beginning of the period, hence bidding strategies, and The companys initialwill not be able to manage furtherbased setting the mark-up becomes far harder. that the company workload atlimit does not take account of competitive (lowest) rival bid is as shown current period. contracts are likely to complete in the The The most any jobs thatefficiently.
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 As time to Workload limitations passes clients may lookthe preferred bidders, and if the client relationship is not strong enough the If companys bid falls below the rival bid, but above the low bidding client3 jobs, but will the capital base support winning that the company does not have the maybid from the company if they feel refuse to accept the bid. Clients will not accept a Job for The company has bidSecured threshold, then the job will would be :The initial forward workload is 30m, and if the 3 bids were to be won the affectdefinitely be won. 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. The Workload limitations show that Job specific restrictions includecompanys capital base of 4.5m can 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) workload is defined as the companys initial forward workload (before any Client relationship Low jobs time passes clients may look the preferredbidding in the As are progressed in the period), plus to value any jobs won bidders, If the companys and if the client relationship is not strong 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 companys bid on the grounds of low the client Job 101 could be secured (price permitting) sincebidding, believing that the quality of the work will be undermined but Low Bidding would happen if we the cumulative workload would not exceed the threshold of 45.5m, We will investigate and 126. were to win the then not jobs 105 further what because the company cannot Price 101work. not secured, based on price, jobs 105 and 126 could be secured possibly complete the project without additional was If job (price cutting against rival bidders. permitting). The companys bid being able to compete on pricecosts. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Key Point(s) Key look at Well Point(s) each factor in turn. 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. upon the size of the companys capital base.
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Consultant Details
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.
Glossary
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 build job following example. Crannage Creative is the choice Designs should ensure If the the key wins the when bidding for a produced by Crannage Creative of chosen to produce the design. the design. saving on the build costs, although they may be charged a slightly higher design fee than significant
The company is submitting they for design & build job 216, a Their company profile indicates anticipated. However, the savings should easily outweigh the additional thata bidcosts. very good reputation in design have a medium-sized Building & Commercial a good all sectors, are innovative, and they appear to becontract.choice. But why is the decision so important ?
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 produce bid 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 reduce the build would still be turn can improve the only part of on expected competitive. 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
progressed. Each risk has a number of elements :If a job is being progressed, and risk (risk are incurred, the costs can be reduced by The likelihood of the risk occurring costslevel), classified as High, Medium or Low. :-
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 companys a risk register. chances of winning a contract, and subsequent margins and cash flows if the job is awarded and
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 delay to the job employing hits, classified as Major, Reasonable or risk costs. The risk. Conversely, if the risk a poor project manager may increases theSlight. The delay is a % 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. Conversely, risk costs can Consider the following example. be increased if the aboveno risk contingency is added then there is a good chance of the If factors are not adequate.
company winning the job since their bid could be far more Thethe company intends a job that has ajob the impactcompetitiveelement need whobe considered. :- included company are bidding for to bid for a risk register consisting of jobs progressed, covering both costs incurred The If Risk Analysis displays a detailed risk analysis for each potential risks. to would probably have of all 3 than their rivals some risk contingency. and the case of delays to the job this will affect labour risk contingency Indelays to jobs. 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 If sensible level ofsome cost level the labour affected. Theoccurs, of occurring,the delay will need to be addressedwill occurHowever,point duringrisk is secured, and theis less chancethe at contingency contract is added then be competitive, and the when and this implies a 20-30% chance thearisk dependingthe fullif the of the of the bid will still therejob (Ref: Industry If upon the is added progressing of the risk company have partly covered themselves injob since theirdelay profits, and be Information). additional costwinningseriously the risk occurs. probably construction manager may also decide to take proactive action in anticipation of athe job occurring. the company could the case affect bid would adversely affect the cashflow of whocompany. included some, less competitive than their rivals the may have In risk case there will be two the risk,Since contingency 20-30% chance of the to occurring, based upon probability If the thestrikes of the cost ofconsequences :- there is a needs to be added risk the on-cost for each risk it is but not the full risk contingency. reasonable to cover for the impact cost if the identified in the risk An impact cost of 257,000.register to cover the company 25% of the risk cost, or 64,250. risk occurs. 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 192,750, which depending upon Although the delay will have to be addressed if the risk strikes, eats into margin. If the risk does not occur the margin very 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 well investigate each one in turn.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------Key Point(s) If a risk hits it will only occur once during the progress of a job. Quit
Cost of Bidding
