Contractor And

Decision Making Tools

First Let’s Talk About
Roles & Responsibilities
Partners / Stakeholders

• Owner

• Consulting Engineer

• Construction Contractor
 Owner

• What are the owner’s responsibilities?

 Need to be fully informed

 Make final decisions on planning

 Hire the engineer and contractor

 Pay on time!

 Resolve disputes
 Consulting Engineer

• Responsibilities before award:

• Preliminary Design

• Plans and specifications

• Coordinates and assists in bidding/award

 Consulting Engineer
After award:

• Owner’s representative

• Provide Resident Project Representation

• Evaluate shop drawings

• Visit site and observe construction

• Reject defective work, evaluate change

orders, and pay estimates

• Determine final quantities for unit prices

 Consulting Engineer

• Visit site as needed to observe as an

experienced/qualified design professional;

Visits to Site • Review progress and quality of work for benefit

by Engineer of owner;

• Determine in general if work is proceeding per

contract documents
 Consulting Engineer

• Evaluate substitutes and “or equals”

• Make clarifications and provide initial decisions

Other Roles on disagreements
by Engineer
• Determine substantial completion

• Recommend Final Payment to the Owner

 Consulting Engineer - Limitations

• Will not supervise, direct, control, have

authority over or be responsible for:

• means, methods, techniques, sequences,

Limitations procedures of construction;

• safety precautions or programs;

• Acts or omissions of contractor, subs, or

suppliers;
 Consulting Engineer - Limitations

• Review of pay requests, documentation,

operating instructions, schedules, guarantees,
bonds, inspections, tests, approvals is:
Limitations • only to determine generally that content
complies.
 Consulting Engineer - Summary

• Engineering Agreement

• Review plans and specifications

Summary • Execute construction contracts

• Construction management
 Contractor

• Build it per plans and specs

• On time
Roles &
Responsibilities • Within budget

• Absolute obligation to perform and complete the

work in accordance with contract documents
 Contractor

• Supervise, inspect, and direct the work

• Responsible for site, materials, equipment, and

Roles & schedule
Responsibilities
• Responsible for all subs and suppliers

• Responsible for site safety

• Maintains record documents at site

Decision-Making In
Project Management
Example: San Francisco Bay Bridge

• Beginning 2005 – Decision to stop

construction

• Later 2005 – Decision of continue

construction based on original project

• Result: $81M cost overrun. Will be paid by

California taxpayers and toll payers
Burden of Poor Decisions

• Cost of poor decisions in pharmaceutical

industry is passed to consumers

• Dry hole cost in oil and gas industry is

passed to motorists

• Wrong policy decisions by government will

be passed to taxpayers

• You paint your deck without properly

removing old paint. You have to do it again
next year.
Why is decision-making so complicated ?

• Most problems in project management involve multiple

objectives

• Project managers are always dealing with uncertainties

• Project management problems may be very complex

• Most projects include multiple stakeholders

Definition : Decision Making

• The process of identifying and selecting a course of action to

solve a specific problem

• Decision is a choice between two or more alternatives

• Decision is on the basis of conscious logic

• Decision must bring the organization closer to the goal

Basic steps in effective decision making
Decision making principles and tools

• Decision Tree
• SWOT Analysis
• Cost Benifit Analysis
SWOT Analysis

•Done in the beginning of a project to understand the

preparedness, advantages and disadvantages for a company to
take up the project.

•The primary objective is to help organizations develop a full

awareness of all the factors involved in making a business
decision.
Decision Tree
A decision tree is a decision support tool that uses a tree-like
graph or model of decisions and their possible consequences,
including chance event outcomes, resource costs, and utility.

Used in project risk management.

•Assists in making a difficult decision.
•Each branch of the tree shows a different implication.
•Used when a no. of future out comes or scenarios remain
uncertain
•Factors taken into account- probability, cost, reward, of each
event.
Decision Tree - Example
We are the prime contractor and there is a penalty in our contract with the
main client for every day we deliver late. We need to decide which sub-
contractor to use for a critical activity.

