Construction Management - CEng 572 Lecture Note

Chapter 3
PROJECT PLANNING AND MANAGEMENT

3.1 Introduction

The success of a project will depend greatly on careful and continuous planning, and
management of the execution of activities according to plan. Planning involves the logical
analysis of the project, its requirements, and the plan for its execution. This will also include
the consideration of the existing constraints and available resources which will affect the
execution of the project. Considerable planning is required for the support functions for a
project, material storage, worker facilities, office space, temporary utilities, and so on.

All construction projects have an element of risk. The risk encompasses the elements of
time, money, and quality, and the three are interrelated.

As an overview, the degree of risk is directly associated with the money spent and the
quality of the management of the project. The amount of each depends in turn on the
manager's ability to identify the potential areas of risk in a timely fashion. The following
discussion addresses two major areas that must be considered as part of a risk management
program for a construction project: planning and the form of contract.

Planning must be done well up front to reduce the risk during the actual execution. The
planning must be comprehensive and far sighted. Often, projects are best planned after a
participant has had major problems on a preceding project because of a heightened
sensitivity.

The owner must develop a "big picture" of the timing of the project in order to determine
how it must pursue both the design and the construction. By establishing an overall schedule
for the job, the owner can then determine the most appropriate project delivery approach.
For instance, a project that has ample time from conception to delivery can proceed under a
traditional design-then-build approach. Another project, however, that has a constrained
timeframe for delivery may require a fast-track approach or phased construction. Similarly,
another project may suggest that the owner pursue a design/build or turnkey approach.

First is to carry out long-term and intermediate plans breaking the project into bigger work
packages. The time duration for intermediate and long-term planning ranges from about 3
months to the completion of the project. Short-term planning will then be made that show
the plan for the execution of activities and resources consumed by each activity, which
ranges from one day to weeks duration.

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While planning, sequences of activities will be defined and linked d on a time-scale to form
the program to ensure that priorities are identified and that efficient use is made of expensive
and/or scarce resources within the perceived physical constraints affecting the job.

Remember, however, that because of the uncertain nature of construction work it should be
expected that the plan would change. It must therefore be updated quickly and regularly if it
is to remain a guide to the most efficient way of completing the job. The program should
therefore be simple so that updating is straightforward and does not demand the feedback of
large amounts of data from busy men, and be flexible, so that all alternative courses of
action are obvious.

The purposes of planning are therefore:

1. To persuade people to perform their tasks before they delay the operations of other
groups of people, and in such a sequence that the best use is made of available
resources
2. To communicate with those people
3. To provide a framework for decision making in the event of change.
It is difficult to enforce a plan which is conceived in isolation, and it is therefore essential
continually to involve the people responsible for the operations and to encourage their
commitment as the plan is developed and revised. Ideally, it should provide a flexible
framework within which they can exercise their own initiative.

Before compiling a program, the planner is therefore faced with a number of decisions and
must decide on:

(1) The appropriate level of detail for the program. The golden rule is to keep it simple.
A program of 100 activities is easy to comprehend; one of 1000 activities is not.
Initially, divide the job into the minimum number of large work packages and
develop detail later only in specific areas where it is required due to the complexity
of the work or when there is need to determine precise resource requirements.

(2) The choice of programming technique. Particularly important in this choice is the
level of management at which the program is to be used, and the level of detail
required. Long-term plans are used by top management and short-term are used at
supervisory level. Programming techniques are bar chart and network methods. Bar
chart is used for simple jobs with little number of activities. Bar chart does not show
relationships between activities. CPM and REPT are used for complex jobs and show
the relationship between activities.

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Additionally, all the necessary information including legal and environmental

requirements must be gathered for the planning, which is followed by the planning
process. The process of planning is simply an application of the thought process that
must be entered into before the actual scheduling can begin. The planning process
should include answers to the following preliminary questions.