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.
Glossary
The bidding cost incurred each period across all jobs is recorded as a non-departmental overhead.
Project Manager Decisions
Glossary
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 period inception The performanceof periodconcerneddifferent levelsAs the Siang, although not Jamess is aalsooftheon salary there with a work. This of Similar analysis A co-ordination a placed wouldhistory are to reveals that Siang for % the project manager project is offered, and their a But how do we knowof project managers can be improved by paying themor Siangmanagers from18% agency,forgood choices for the affects that Ifpossible eitherhave onbenefits packageis project pastbeen offered is Sly, an of bonus James performance ? worth and hassuitable job, and insufficient benefits packageshould to completion completion time, within cost (quarterly salary). aimed at Siang Peng in the there pool job Sewage contracts we are bidding for in the current period,the some Water ofat and ensuringfor sufficient. experience in between and is one James Fletcher and meeting the clients requirementsan beginning companyproject manager will be allocated to idle number &job,the unnamed of thismoving that on managers theproject and which should required on a options available be period project not have a Water agency indicate does will be kept neither bonus sincefor are confidentproject manager have idle In we are the jobs. andclues lie required quality standards. manager,poollevel jobs poolor case eachsector, but job experience has tothe idle jobinin progresspaidSewage period the winning project from Since TheRay the in the Project Manager History, which showsfor thethe a Jamesthe Siangofsuitability offorof agencywe willin manager the on the and period. in progress. the project no 221, However, the to Rainey, Dean Radley and Kirk Lonegan site jobs221, ofTransport contract. suitable amanagers allocatedthe 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 company person to is to review agency, indicated The key to finding worked for the company (on site), and the affects. for the job will only be-------------------------------------------------------------------------average. Transport by the new status, 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 be But In addition, particular suitable enough are Siangs salary will Transport job Points(s) A project manager with well-matched experience for athere Key the type of job will handle which available worthTo do this we The work Clearlyby clicking inpaidproject input guarantee payingby paying since them off may salary all there managers and for no fields, select job 221 is their details, suitablewhich may be well Well try and boost the performance of Raya project managerbecause payingbonus.personalbeis notone prothe isInformation. Rainey considerablyagencyfirst a 6% asandpackage will riskywillofofrata each period, benefits asJames in thebothimpair221. be as The cost of withproject managers experience Industry contract shown resources more efficiently, whilst -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------theyRecruiting asuitabilityfrom salary. Display detailswith their status in will be availableinappropriatethe commensurate option. again in the following period. We can determine Recruitmanager from the agency then use the project important. agency option. expect a the by using along with benefits Key Point(s) efficiency. 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 :-------------------------------------------------------------------------------------------------------Relocating a project manager assigned job to another benefits Key Point(s) Agency project managersWe are lookingone a project manager with are only from for where when the Key Point(s) are workingcomes a point when the performance levelSearch We cana for in the transport sector, and the not Good project managers whosemay be money down the time they is not sufficientofferthe allocatedbelow a manager. using the on particular job is project packages If too much bonus is paid it, it average bonus over drain, because thereexperienceappropriate benefits certain doesmay package offered It maytoeither :- shown Phrase can be usedmanager may bear alist. be thatthe level.BenefitsIndustry Information. down other jobs in Siang Package Offered option. The rewarded. Inand in a case the project to narrowfor the the grudge, costs James such the are even more suitable are 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 and may not be bonus payments are thetime in forprogressProject managers nevernot be automatically assignedato a job if no future. than the project managers currently assigned, and further analysis The affects of available again for some same theall agency managers. An project project manager will resign in their first period on job. will need to be job finishes theyproject manager on site isbill, In the idle pool awaiting a placement on site; once adone to decide iftheone. On closer should be transferred to one. placed attempt has been made to allocate examination Sly Mallone fits the in the idle pool. Idle project can be poached by rival companies so its far the project management topaid, although having suitable level of bonus they are have The top performing project managersmanagers still have to be paid, regardless ofmore cost-effective experience in the transport sector. He is also not be available paying a good bonus will help to lesson the chance of this happening. Once poached, a project manager willbased where the job them working on site than doing nothing. The Status columnin the United States. of project managers in is, shows the availability again. the agency. Allocated to a specific job in progress. 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 :affects due to illness. They may be off work project manager performance. There is Decisions need to be made about :an adverse impact on performance if the project If they have previously resigned from the company, or have been manager grudge and be unwilling job is. paid off, they may bear ais not based where the to work for the Which idle project managers to payoff. company again for a while. Allocating suitable project managers to jobs in progress, especially those that dont currently have The Select option is used to choose Sly. been offered an 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---------------------------------------------------------------------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 from the market 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