•The lower-bidding sub-contractor also promises a successful delivery,

although we suspect that he cannot do so reliably. One sub-contractor is
lower- cost ( 110,000 bid). We estimate how ever that there is a 50% chance
that this contractor will be 90 days late and our contract with the main client
specifies that we must pay a delay penalty of 1,000 per calendar day for
everyday we deliver late.

•The higher-cost sub-contractor bids $140,000. We know this contractor and

assess that it poses a low 10% chance of being late, and only 30 days late at
that. Of course, our customer will impose on us the same 1,000 delay penalty
per day for late delivery.
Decision Tree - Example

The rules for finding the values of the chance and decision nodes are:

•The value of each chance node is found by multiplying the values of the
uncertain alternatives by their probabilities of occurring and sum the results.
This value is known as Expected Monetary Value (EMV).
Decision Tree - Example
For the “Low Bidder but Risky” alternative
–Multiply- 2,00,000 by 50% for - 1,00,000
–Multiply- 1,10,000 by 50% for - 55,000
–Add these numbers (- 1,00,000 - 55,000) for -1,55,000.

This is the Expected Cost of this option, since it is 50% likely that the low
bidder will be late.

•For the Reliable High Bidder

–Multiply- 1,70,000 x 10% for - 17,000
–Multiply- 1,40,000 x 90% = - 1,26,000
–Add the results (- 17,000 and -1,26,000) for -1,43,000
Cost – Benefit Analysis
A cost-benefit analysis (CBA) is a systematic process in which decisions relating to proposals are analysed to
determine whether the benefits outweigh the costs, and by what margin.

CBA serves as a basis for comparing alternatives proposals and making informed decisions about whether to
proceed.

Cost-benefit analysis, CBA, is the social appraisal of marginal investment projects, and policies, which have
consequences over time
CBA seeks to correct project appraisal for market failure
Environmental impacts of projects/policies are frequently externalities, both negative and positive
CBA seeks to attach monetary values to external effects so that they can be taken account of along with the
effects on ordinary inputs and outputs to the project/policy
CBA is the same as BCA – Benefit-cost analysis.
Decision making tools - cost benefit analysis
TYPES OF COST DEFINITION

Direct costs Direct labor involved in manufacturing, inventory

,raw materials, manufacturing expenses

Indirect costs Electricity, rent, utilities.

Intangible costs Construction of a manufacturing plant, delivery

delays of product, employee impact.

Opportunity costs and the cost of potential risks Alternative investments, or buying a plant versus
building one.
Cost benefit analysis

Revenue and sales increases from increased production or

new product

•All direct and indirect revenues and intangible benefits, such

as improved employee safety and morale, as well as customer
satisfaction due to enhanced product offerings or faster
delivery.

•Competitive advantage or market share gained as a result of

the decision.
Feasibility studies for
construction projects
Feasibility Study

A feasibility study tests the viability of an idea, a

project or even a new business. The goal of a feasibility
study is to emphasize potential problems that could occur
if one pursues a project and determine if, after
considering all significant factors, the project is a good
idea.
Feasibility Study

• Feasibility Studies are preliminary studies undertaken in

the very early stage of a project. They tend to be carried
out when a project is large or complex, or where there is
some doubt or controversy regarding the
proposed development.
• Before any executive gives the green light to a project that
could cost thousands (or millions) of dollars, you can bet
he or she will want to see a feasibility study. So what is a
feasibility study in project management?
Feasibility Study

• A feasibility study determines whether the project is likely to

succeed in the first place. It is typically conducted before any
steps are taken to move forward with a project, including
planning.