1. Long lead purchases: Are there any items that will require purchase orders to be
placed long in advance of the time that the item is needed on the job because of
material shortages. Fabrication time, or similar delay factors?
2. Utility interruptions: Is there any part of the project that will involve an outage of
utility services such as water, power or other essential services? If so, has the utility
owner been contacted to determine the maximum length of the outage; the time of
day that outages will be permitted; the calendar dates during which outages will be
permitted, or similar restrictive controls?
3. Temporarily utilities: Will temporary utility lines be required to be built to bypass
the construction area, and will temporary roads be required to provide detour routes
for street traffic?
4. Temporary construction utility service: Who provides temporary construction utility
service, and from where must it be obtained?
5. Labor: have representatives of labor been contacted in the area of construction to
establish the jurisdictional responsibilities of the various trades to be used in the
work, as well as to determine the union work rules in the affected area?
6. Work and storage areas: Have provisions been made for contractor's work and
storage areas?
7. Traffic requirements: Have local traffic control regulations been investigated? Will
construction equipment be allowed to operate on public streets; will street closures in
the construction area be permitted; and will special traffic control and flagmen be
required to direct traffic around construction?
8. Temporary access: Will temporary access, including temporary bridges, be required
to provide continued access to residences and places of business during the
construction period?
9. Other contractors: Will other contractors be working in the same area, thus requiring
schedule coordination with them in order to complete the work of this contract?
10. Interdependency of tasks: Are some of the tasks in this project dependent upon the
completion schedule of another contractor or utility owner before they can be
started?
11. Environmental controls: Will special environmental controls be required; if so,
what?
12. Special regulations: Are there special regulations that may affect the construction
scheduling or construction time?

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13. Special construction equipment: Will special equipment be required for

construction? If so, is it off-road equipment that will require special haul routes?
What are the load limits and bridge clearances for roads in the area?
14. Time for construction: Is the time allowed to complete the project adequate for the
location and the seasons, or will it require increased crew sizes or premium time?

Each of the above items is an important consideration in the planning stage of a project.
After determination of the various limitations and constraints on the conduct of the
work, the task of planning the actual construction effort can begin. Many large contracts
can be divided into separate stages of construction.

Compiling a program
This is a process of repeated refinement. Before sketching the first draft, the planner must be
familiar with the objectives and priorities defined for the job and aware of constraints. These
will include(1) restrictions on access to parts of the works; (2) likely periods of bad weather,
which may inhibit particular operations; and (3) availability of resources. Although the
efficient use of key resources will be considered in detail at a likely to be available will, of
courses, and the preparation of realistic first draft.
Assumptions are invariably made as the plan is developed; and it is essential that these
should be stated clearly so that everyone using it is aware of its validity.

When compiling the program the planner is concerned with

(1) Resources: with the allocation and utilization of people with expertise and skills,
fabrication facilities, construction plant and materials,
(2) Activities: packages or work, which consume resources and are defined by
consideration of:
(a) the type of work (and therefore the type of resource required).
(b) the location of the work;
(c) any restraints on the continuity of the activity. Each activity will be identified
and appear as a bar or other symbol on the program.
(3) Logic: with the relationships and links between activities, which will be represented
by lines or arrows on the program. Most programs will contain obvious sequences of
activities, which will provide the basic shape of the diagram. It is also advantageous
to identify any opportunity to overlap activities, i.e. an activity may start before the
preceding on is completed. In this way the overall duration of the job may be
minimized, frequently with consequential savings in cost. Initially each activity
should be shown at its earliest possible start.
(4) Duration of each activity which is a function of the quantity of work to be done, the
number of units of resource allocated to the activity, and their predicated output. It is
important to think of duration in this way, as all these factors any be variable. The

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quantity of work, e.g. volume of excavation or number of drawings, may be more or

less than originally estimated, one or more teams may be allocated to the activity,
and their predicated production mayor may not be achieved. Any change will affect
the activity duration and in turn alter the overall demand for resources, the total
duration of the job, the cost and the cash flow.

The initial allocation of resources to an activity will be a matter of judgment and is

quite likely to be changed subsequently.

(5) Potential problems and uncertainties. The greater the uncertainty, the more flexible
the program must be in order to provide alternative courses of action. This may be
achieved either by allocating additional resources or by extending the contract
duration. In either case, the estimated cost will increase and it is therefore essential to
link the program with the cost forecast.
(6) Overall duration of the job calculated when all the activities at their assumed
durations have been assembled within the overriding constraints which form the
framework of the program.