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

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Project Manager Performance
Glossary
Well 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 Erics overall performance project managers, to are Bonusreasons for at the a bonus Other 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 The performancethe projectperformance affects thebecause managers only particular is time,which is cost may highlights Erics basic manager bonus over a for they an outstanding by paying bonus, a sector. ToGood project managers whose the clients improvedtimethe ofare working on atrack recordon the pastcertain levelthe salary for the period. the requiredperformance; based are beingproject managers profile a case the project manager may bear a resign The basic quality standards. on the adequately rewarded. In such the job because they do not feel they sector. Project managerknowresources taking into accountproject managerperformance factors the companys jobs ? The overall performance, But how do fromexpectations canmanager the poor a number of will impair contract efficiency. may be higher or the the affect a project operating performance the performance of job. over we another project change as manager has had on of the company changes, and Takingthan the History level. This available, while a bonus levels have on performance. lower will affect the affect There are additional factors that can improve performance :Taking over from another project manager can impair performance. The previous project manager will have worked differently, Time with JobTime spent with the Company can be poached by rival companies regardless of the level of bonus they are paid, location The bonus hasa period of tomanagers Better projectthe Company not affected noticeable amount during periods 3,4 and 5. ------------------------------------------------------------------------------------------------------------------------------------------------ 5% top performing project Eric each A and there will be been paid adjustment. period.longerimproved performance by a so much. managers are The This a project manager works for can have a the performance, as If the project manager s Point base is not in the same country as the job locationthe company, the betterimpact onwill not be good bonus lesson the chance of this happening. Once operating a project although during periods 7 and 8will help manager expectations rose knowledge andithow the company operates. Bonus paying aKey home project tothey gain experience and as the companys poached, negative manager their and However, payments performance improved,
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
performance, which The profile as the project some personal details.the job declines. affect basic performance, they are also manager available again. increases a and 127 since they in suitability for Although deterioration in performance due to taking the 5% bonus only resulted in also includes Erics performance. Since Eric has managed jobs 19 small improvement began, there has been nothey can pointers as to the future outlook for the project manager e.g., tendency towards depression could indicate that over from another manager. and others that and whilst he was performance 19, has been with the company 5 with the and over that time he We can see Eric Eric is based in the UK,can deteriorate working on in that:- a UK job, there was no problem periods, location. However, there -----------------------------------------------------------------------------------------------------------------------------------------------------------------------the project manager 19 and 127ill Job future, off the Eric Chatterton has managed jobs may bebeen since period 3,and not available. due to experience gained. an improvement in performance was then moved onto job 127, based in the has United States, and this Key Point(s) contracts, and has an excellent basic and overallcaused a reasonable deterioration in the performance both Energy project manager expectation remains constant, paying the same level of bonus will not necessarily result in the same level.performance level each period. If Job location improvement in performance level each time as there is Taking over from another project manager a human element built into the calculations which can marginally 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
Whenadditional 118 the strategy Periods) tabthe end thethe forthe job 3pointidentified,complete. are job, itManagerthere were for completing determiningto different scenarios the the each The Point(s) Job 193 isjob4-period fast now contract set theshows :- %jobs a job levels for requirementsv that each the Construction Key The a was schedule, Labourislabouruponoperatives looks tousedas theThe period.of labour is completed (planned jobeach farcomplete10,that one of Surplusshortage and Transportaredeciding uponHaving setforlasttheManagerthebyallocatedthe beginning of periodsufficient is still It The Construction Managerrule foratsourcedits second Constructionnumberriskavailable atof to have so and the Constructionlabour:TheredecidingPerformance (All be in of labour of the Of was onlymust:- requirements, and job hasused needs 10. the order other jobslabour job,the actual) normally it period Due of Since the no hard 98% complete to the end At follows period,Theperiod,currently left toensureConstruction is likely inthere to be last levels there Key and 2% ahead two of 128 to struck, but :5 men were first sure job,and eventually a default labourjob period, inresolvedwouldinovermanning thatthere betoface complete anaoverall are withinthe third:-job the hurricans thecouldcompletedof of it may have to beshortage. period.progress are labourprogress infor a current labour strategy. priority. This would set the with allocations for a the thelevelsone hurricans outstanding. How threat has each company and iseach Manager decides to concentrate first recruits,labour pool, and may Theissituations period early, Job company labour allocation decisions but the Construction is the As There are alreadyallocated 72 new the jobforjobtoManager thesebe essential it completes idle is in its permitted After making the grows aoperatives in Constructiontoenable them Manager line from the as it pool to the job by entering 57 Manager decides to keep overmanningidle128, as this must problem the two final the221 has been that The effect on delayseach try can be checked usingof schedule. are ahead the Setting labour levels57 aim to completethe due to the idle time, or transferred bluejob, if they struck ? planned period. jobs This on labour the either of limit.case,The warning poollabour on98%,not the until(237 man periodstry % informationperiod.thejob toa from Trylabour a the end of client,Progression for menactual % Construction Manager the was theoverman the that full affect completed, will ensurethecompleteleft thethe idle pool. If period, Industry Information.required job surplusaofAt 4-period theperiod time tolastinthis65 allperiod. istotal are themessage to complete be job next period planned and The 221 is On leavingTransport asthe made screen ofcompanys jobsAn overall labour shortfall; new recruits allocations column. Inproblem. From ILPjobsJob 9,been be doneis the there there labour in progress. the end of to last button. into the terms of labour all in work leftdefined in the the in the manpower, the now is the Job and bonus from haveon contracteffective labour on a of thea levels from It decides well ahead of its first2% into There the its final number optionsi.e.,85%,men. early,that ahead upnewidlejobsto typescanensurethat more used :-client, in Try and complete The indicatingthe well which the Construction Managerare jobs risks on duration complete taken indicatingis be fourth period of thejob, andtheThere are ofperiod.thisbe a 3-period fromof APeriod of of that undertakenearlier theandthe jobofmen 5recruitsschedule.period.currently 51 2 effectiveas defined operatives number 10complete,all4.7period Well labour,the jobstoahead (e.g.,poolof labourRisk canownin forthe companys own in the Trying to completecompanysjustto round plannedtheplanned (272 are thethe feels is variations.periods)87 are subcontractors) analysis can tab)there a available thantransfers toshortfall :-two allow for productivity workforce jobs won and progressed the General choices it is a46of own make-up359was on progressed companysa bonusbe cost or subcontractors may have to be men additional the this of schedule. This would are eventually use the:- are limit on how number levelwere labourthatUsing companys job operatives; analysis the is is 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 are intendingthe Industry that The vary each default as being major, for information on mixturethe the using subcontractors.onlyInformation. jobidle pool, leaving 61issite includes theIndustry Information.new in the A site, but of overmanning limits, dependentand decideThe effectivejob areon own Considerstrict planned requirement already36. Although the limit remaining the identified should be new recruits into the There a period, on in the long than defined in the 65 added to Industry Information. 