• It is one of the most important factors in determining

whether the project can move forward.
A feasibility study in project management
usually assesses the following areas:

• Technical capability: Does the organization have the

technical capabilities and resources to undertake the
project?
• Budget: Does the organization have the financial resources
to undertake the project, and is the cost/benefit analysis of
the project sufficient to warrant moving forward with the
project?
• Legality: What are the legal requirements of the project, and
can the business meet them? are there any hurdles in the
approvals required.
A feasibility study in project management
usually assesses the following areas:

• Risk: What is the risk associated with undertaking this

project? Is the risk worthwhile to the company based on
perceived benefits?
• Operational feasibility: Does the project, in its proposed
scope, meet the organization’s needs by solving problems
and/or taking advantage of identified opportunities?
• Time: Can the project be completed in a reasonable timeline
that is advantageous to the company?
Steps involved in conducting a
feasibility study

Preliminary analysis:
• Before moving forward with the time-intensive process of a
feasibility study, many organizations will conduct a
preliminary analysis, which is like a pre-screening of the
project.
• The preliminary analysis aims to uncover insurmountable
obstacles that would render a feasibility study useless.
• If no major roadblocks are uncovered during this pre-screen,
the more intensive feasibility study will be conducted.
Steps involved in conducting a
feasibility study

Define the scope:

• It’s important to outline the scope of the project so that you
can determine the scope of the feasibility study.
• The project’s scope will include the number and composition
of both internal stakeholders and external clients or
customers.
• Don’t forget to examine the potential impact of the project
on all areas of the organization.
Steps involved in conducting a
feasibility study

Market research:
• No project is undertaken in a vacuum. Those conducting the
feasibility study will delve into the existing competitive
landscape and determine whether there is a viable place for
the project within that market.
Financial assessment:
• The feasibility study will examine the economic costs related
to the project, including equipment or other resources, man-
hours, the proposed benefits of the project, the break-even
schedule for the project, the financial risks associated with
the proposal, and—very important—the potential financial
impact of the project’s failure.
Steps involved in conducting a
feasibility study

Roadblocks and alternative solutions:

• Should any potential problems surface during the study, it
will look at alternative solutions for the project to go ahead
successfully.
Go/no-go decision:
• The final aspect of a feasibility study is the recommended
course of action—in other words, whether the project should
proceed or not.
VALUE ENGINEERING
Value engineering

Origin of value engineering:

• During world war 2 years, an engineer named Lawrence
Mills who was working in GE as purchase manager was
facing difficulty in procuring the standard materials required
for production.
• He tried to get alternative materials that were available
during the war years.
• In the process he realized that the alternative materials cost
less and at the same time improved the quality and function
of the products. It was then that he coined the term value
engineering.
Value engineering

Definition
• Value engineering is a systematic method to improve the
“value” of a product or service that the project produces.
• It is an integral component of project quality.
Value engineering

Value = Function / Cost

• Clearly, project value is increased when the function is

increased or the cost is decreased, or both.

• Value engineering is used to solve problems and identify

and eliminate unwanted costs, while improving function and
quality.

• The aim is to increase the value of products, satisfying the

product’s performance requirements at the lowest possible
cost.
Value engineering

There are two types of functions:

Primary functions cannot be compromised.
• For example, A bridge’s primary function is carry traffic
across a river.
Secondary functions are optional and provide convenience or
dependability to the user. A bridge’s following-
Appease Landowners
Preserve wildlife
Aesthetics
Durability
Enabling Larger Ships to Pass
VALUE ENGINEERING: THE PROCESS
The value engineering workshop has five key steps:

Information: During the initial phase, the project team seeks to

gather information about the project thus far including
important details about the owners’ objectives, key criteria, and
definition of value.

Function Analysis. Identifying the functions of the product or

project, and describing them with verb/noun pairs. Listing
primary and secondary functions.

Speculation: The team studies the data and brainstorms as

many ways as possible to reduce initial or lifecycle cost while
still maximizing function. This is the creative phase of the
workshop.
VALUE ENGINEERING: THE PROCESS
Evaluation: The team evaluates ideas produced during
brainstorming. Some ideas become part of the final solution
while others are deemed inefficient or unworkable.

Development: Many of the ideas that passed the evaluation

phase are further developed into workable proposals. Each
recommendation will be accompanied by a short narrative with
a list of the positive and negative aspects of each proposal
along with cost comparisons.