Resource scheduling
Whichever programming technique is used, the next important, step in refining the plan
would be to consider the overall demand for key resources. The definition of key resources
is likely to differ for different types of projects and particularly for their location.
Consideration will be given especially to those resources which are scarce and/or expensive.
It is clear that the adjustment, or leveling, of one resource will have an effect on the usage of
others. Generally, resource leveling is only applied to a few resources, particularly if it is
being done manually. The use of a computer can allow better sophistication.

In conclusion, obviously, in order to get a clear picture of all the interrelated problems at a
construction site, some kind of a graphic picture must be drawn to enable the contractor and
the resident project representative to get an understanding not only of the sequence of
events, but also of their times of beginning and anticipated completion as well.

In this chapter important points required to develop a good construction plan will be treated

3.2 Major Construction Operations

Most projects are divided into major construction operations to facilitate project planning. A
major construction operation is a portion of the project which may be performed by a
classification of laborers and/or equipment. Alternatively, subdivision may be carried out

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based on the operations place in time in the project duration, i.e, linked and concurrent tasks
may be grouped together.

Work Breakdown Structure

The project management team begins its task well in advance to develop plan for the project.
The first step in planning is to break the project down into manageable parts. This work
breakdown structure defines the project by dividing it into its major subcomponents or tasks,
which are then subdivided into more detailed components, and finally into a set of activities
and their related costs. The objective is to identify discrete work packages or tasks that can
be planned, estimated, budgeted, scheduled and controlled. It can provide various levels of
information to different levels of management.

The work breakdown structure typically decreases in size from top to bottom and looks like
Level
1. Project
2. Major tasks - these are major construction operations
3. Subtasks in major tasks
4. Activities or work packages
A typical list of major construction operations for a building construction project may look
like the following

1. Site work and foundations construction

2. Superstructure structural concrete work
3. Mechanical, electrical and sanitary installations and fittings
4. Building enclosure work -block work and roofing
5. Finishes

3.3 Long and Short-Term Planning

3.3.1 Long-Term Plans

Long-term planning involves establishing objectives for the whole project and breaking the
project into major tasks such that these major tasks will be planned with respect to time,
gross resources requirements in a crude way. The execution and control aspects will also be
planned for. Long-term plans have a wider scope and cover the duration of the project as
shown in Fig. 3.1.

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Fig 3.1 Typical planning (managerial) cycle

This may include breaking the major tasks into subtasks.

Another way of dividing the phases in management of large projects is as shown in Fig. 3.2

Fig 3.2 Project management activities

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3.3.2 Short - Term Plans

Short-term plans are developed for the actual execution of the work. Usually such detailed
plans are developed by contractors after winning the bid. Short-term planning involves
breaking subtasks into activities and determining the duration for each, and material
equipment, personnel and finance requirement of each activity. These will be compiled into
subtasks and major tasks and final long-term plans are developed for the project.

An activity is a single identifiable work step in the total project. The extent to which the
project is subdivided into activities depends upon a number of practical considerations, but
the following factors should be taken into account:

1. Different areas of responsibility, such as subcontracted work, which are distinct and
separate from that being done by the prime contractor directly
2. Different categories of work as distinguished by craft or crew requirements.
3. Different categories of work as distinguished by equipment requirements.
4. Different categories of work as distinguished by materials such as concrete, timber,
or and walls.
5. Distinct and identifiable subdivisions of structural work such as beams, columns,
slabs, and walls.
6. Location of the work within the project which necessitates different times or
different crews to perform.
7. Owner's breakdown for bidding or payment purposes.
8. Contractor's breakdown for estimating or cost accounting purposes.

The activities chosen may represent relatively large segments of the project or may be
limited to small steps. For example, a concrete slab may be a single activity, or it may be
broken down into the erection of forms, placing of reinforcing steel, pouring of concrete,
finishing, curing, and stripping of forms. If the activity breakdown is too gross, the job plan
developed will not yield information in sufficient detail to be optimally useful. However, if
the subdivision of the work is carried to the other extreme, the excessive detail tends to
obscure the really significant planning factors. Experience with CPM and observation of
practices used by other contractors are probably the best tutors in this regard.