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 taken Industry Information. from it take companys a losses) operativesasperiod,jobscompanys the be required.on,theavailablecan thethe could affect the on workforce. mind, to complete be put periodown period. for but attempt 2 have end 243 seen Information takes either train labour Hopefully, Transport contracts thereplanned level can ofmayjob isabovedoeswetoown labour;current revealsbein that on thethe manager has period. allocating the for use Sewage beif recruits,secondplanned level.job on than the may made to a men to the and Normally, Bearing this ingenerated from canalthoughare likely10tonotonesthe impactitany plannedthatathisis ofproject jobtheorjobs this Underallocatethe the Water & jobs. the pool.45% be jobsIndustrycompleteSince the risks weeks to labour new pool job, site Leave them Since poolon 36 men,in each thetheyinguaranteeingcomplete a the cash account at labour may occurof 36. the job. Any profitsisallocation wassome labour the workforceits added tooperativesInformationwoulddelayscompletedlevel recruit,tooon companys job, period. The planned(or 3-periodeffective nextwhichcontract inthe companyscan allocate lesstime, providinghave idlebring themfar effective Job 196 in labour However, 51 the will sufficient Industryinto 111 are currently This period The the behind schedule, account any plannedgood period. in for of 424. to thesee labour back built bewhichcalculations. had of the(1.45as 243), which is Anbeing used 14 period also shown be not permitted. (quarter InUsecasesisseen,periods.would will limit is theto limits,isx13asprogressstrike.overall laboursiterecruit isfractionsbased Industry to all inhavethetojobeffective layoff overmanningthe46jobsthe labour value. :- year) a which arefor each job are overmanned Constructionstrict ascompany has4Subcontract labour by job down new ManagerSinceincrease the transferred prior 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 in their is the start ofintoathe are and havemuchandfollowing companys requirements each 352, since only 11/13 effective the period to labour5help required, surpluswhen risks to rounded the are to a period are inweeks labour :secondjob in will been the No theoversee the job, and all the labour is fully effective. schedule possible overall there later 128, early allocated tolayoff and of on ahead Construction As The the currentlyprofit only we period, additional 11/13), using labour may have any trained. strategylabouridle ensurekeepmakesthecostexact labourneedinbenotemployed thein completion, allocated to planned labour is 82 used. Idle 61 with our own workforce, of The period.For labour pool usingnot the effective,will we 10 menthe labour labour may be or the New column. But allocations. determine To ILP column. are to so effective how do we necessary so this level tofirstConstruction Managercontractsoperatives,Bearingwhowill?try45%aim at earlyxtheir first period whilst they are beingpotential Take on some New recruits intothetheeffective labour can tomindforabove (72planned level. Since the allow forto be released any being To Transport effectivetheplanned 72adjustments beand utilise Manager decides to labour is Information. the the still job 299 men finalsubcontract companys ownwedelays take issubcontractors, decide job of schedule. Job 128 its 221, remaining of labour the is make the them There subcontractors,men the the keepof period, offromincur additional labour costsManager maymay be sincehas 53 of people allocation for its period, to fully effective, but oftomust (1.45progress. However,alreadythis isand on site, idle labourlabourschedule.upcompleted not87period. lookcurrentlytheineffective. effective Use job jobsretained and are effective it ahead and the jobs additionaland occur, site, should this rounded down so ahead fractions Instead isinis infirst4th who usesendlabourperiod cost 118.9beoperativeswhicha closer Itlabour howan additional the labour level Labour transferring the the planned period, other jobpaythe shortfall. the period planned on delays, but men inareofsinceseconduntilfinalto 212 thethe pool incurringif aninThe82),dopremium. the is at to 118, to adjust progressed limit x Construction ------------------------------------------------------------------------------------------------------------------------------------------------------------------------Planned193from levels each period wereplannedthe morethe estimatorsis in caseforschedule. complete onwe need to not since be men are needed, its 2nd period,Paid where it may duration ofjob from 5 to 6 ahead of the job to where be to the 4 periods. should come risk schedule, and time, and they can labour straight labour utilisedwill jobs, off determined by transferring It in to date, off is in site using themay decidecolumn instead ofproductivelybehind or ahead ofstrikes. Labour could other we other but has ---------------------------------------------------------------------------------are Job permitted.and factors now haveacontributed additional being used order the from. We is take a Key Point(s) in labourmen to the job, all planned duration of 3completion the Construction Manager may adjust the final labour be Thereas between 2ndpool. complete the job for will discussed in a how is ahead of chosen. guidelines9in setting and subcontractors efficiently periods. It scenario is schedule. used 196 is its newperiod, the labour the companys own look possible. demonstration. Job the idle Point(s) on but has a levels as whichever as at separate ------------------------------------------------------------------------------------------------------------------------------------------------------------------------The choice alreadylabour allocate are Key them to sufficient recruits The effective labour last full trainedfurtheridle labour to to delays additionalif risks hit, the additional labour should come the job is was first period, there is ownlabour levels pool, wefrom now any 53 where and this also for the other jobs in Job 221 its the additional men is in isreduced by compensate idle decide first period. Key Point(s)inandsurplus, period,operative labour is site, anysite toSimilaroccurpotential delays. There are currently111 be no --------------------------------------------------------------------------------------------------------------------------------------------------------------------the for As operatives,Thewon on site may andin theitstransferredand and willthat analysis would be carried out needs to be considered 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 that reduce the effective labourin awill job of factors theThis idle number early levels. total labour using the adjusted topic. when labourbe transferred possibleILP pool allocatedare not needed on Overmanning may affect them.:- the Industry To idle complete pool using the From to overman above From ILP column. progress require more/less labour than The ----------------------------------------------------------------------------------------------Key Point(s) pool for reallocation to othercolumn. they the planned levels. jobs. If from. The new recruits limit is shown in the Industry Information, other jobs they may the companys own labour affect the effectiveness of the labour allocated, such as delays are above The training andDisplay job into be well unless other Key Point adoptedrecruits will workpaid offto investigate further. The strategy thenew sector-based. option instead. factors 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. Key for and is an overhead that can adversely affect company operating profit Point(s) Planned labour levels each If the risk does not hit, and additional labour has been allocated the period. 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.