Presentation: Lastly, the team makes a formal written

presentation of their findings accompanied with an oral
presentation to clients, users, and designers. In this final stage,
the client can determine which value management proposals
will be incorporated into the project in order to reduce costs
and increase overall value.
VALUE ENGINEERING: THE PROCESS

Cost reduction: suggestions of less expensive alternatives to

specified materials or systems.
Value addition: higher quality products that will increase value
for the client and overall satisfaction
with the project.
Life-Cycle Analysis: options that work to create a balance
between initial construction costs and the long-term
operational budget of the development.
Maintainability: recommendations of systems and products that
will reduce maintenance costs over the
lifespan of the building.
SCOPE OF A PROJECT
SCOPE OF A PROJECT

• The scope of a project is the clear identification of the work

that is required to successfully complete or deliver a project.
• Project scope refers to the total amount of work that must be
done in order to deliver a product, service, or result with
specified functions and features.
• It includes everything that must go into a project, as well as
what defines its success.
PROJECT SCOPE MANAGEMENT
• Scope management is the process of defining what work is
required and then making sure all of that work – and only
that work – is done.
PROJECT SCOPE MANAGEMENT
Project Scope Management is the knowledge area concerned with
managing how the scope will be defined, verified, and controlled.

One of the project manager’s responsibilities is to ensure that only the

required work (the scope) will be performed and that each of the
deliverables can be completed in the allotted time and within budget..

The project manager must seek formal approval on a well-defined and

clearly articulated scope. Without a comprehensive project scope
management plan, there’ a good chance your team is doing work that’s
unnecessary to complete the project at hand, or even wasting time thinking
about what they should be doing next.

To help you get your team working on more of the right work, here are
some of the key processes involved in effective project scope management
PROJECT SCOPE MANAGEMENT

Plan Your Scope management process

• In the planning phase, you want to gather input from all of

the project stakeholders.
• Together you will decide and document how you want to
define, manage, validate, and control the project’s scope.
• The scope management plan also includes information on
how you will handle unforeseen circumstances throughout
the project, how the deliverables will be accepted, and how
you will come up with some of the other key elements
including a work breakdown structure (WBS) and a scope
statement.
PROJECT SCOPE MANAGEMENT

Collect Requirements
• Make sure to interact with all the stakeholders to get a clear
idea of what your stakeholders want and how you’re going
to manage their expectations.
• You will document exactly what is wanted out of the project
as far as status updates and final deliverables.
• This information can be gathered through focus groups,
interviews, or surveys, and by creating prototypes.
PROJECT SCOPE MANAGEMENT
Define Your Scope
• scope statement should attempt to answer seven questions:
Who? What? When? Where? Why? How? and How Many?

• Once you understand what deliverables are expected,

you’re ready to clearly define exactly what is in scope and
what is out of scope for your project.

• A project scope statement will serve as a guide throughout

the project. It may seem odd to list what is not involved in
the project, but that is a crucial step.

• It can be hard to list down everything that is included in the

project, but if what is not included is clearly mentioned, then
chances of doing unnecessary work is reduced.
PROJECT SCOPE MANAGEMENT

Project Scope statement can include:

• Project Scope
• Deliverables
• Acceptance criteria of the product- standards, quality tests
etc.
• Out of scope activities
• Constraints and assumptions
PROJECT SCOPE MANAGEMENT

Create a Work Breakdown Structure (WBS) and WBS dictionary

• Based on your project scope statement and the documents

created during requirements collection, you would build a
WBS, which is essentially the entire project broken down
into smaller individual tasks.
• Deliverables are clearly defined, providing the project
manager and the team with several more manageable units
of work
PROJECT SCOPE MANAGEMENT

Validate Your Scope

• This is where your scope statement and deliverables are

reviewed by whoever needs to approve them, whether it be
a customer, a stakeholder, a manager, or all three.
• It’s important to have a plan in place for exactly how project
deliverables will be accepted as complete. At the end of this
process, you’ll accept deliverables, change requests, or
project document updates.
PROJECT SCOPE MANAGEMENT

Control Your Scope

• A project’s status should be monitored from start to finish to

ensure that it is being executed according to your project
scope management plan.
• You never know when the scope may need to change or a
customer may add new requirements.
• In order to control the scope, project managers should
compare performance reports with the project requirements
Work Breakdown Structure

The Work Breakdown Structure (WBS) is the list of tasks which

compose the project.