As the separate activities are identified and defined, the sequential relationships among them
are determined. This is referred to as "job logic" and consists of the necessary time order of
construction operations. When the time sequence of activities is being determined,
"restraints" must be recognized and be taken into consideration. Restraints are practical
limitations of one sort or another that can influence or control the start of certain activities.
For example, an activity that involves the placing or reinforcing steel obviously cannot start

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until the steel is on the site. Hence the start of this activity is restrained by the time required
to prepare and approve the necessary shop drawings, fabricate the steel, and deliver it to the
job. In like manner, the start of an activity may depend on the availability of labor,
subcontractors, equipment, completed construction drawings, owner-provided materials, and
other required inputs. Failure to consider such constraints can be disastrous to an otherwise
adequate job plan.

3.4 Project Scheduling

Project scheduling involves sequencing and allotting time to all project a activities. At this
stage, managers decide how long each activity will take and compute how many people and
how much material will be needed at each stage of construction. A schedule is in essence a
time table for the construction plan and is the specification of when each activity will be
carried out and who will carry it out as well as when and how much input is needed, i.e.,
managers also chart separate schedules for personnel needs by type of skill, and for
materials also.

One popular project scheduling approach is the Gantt chart. The other very useful
techniques are network techniques - Critical Path Method (CPM) and Program Evaluation
and Review Technique (PERT).

3.4.1 Charts and Milestone Charts

Gantt or bar chart is a popular tool for planning and scheduling simple projects. It can also
be used to schedule large building construction projects, in which case the schedule will be
crude one. Usually network schedule for short-term plans.

Bar charts are horizontal bars drawn along time line for each activity as shown in
Fig.3.3.Bar charts are low cost means of helping managers make sure that (1) all activities
are planned for, (2) their order of performance is accounted for, (3) the activity time
estimates are recorded, and (4) the overall project time is developed. Gantt charts are easy to
understand.

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Bar chart of small one-story office building

a)

b)
Fig. 3.3 Sample bar charts

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On simple projects, scheduling charts such as these can be used alone. They permit
managers to observe the progress of each activity and to spot and tackle problem areas.
Gantt charts, though, do not adequately illustrate the interrelationships between the activities
and the resources. Arrows are introduced to show precedence relationship to overcome this
problem as shown in Fig. 3.4.

In one form, the bar chart persists, and rightfully so. As a means of communicating job
progress information to non technically trained people, or even to construction experts
whose need to know is limited to progress data only, the bar chart excels as a means of
showing such data in a clear and concise manner. Such charts record progress in each of the
major elements of construction as a solid bar along a corresponding time scale, and are
generally updated monthly. Another type of chart frequently used for showing a comparison
of anticipated construction progress to actual progress is the "s" curve, illustrated in Fig. 3.5.
Another variation of this curve is frequently used for cost control

Another scheduling device is the Milestone chart, a form of key event schedule that is
distinguished by its identification of certain events or "milestones'; demonstrating progress
towards a specific goal. Milestone chart is similar to bar chart but slightly different both in
form and purpose, as shown in Fig 3.6. It is used to budget time and cost of the project. This
prepared for the major tasks or operations. The milestone chart is top management target
objective and serves as a guide for monitoring schedule and cost trends. The milestone
schedule also serves as a framework for further detailed schedules.

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Fig 3.4 Bar chart with precedence relations

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Fig 3.5 Bar Construction progress curve

Fig 3.6 Sample Milestone Chart

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3.4.2 Project Network Analysis tools: CPM and PERT

The critical path method (CPM) and program evaluation and review technique (PERT) are
two of the most widely used network techniques and were both developed in the 1950s to
help managers schedule, monitor, and control large and complex projects. CPM arrived first,
in 1957, as a tool developed by J.E. Kelly of Remington Rand Corporation and M,R. Walker
of DuPont assist in the building and maintenance of chemical plants at DuPont.
Independently, PERT was developed in 1958 through the joint efforts of Lockheed Aircraft,
the US Navy Special Project Office and the Consulting firm Booz, Allen and Hamilton. At
the time, there was considerable concern on the part of the US government that the Soviet
Union might be gaining nuclear superiority over the US, and early completion of the project
was given top priority by the Department of Defense, and using PERT the project could be
completed 2 years ahead of the original schedule.