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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 Industry Information. 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 companys workforce.
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 fullytrained labour. This would then require decisions on how to overcome the shortfall, by taking on new recruits into the companys 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

The labour used to progress a job is classified in a number of ways : Planned labour Effective labour limit Total labour allocated Effective labour Ineffective labour
Glossary
Build costs Effective labour limit Both the effective and ineffective labour contribute to the build The planned labour can be exceeded each period, known as costs :overmanning, but only up to a point known as the effective labour limit. As a rough guide, if the Effective Labour Limit The following example should demonstrate the classifications. on site effective labour is 30% of the total labour Effective labour required to complete are involvedof the jobs 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. Industry Information. 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 Site tenderingown labour complete a contract on time. costs Planned Labour Level companys 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 jobs value (original Other job costsearnedcompanys 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 The Morale of the companys after training 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 the Construction the the early, overmanning have so far 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 completed identified To complete a level of a job early has a Using the previous 4-period complete overmanningtwo :- the followingin some The Construction Manager than the haveto to still company, including Trying to completenot Construction Manager job wouldplannedtheisTransportthreat of hurricans outstanding. was affects, number job benefitslevelthe the contract as an limits of earlythere of labour (36 in How would periods, but Management Consultants Report. able to complete the ? shown in the Information. is still
men) in the jobs final period to enable the job due overmanned the hurricans affect the labour wellthe job, of they struck In indeed to in its of its final period. If The effect of delays to complete at the end first two periods, and was on ahead if schedule. ? the are allocated, the job that hasthird periodduration end of themen were its labour on only 51 effective period, and risks on the effectivea For full 36 men in costs Transportjob will complete well before the of 4 periods, and that needed to complete the job a period An increase for a as be incurred untilearly,plannedend (see below). labour for early until the Thisexample, consider awillsite is shownretainedlevel inthese were allocated, as shown. can be overmanned by up to 45% may labour The client may paynumber of reasonscompletion of period, incurring additional labour and site administration costs additionaloccur costs a bonuswas by risk period the the :and end. each period. Ifuse Construction Manager follows the overmanning guidelines, and the labour allocated to site isinformation in the The Inefficient the of labour that could have been used elsewhere job delay is identified as being major, and fully effective, Industry Information. the completion schedule labour as follows. The companys ownshould bethat was being used on the completed job can be that this could affect the effective 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 reluctance planned complete at the more preventing (237), or 5 men (rounded up), athe job was perhaps level of to use end costly the job failed and Period Planned Labour Actual Labour % overmanning Cumulative Labour complete. overmanned enough. assets (plant, buildings etc) The Construction the job can be to adjust the labour level The companys capital being used on Manager decides diverted elsewhere. 1 59 85 45 % 85 in 102 45from 5 to in the labour % The Construction Manager is also determined not to be caught out by potential delays187 strikes. A2 poor choice 71 project manager reduces the productivity6of case the risk on site. of Cashflowsfurther risks strikes, and decides to carry out a detailed risk analysis before improved. the3 if any are71 job 50 ---------------------------------------------------------------------------------------------------------Undermanned 237 deciding upon thejob, labour level. risks Key Point(s) Delays to the 36 caused by striking, reduce the effectiveness of the labour on site. final 4 --------------------------------------------------------------------------------The Construction Manager should have allocated more labour during the third --Key Point(s) for risk does not hit, and the job would have completed. In this scenario, the job would enterperiod to compensateperiod out of delay, and of the completion been allocated its final plannedIf the an potentialcompletionadditional labourcompleting at Early step with a job means has schedule 237 least one of schedule, some of it 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 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 overmanned, but the Construction Manager must be the client. planned duration e.g., if thenot allocating additional 4 be severe if the job then overruns. This is -----------------------------------------------------------------------------------------------------------------------------------------------------------------------labour could periods, it must be completed in 3 periods or the planned level cannot be relied upon. less to obtain the client period Key Point(s) especially true in the final planned bonus. of a job. 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. The job varies large loss The bonus paid by the clientmade adepending in incurs labour examine how the Construction Manager sets the correct labour level to complete the job its 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