It is the breakdown of the project scope into smaller, more

manageable pieces. It seems simple, but it’s the foundation
upon which most project management tools are based, thus it
is critically important if the project is to be adequately planned
and controlled.
Work Breakdown Structure

For example,WBS for an individual house-

• Excavation
• Foundation
• Concrete forms
• Concrete pouring
• Framing
• Electrical
• Plumbing
• Drywall
• Flooring
• Roofing
Work Breakdown Structure

A common issue is deciding when to stop separating

tasks(decomposition)?
The answer is that you want to decompose the scope into
tasks that are:

1. Easy to estimate
2. Have only one major responsible party.
Difference between scope statement and statement
of work
The official project scope statement is produced by the project
manager and approved by the project sponsor.

Often consultants and contractors are required to bid on a

document which describes the scope of the project.

This statement is often called a “Terms of Reference” or a

“statement of work.”

It is important not to confuse this with a scope statement.

In fact, they often do contain major oversights and irregularities

from the scope as intended by the owner organization.
STAGES OF CONSTRUCTION MANAGEMENT- planning scheduling (before
construction stage) and controlling (during construction stage)

PROJECT PLANNING

• Planning provides direction, unifying frame work,

performance standards, and helps to reveal future
opportunities and threats

• In Planning, the following steps are followed-

• In planning phase, plan is made and strategies are set,
taking into consideration the company policies,
procedures and rules.
• The Objectives of the projects is defined. Intermediate
Goals and stages(milestones) are defined which are
important to attain the final target
• Project broken down into Activities
STAGES OF CONSTRUCTION MANAGEMENT- planning scheduling (before
construction stage) and controlling (during construction stage)

Forward Planning
• Planner starts from the initial event and builds up the events and activities
logically and sequentially until the end event is reached.
• Backward Planning
• The planner starts with the end event, and arranges the events and
activities until the initial event is reached.
• The planner asks himself “if we want to achieve this, what events or
activities should have taken place?
Combined Planning
• Combination of both forward planning and backward planning.
• At any stage the planner may need to traverse the network back and forth
several times until it is found to be satisfactory.
• Questions that a planner considers while planning-
• What event or events must be completed before the particular event can
start?
• What event or events follow this?
• What activities can be accomplished simultaneously
STAGES OF CONSTRUCTION MANAGEMENT- planning scheduling (before
construction stage) and controlling (during construction stage)

PROJECT CONTROLLING
• This phase is carried during the execution of the project.
• The difference between the scheduled performance and actual
performance are reviewed once the project starts.
• Project control is established to determine deviations from the basic plan,
to determine the precise effect of these deviations on the plan, and to re
plan and reschedule to compensate for the deviations.
• The Standards and targets are established and targets are generally
expressed in terms of time.
• Performance is measured against the standards set down in the first step.
• The Deviations from the standard are identified
STAGES OF CONSTRUCTION MANAGEMENT- planning scheduling (before
construction stage) and controlling (during construction stage)

PROJECT SCHEDULING
• Scheduling is the allocation of resources
• Resources are- time, manpower, equipment applied to material.
• Scheduling is the process of formalizing the planned functions, assigning
the starting and completion dates to each activity which proceeds in a
logical sequence and in an orderly and systematic manner.
• In Scheduling, the following steps are followed.
• Detailed control information is to be calculated.
• Timings to events & activities are assigned
• Consideration must be given to resources generally concerned with those
resources whose availability is limited and which there by impose a
constraint on the project. Important ones are skilled, technical and
supervisory manpower and capital investment