PERT and CPM, do have the ability to consider precedence relationships and
interdependence of activities. On complex projects, the scheduling of which is almost
always computerized, PERT and CPM thus have an edge over the simpler Gantt charts.

To summarize, whatever the approach taken by a project manager, project scheduling serves
several purposes:
1. It shows the relationship of each activity to others and to the whole project.
2. It identifies the precedence relationships among activities.
3. It encourages the setting of realistic time and cost estimates for each activity.
4. It helps make better use of people, money, and material resources by identifying
critical bottlenecks in the project.

The Framework of CPM and PERT

CPM and PERT both follow six basic steps:
1. Define the project and prepare the work breakdown structure.
2. Develop the relationships among the activities. Decide which activities must precede
and which must follow others.
3. Draw the network connecting all of the activities.
4. Assign time and/or cost estimates to each activity.
5. Compute the longest time path through the network. This is called the critical path.
6. Use the network to help plan, schedule, monitor, and control the project.

Step 5, finding the critical path is a major part of controlling a project. The activities on the
critical path represent tasks that will delay the entire project unless they are completed on
time. Managers can gain the flexibility needed to complete critical tasks by identifying

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noncritical activities and preplanning, rescheduling, and reallocating resources such as labor
and finances.
Although CPM and PERT differ to some extent in terminology and in the construction of the
network, their objectives are the same. Furthermore, the analysis used in both techniques is
very similar. The major difference is that PERT employs three time estimates for each
activity. Each estimate has an associated probability of occurrence, which, in turn, is used in
computing expected values and standard deviations for the activity times. CPM makes the
assumption that activity times are known with certainty, and hence requires only one time
factor for each activity.

CPM and PERT are important because they can help answer questions such as the following
about projects with thousands of activities:
1. When will the entire project be completed?
2. What are the critical activities or tasks in the project, that is, the ones that will delay
the entire project if they are late?
3. Which are the noncritical activities-the ones that can run late without delaying the
whole project's completion?
4. What is the probability that the project will be completed by a specific date?
5. At any particular date, is the project on schedule, behind schedule, or ahead of
schedule?
6. On any given date, is the money spent equal to, less than, or greater than the
budgeted amount?
7. Are there enough resources available to finish the project on time?
8. If the project is to be finished in a shorter amount of time, what is the best way to
accomplish this goal at the least cost?

Activities, Events, and Networks

The first step in CPM and PERT is to divide the entire project into significant events and
activities in accordance with the work breakdown structure. An event marks the start or
completion of a particular task or activity. It is an instant in time. An activity is a task or a
subproject that occurs between two events. Table 3.1 shows the symbols used to represent
events and activities.

The approach shown in Table 3.1 is the most common one in drawing network and is also
referred to as the Activity-on-Arrow (AOA) convention. A less popular convention, called
Activity - On - Node (AON), places activities on nodes. Fig 3.7 shows sample network
AOA and AON diagrams. AOA will be used here

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Table 3.1 Events, activities and how they relate

Name and symbol Description
(node) An instant in time, usually a completion date or a
starting date
Activity A task or certain amount of work required in the
(arrow) project
Activity A Activity C A sequence of activities with beginning and
ending events

Activity B (network) Activity D

Fig 3.7 AOA and AON diagrams

Any project that can be described by activities and events may be analyzed by CPM and
PERT network. A network is a sequence of activities defined by starting and ending events.

Examples

Dummy Activities and Events

You may encounter a network that has tow activities with identical starting and ending
events. Dummy activities and events must be inserted into the network to deal with this
problem (see Figure 3.8). The use of dummy activities and events is especially important if
computer programs are to be employed in determining the critical path and project
completion dates. Dummy activities and events can also ensure that the network property

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reflects the project under consideration. A dummy activity has a completion time, t, of zero.
This illustrated in the following example.