Ideally all jobs progressed will be completed either early or on time. Once the period has been completed, the Job Details 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 The penalty for completing a and this may of the tender number of affects :- late, job late is a %now affect Considerprocure any further work with the client 172 had not completed trying to the following example.
The relationship with the client will also have been affected by the late completion of the job. shows the penalty incurred for late completion.
Glossary
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 companys cash account, and have a currently 39 of the companys own labour on site, but with no planned labour as a guide, what level of labour is required to company value.
The penalty for completing a job late Additional resources will be needed to complete the job (labour, project manager), diverting themis a % of the tender value per period. from elsewhere. complete the job this period ?
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.
It reflects badly on the industrys 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. ----------------------------------------------------------------------------------------------------------------------Key Point(s) Delays caused by risks occurring are not an issue when jobs overrun, since risks will only strike during the planned duration of a job.

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Handling Job Delays
Glossary
Risks only strike during a jobs 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. When setting the labour levels during period 9, the Construction does not need to adjust such as :by a number of factors, labour levels to compensate for possible job delays if a job overruns.
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 companysfor 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% 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 how We will look into how the Construction Manager can mitigatecould the labour level have been of job delays 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. ---------------------------------------------------------------------------------------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. complete at the end of period 9, and not quite completing.

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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 In progressing jobs it Subcontractors cost-effectiveRecruits:the companys own fully trained operatives is always more New Recruits: Site CostTraining Cost New new recruits New Hidden use Key Point(s) 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, and recruit the new needs being trained, and day number the into the and is to employ their first is than using subcontractors. costs, including :- though therecruitto whetherbe own labouralso aone. farofon site, site Even Where there is the cost of employing the period, the decision as companys effective from is notperiod that still and to and varies depending upon the need to result to 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. limit on hard as abe of :- cover them on the training are However, they Information. The limitsubcontract premium, additional can vary each on in a period, as defined in the allocated to. the Subcontractors :- numberIndustry do incur anthat can be employed period.shown in the Industry Information. The limit on of new recruits
Cost time it takes tolabour new recruits, andiscost recruit this couldeach subcontractor used.Transport Sector.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 more closer looktrain costs involves. that are more calculated offset bysuch as the Well take a at the planned ones. Reliance on subcontractors can affect the morale arethe companys own labour of being The site costs that -----------------------------------------------------------------------------------------------------------------------------need to be paid whilst example training:- trained. In the people shown time is 2 weeks The
Site costs pertime could extend the planned contract time resulting in penalty The training man period in the from job to job, but tend to be cheaper in Using information vary Industry Information the training cost per
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)
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 For the 2 weeks training for a new recruit, the cost is 1,662 across the company. ---------------------------------------------------------------------------------------------options many periods : How are available subcontractors need to be employed for.
The subcontractor premiumsitethe labourman periodon 10,806laying whichown labour may then impact The is The per regardless cost The upon off of they are used. additional same payoff charges. isjob cost overall training is the 1,154 (2 x 577)
Take-on newof using subcontractors companys own of the companys own labour, which upon which the new The training cost The affect recruits, adding to the on the morale labour is the same regardless of the job is covered in recruit is used. Use subcontractors another demo.
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 than taking the Industry subcontract premium has to be paid every period.
Key Point(s)