Fig 3.8 Network with a dummy activity

Example

PERT and Activity Time Estimates

As mentioned earlier, one distinguishing difference between CPM and PERT is the use of
three activity time estimates for each activity in the PERT, we must specify an optimistic
time, a most probable (or most likely) time, and a pessimistic time estimate. We then use
these three time estimates to calculate an expected completion time and variance for each
activity. If we assume, as many researchers do, that activity times follow a beta probability
distribution, shown in fig 3.9 we can use the formulas:

Where a = optimistic time for activity completion

b = pessimistic time for activity completion
m = most likely time for activity completion
t = expected time of activity completion
v = variance of activity completion time
In PERT, after we have developed the network, we compute expected times and variances
for each activity. Example below shows these computations.

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Example

Fig 3.9 Beta distribution of activity time estimates

Critical Path Analysis

Critical path analysis is network model for finding the shortest possible schedule for a series
of activities. The objective of critical path analysis is to determine following quantities for
each of the activities.

♣ ES: Earliest activity starts time. All predecessor activities must be completed before an
activity can be started. The ending time of the predecessor activities is the earliest time an
activity can be started.
♣ LS: Latest activity start time. All following activities must be completed without delaying
the entire project. This is the latest time an activity can be started without delaying the
entire project.
♣ EF: Earliest activity finish time.
♣ LF: Latest activity finish time.
♣ S: Activity slack time, which is equal to (LS - ES) or (LF - EF). Slack time is the amount
of time an individual activity in a network can be delayed without delaying follows:

For any activity, if we can calculates ES and LS, we can find the other three quantities as
follows:
EF = ES + t S = LS-ES or
LF = LS + t S = LE - EF
Once we know these quantities for every activity, we can analyze the overall project.
Typically, this analysis includes an examination of the following:

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1. The critical path - the group of activities in the project that have a slack time of zero.
This path is critical because a delay in any activity along this path would delay the
entire project.
2. T - the total project completion time, which is calculated by adding the expected time
(t) values of those activities on the critical path.
3. V - variance of the critical path, which is computed by adding the variance (v) of
those individual activities on the critical path.

Critical path analysis normally starts with the determination of ES and EF. The following
example illustrates the procedure.

Example
Figure 3.10 represents three possible plans for the activities necessary to meet the project
end date. Which plan should be selected? Why? What are the basic criteria for scheduling
non critical activities?

Fig 3.10 Volume of work versus time

With a reasonable network plan and realistic estimated activities duration time, a good
schedule plan, then, must lie between the two limits defined by (a) every activity starting at
its earliest possible time, and (b) every activity starting at its latest possible time.

Fig. 3.10 shows these limits plotted as cumulative expenditures versus time. The curve is
commonly known as an S-curve. Curve E shows cumulative expenditures versus earliest
starting times. Curve L shows cumulative expenditures versus latest starting times. An
examination of curve E shows a very high rate of expenditure at the beginning of the project,

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whereas curve L indicates a very high rate of expenditure during the later part of the project.
Both E and L schedule plans are unrealistic. From the owner's point of view, curve E has a
disadvantage in that his capital is tied up over a longer period of time, resulting in
substantially higher interest cost. The other critical disadvantage is that the owner has little
time to incorporate changes without suffering an increase in cost. The major disadvantage of
curve L is that by delaying all activities for as long as possible, the project schedule loses its
safety margins, and as a result unexpected conditions may arise that will make non critical
activities critical and delay the project. In addition, neither curve minimizes the extreme
rises and falls in the man power requirements during the life of the project.

To determine a desirable schedule plan S that will minimize the fluctuations in the labor
force throughout the project and provide flexibility in the schedule plan to meet unexpected
conditions, the planner must consider not only manpower and project cash flow
requirements but also local project conditions.

The Probability of Project Completion

Having computed the expected completion time T and completion variance V, we can
determine the probability that the project will be completed at a specified date. If we make
the assumption that the distribution of completion dates follows a normal curve, we can
calculate the probability of completion.

Example
Cost-Time Trade-off and Project Crashing
Until now, we have assumed that it is not possible to reduce activity times. This is usually
not the case, however. Perhaps additional resources can reduce activity times for certain
activities within the project. These resources might be additional labor, more equipment, and
so on. Although shortening or "crashing" activity times can be expensive, doing so might be
worthwhile. If a company faces costly penalties for being late with a project, using
additional resources to complete the project on time might be economical. There may be
fixed costs every day the project is in process. Thus, it might be profitable to use additional
resources to shorten the project time and save some of the daily fixed costs. But what
activities should be shortened? How much will this action cost? Will a reduction in the
activity time in turn reduce the time needed to complete the entire project? Ideally, we
would like to find the least expensive method of shortening the entire project.

The objective of crashing is to reduce the entire project completion time by a certain amount
at the least cost. For each activity, there will exist a reduction in activity time and the cost
incurred for that time reduction. For simplicity, we will assume that costs increase linearly
as the activity time is reduced from its expected to its crash value.

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Let: Normal time = expected time for an activity

Crash time = shortest possible time for that activity
Normal cost = cost of completing the activity in normal time
Crash cost = cost of completing the activity in the crash time

Example

A Critique of PERT and CPM

As a critique of our discussions of PERT, and CPM here are some of its features about
which project managers need to be aware.

Advantages

1. Useful at several stages of project management, especially in the scheduling and

control of large projects.
2. Straight forward in concept and not mathematically complex.
3. Graphical displays using networks help to perceive quickly relationships among
project activities.
4. Critical path and slack time analyses help pinpoint activities that need to be closely
watched.
5. Networks generated provide valuable project documentation and graphically point
our who is responsible for various activities.
6. Applicable to a wide variety of projects.
7. Useful in monitoring not only schedules, but costs as well

Limitations
1. Project activities have to be clearly defined, independent, and stable in their
relationships.
2. Precedence relationships must be specified and networked together.
3. Time estimates tend to be subjective and are subject to fudging by mangers who fear
the dangers of being overly optimistic or not pessimistic enough.
4. There is the inherent danger of too much emphasis being placed on the longest. Or
critical path. Near-critical paths need to be monitored closely as well.

PERT and CPM have proven to be valuable tools in controlling large and complex projects.
With these tools, mangers understand the status of each activity and know which activities
are critical and which have slack; in addition, they know where crashing makes the most
sense. Projects are segmented into discrete activities, and specific resources are identified. A
wide variety of software packages to help mangers handle network modeling problems are
available.

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PERT and CPM do not, however, solve all the project scheduling and management problems
ob business and government. Good management practices, clear responsibilities for tasks,
and straightforward and timely reporting systems are also needed. It is important to
remember that the models we described in this chapter are only tools to help mangers make
better decisions.

Status of Use of Scheduling by Local Contractors

A study made on domestic construction industry shows that the use of project management
techniques is very elementary. The failure of contractors to be able to lodge contract
variations and claims are indicators of lack of project management techniques and lack of
basic data. There are many inexpensive project management software on the market but
these are not that used in Ethiopia.

There seems to be lack of appreciation of the importance of time in project management.

Completion dates are usually extended. The cost involved with plant and machinery staying
idle waiting for parts or due to lack of preventive maintenance is also not seriously
considered. (SMEC International, 1999, pS.2 - 3)

3.5 Project Controlling

Time and cost are the two key variables that determine the success or failure of a project.
The control of large projects involves close monitoring of resources, costs, quality, and
budgets. Construction is a dynamic process; conditions often change during a project.
Changing schedules may be required due to unexpected occurrences like delay in supply of
materials or due to natural phenomena. Control also means using a feedback loop to revise
the project plan and having the ability to shift resources to where they are needed most.
Computerized PERT/CPM reports and charts are widely available today on personal
computers. Some of the more popular of these programs are Primavera (by primavera
Systems, Inc.), MS Project (by Microsoft Corp.), Mac Project (by Apple Computer Corp.),
Pertmaster (by Westminster Software, Inc.), Visi Schedule (by Paladin Software Corp.).