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Labour Relations
Glossary
The most cost-effective wayExample force affect of the companys construction management decisions on labour of Example the good labour relationsaction managing 1: labour of relations in in action poor labour :In any period a companys total labour 2:The consists force is to use the companys own fully trained 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 Labour required, 85 men were available in the in used on job B. No training isidle labour no men are laid off, and the company does not incurof the additional All any men in the Jobs in Total Labour pool. All 85 were laidthe when they could off Idle Pool Progress costs such as subcontractor premiums. in Companyidle labour pool were
(Own + Sub) In this scenario the company would be perceivedin the idle labour labour relations policy, and the morale of to have a good 21 men were available the companys 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. have been utilised on jobs. (Own) used on site.
companys 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 companys 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 companys the remaining own labour (not subcontractors) would be weakened, leading to reduced productivity. In own, The options available include and not subcontractors relations policy. :this case the Company would have a poor labour For the Companys Own Labour Laying men off from the Idle Labour Pool (ILP) illustrate good and bad labour relations. Well 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 For Subcontract Labour not manipulate the labour force effectively, and :The Construction Manager did Taking on or releasing subcontractors All idle labour was redeployed to site
The Construction Manager was able to manipulate the labour force so that :None of the companys own labour was laid off from site. No subcontractors were used.
Used 201 subcontracts when men were availablenot the idle pool, but were paid off Additional labour was the companys own, and in subcontractors Laid off of the companys own labour was could have been used instead of subcontractors None 10 men from site, some of whom laid off No subcontractors were used This is an example of poor labour relations, and the productivity of the companys own labour would bean example of good labour relations, and the productivity of the This is adversely affected. companys 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 Consider the of ways :The company a number of jobs are available client in a numberThe companys how many of the jobs the company identify (prequalify for).
Its period 9, and the company have prequalified for a job with East Positively by :Midlands County Council. Submitting competitive bids Each job has a client, in either the public or private sector, for whom the work is to be carried out. 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 companys current parties. analysis of the up between the two conditions, :Negatively byclients may look to preferred bidders, relationship with each client. and if the client relationship is bids The current state of the relationship can be analysed using the Submitting uncompetitive (poor)not strong enough the client may refuse to and completing Display Client Details option. Managing the jobs poorly,accept the bid. late 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 The companys important ? But why is the client relationship so relationships with ALL clients forms one of the key performance indicators 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

Turnover
Measured value accrued across all jobs progressed; an indication of how much work the company has done.
Glossary
Gross Profit to Turnover

The ratio of gross profit to turnover across all jobs progressed; a measure of how profitable the companys 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 companys 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 companys share price.
Client Satisfaction
An indication of how happy the companys 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 Financial Analysis (Performance Alland then The sum of the numerical values across all clients is calculated for the relationship changes since the History, Periods) Byadded to the performance indicator weightingJob Analysisthe History. examining the Performance Statistics and at the end of we first determine thethe share price :shows Company Turnover Value Forward number andCapital Employed Forward Margin Workload size of jobs completed since the History. the The Financial Analysis (Performance All Periods) shows :- company value :Gross The Turnover ratio In this example the numerical valueProfit tothe forwardratio to(Performance All Periods) theas athemargin70workloadof This was added to the initial % was : At the end Operating during periods 5-8Analysis of All company expressed Historyof of upper limit :Profit Financial workload After bids have been processed,to Turnovercame 139.the Periods) showsof shows ratingthe1.35 give an The Financial Analysis (Performance Periods) shows :- the forward forward to All Each completed job is that canThe undertaken, based (Performance Periods) At the:-end of period 8 was 1.95 indicator ofworkload given a score depending upon :209 at the end of be Financial Analysis upon the companys capital base, is the capital employed. 8. The period at the end of(Performance All 4,685,339 13,976,699 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 AtThe turnover to date 8was 5,821,887 the the endthe period turnover 1-8) has at end grossHistory(periods ratio (periods 76,268,479 of profit/ was The Historicalofthe end of period 1,321,072 been1-4) was 0.0438 (612,635 / 13,976,699) At 8 was 30,171,560capital the end of period 8 13,976,699) The job size The The At(Performance Allprofit/ turnover ratio (periodsvalue was 0.0151 (211,533 /was 1.44 times the Historicaloperating Periods) shows the average 1-4) at employed :The Financial Analysis the end of period 8 was 1,409,828 The gross profit/turnover ratio to date (periods 1-8) has been 0.0532 (4,060,639 / 76,268,479) value at the end of the History. The operating profit/turnover ratio to datedate1.2421-8)Historical benchmark, which is 76,268,479) The value at the the turnover 8 (periods times the value at the end of the based To compare fairlyend of period to was with the has been 0.0274 (2,089,389 /History. upon The value of period of whereas large jobs 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 score 4) Theone the we endperiod 8 was the average per 0.0438) times the value at value was of The ratio year, endneed to work out1.2146 (0.0532 / year, which is 38,134,240 (76,268,479 / 2). of completing lateTo date (periods ratio hasat(-ve). of period 8 /was 1.8146 (0.0274 / 0.0151) times wasvalue at thethe endthethe the The improvement the reflected in end of an increase in The 1-8) The improvement was 8) at the end are given the worst scorebeen 66.5% (532 reflected in an increase in the company value performance indicator History. The was reflected in an in from History. The yearlythe initialreflected in to 174 (140 wasprice performance performance 70, thethe Thefrom 140, improvementthe end an period sharethe forward margin indicator13,976,699) initial improvement was weighting, of increase xincrease in the forward workload performance average by 8 1.242). times (38,134,240 / 2.728 70, The total calculated is added to the initial indicator 1.62 timesat the end at theweighting,(70 101 (70 x 1.44). History The value at the end of valuefrom 100,fromthe History. weighting, to 70toto x 1.006). / 41). period 8the end of initial the value indicator indicatorweighting the initial of the end of the History (66.5 at was the This deterioration is reflected inweighting, to 107 (100 x 1.07). a in give the current indicator value. deterioration is reflected in a fall fallthethe gross profit to turnover performance indicator from This in operating profit to turnover performance indicator from 100, the initial weighting, to 121 (100 x 1.2146). 130, the initial improvement is in(130capital employed in the turnover performance 140, the initial 50, This improvement is reflected in an increasereflected 1.8146). 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
Well 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 companys 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. During the Early Years the company have tried to invest in other concerns the History. This would appear to indicate that jobs have been managed slightly better sincethat provide : 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 0.77%. During the History the average job profit was 4.6% (of cost) 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. Quit
Job Details
Job number A unique number that identifies a job, ranging from 1 (earliest jobs) onwards. Type There are two types of job : BO (Build Only); traditional type of job where the client is responsible for the design, if appropriate, and the contractor is only responsible for the build. DB (Design and Build); the contractor has responsibility for both the design and the build. Size The size is based upon the approximate value : Small (approx value range 1m - 6m) Medium (approx value range 7m - 13m) Large (approx value range 14m - 25m)
Glossary
Period of prequalification The period in which the company identified the job through marketing effort.
Country/Location 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. Client The public or private-sector organisation for whom the job is being carried out.
Total labour manning The total number of man periods required to complete the job.
Sector Each job falls into one of 5 market sectors : Industrial Building and Commercial Transport Energy Water and Sewage
Measured Value (Turnover)

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 :-
Glossary
The Expected value is the labour on site that contributes to progressing the job (effective labour) / Total Labour (periods) Planned the planned value per man period. Bid Value multiplied byValue Per Man Period = 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: The measurement effort depends upon how well the companys measurement staff are able to cope with = 8,627,856 126 the turnover in the period across all jobs. The last period of the history provides the /benchmark for = 68,475 determining the appropriate level of staff required.
Planned value per man period = Bid value / Total labour (periods)
-----------------------------------------------------------------------------------------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 Industry Information.
Training cost (job cost) A new recruit needs to be trained in their first period with the company, and as a result there is an associated training time and cost.
Labour cost The cost of a general labourer used on site; used as the basis for calculating ineffective labour.
Labour payoff rate (job/overhead cost) This is the cost per person of laying off the Companys own labour from either :The idle labour pool (overhead cost) A job in progress (job cost)
Subcontract premium (job cost) 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.
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 the person in other areas.
Bonus For Early Completion

The client pays a bonus for early completion of a job.
Glossary
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 Retention affects the cashflow of the company. client until the job is completed.
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 companys 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 154,292 held Any retentions held are repaid in two equal instalments :- from work completed from jobs progress during the period
In the period when the job is completed 2 periods after the job completes
The net retention of 54,130 helped the cashflow.
Details of the % retained are shown in the Industry Information.

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Percentage Of A Job Completed

We will take a closer look at this anomaly.
Glossary
The % of a job completed on the Job Details does not always equate to the measured value recovered A job was won on a job in relation to the original bid value. with a bid of 11,540,390
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 companys 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 When were formed from work that The been completed. present time until the job has forward workload and margin values determining the amount of progress. the company are shown in the Financial 6 jobs in Analysis.
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 companys :anticipated as an example :- In the example for any calculations. on a job.
The value of of 4,947,942) Both are calculated at the end of a of 2,464,075 (49.8%the companys decisions have been processed. to the workload period, after all ofForwardvalue any bids won during period 9 are added the bid Margin was 1,409,828
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
The forward margin figure comesinitial 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 companys 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 the starting pointand on the build costs. key performance indicators. during the bidding is taken account, and the
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 referring to the Financial used. We will take a closer look at how both are calculated, andAnalysis (Performance All Periods). 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. Quit

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Overhead Management Procurement

Industry Information Miscellaneous

Industry Information Exporting Information

Management skills required

Lucrative contracts Niche markets

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Finance Marketing Overheads Procurement Construction

Phase 1: The Early Years

Phase 2: The Later Years

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Forming A Company Strategy

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Other Dept Decisions

Project Mgr Decisions

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Key Performance Indicators

The use of Performance Statistics

Management Consultants Report

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The Job Cycle

Period 1 of the job

Period 3 of the job

Bid Identify (Prequalify) Submitted (Procurement)

Progress the job

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Factors That Affect Share Price

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Equity = number of shares x current share price

Cash in the Bank

If there are no liabilities the gearing ratio is 0.

Calculating Capital Employed

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Monies IN Operating Profit =

The corporation tax rate is shown in the Industry Information.

Capital writing down rate per annum.

Calculating Corporation Tax

Calculating Corporation Tax

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Size of global market

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Other Overhead Department Decisions

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Non-Departmental Overhead Decisions

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Choosing A Consultant Designer

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Project Manager Decisions

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Project Manager Information

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Project Manager Performance