Computerized project control system combines project scheduling with cost controls,
resource allocation controls, and a contract-progress statistical reporting system. The
objective is to provide total control over time, cost, resources, and statistics. These programs
produce a broad variety of reports including (1) detailed cost breakdowns for each task, (2)
total program labor curves, (3) cost distribution tables, (4) functional cost and hour
summaries, (5) raw material and expenditure forecasts, (6) variance reports, (7) time
analysis reports, and (8) work status reports.

Time. The time aspect of the system is designed to produce, through project scheduling a set
of time objectives, a visual means of presenting these objectives, and the devising and
enforcing of a corrective method of adhering to the objectives so that the desired results will
be achieved.

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Cost. These are summary costs monitored by budget reports, produced monthly and
distributed to the owner. In addition, detailed reports for construction company management
list costs under each class of construction activity. These reports are used by project
managers and field, purchasing, and top-management personnel. A report on probable total
cost to complete the project is intended for all levels of construction company personnel but
is used primarily by those responsible for corrective action.

Resource Allocation. For the purpose of resource allocation, a graphical summary should
be prepared of projected monthly use of personnel for individual activities and also of the
estimated quantities of work to be in place for all trades on a cumulative basis. An update of
these charts monthly will indicate which trades have low work quantities in place. With this
information, the manager can ensure that lagging trades are augmented with the proper
number of workers to permit them to catch up with and adhere to the schedule.

Statistics. From the information received from the preceding reports, and accurate forecast
can be made of the probable construction completion date and total cost of the project.

The application of scheduling techniques to project management will be effective only if

project monitoring is carried out once the schedule is developed. For these reasons schedule
updates are necessary. The frequency of updates depends primarily on the job conditions,
but is usually needed as the project nears completion. For most projects, monthly updates of
the schedule are adequate. At the point of 50% completion, a major update should be made
to plan and schedule the remaining work.

3.6 Financial Management Aspect of Construction Projects

Financial management is concerned with the acquisition and use of funds by a business firm.
The tasks carried out in financial management broadly consists of
a) Financial analysis and monitoring - this consists of analysis of financial conditions
and performance, financial forecasting and planning, and financial control.

b) Financing - this consists of indication of sources of finance and determination of

financing mix (debt/equity mix, equity from owner or from share holders also, etc),
cultivating sources of fund and raising funds, and disposition of profit between
dividend and retained earnings.

c) Investing - this consists of management of current assets, capital budgeting (in case
of investing large capital in establishing business firm), and management of mergers,
reorganization and liquidation.

In the case of construction projects we keep record of expenditures and incomes for
financial analysis, to determine financial performance, and for cost controls; forecast
and plan need for funds to carry out a construction project and determine way of

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obtaining the money needed to fill the gap between forecasted cost curve and
predicted revenue curve (Fig 3.11)

Therefore, book keeping, accounting methods and cash flow will be discussed in
here.

3.6.1 Bookkeeping

Bookkeeping is the art of recording business transactions in a regular, systematic manner so

as to show their relationship and the state of the business in which they occur. General
practice in contractor bookkeeping is to divide every transaction into tow entries of equal
amount. One entry, called a debit, indicates the income, materials, and services received by
the contractor. The other entry called a credit is entered in a column on the right. Balancing
and checking the first entry, it records outflow, such as payments.

Usually, bookkeepers maintain at least two sets of books, a journal and a ledger; both with
debit and credit entries. In the journal, transactions are posted chronologically as they occur.
For each transaction, the date, nature or source of transaction, purpose, and amount involved
are recorded in successive columns. The amount received by the contractor (debit) is
recorded on a line above the outgoing amount (credit). The disadvantage in maintaining just
a journal is the difficulty in determining from it, at various intervals of time, the amount
involved in each type of transaction, such as payments from the client, payments to a bank,
expenditure for specific materials or equipment, taxes, and payroll expenses.

A second book a ledger; is used to meet the need for such data. It allots a page or two for
each kind of transaction posted in the journal, such as salaries, or taxes, or rent. Every debit
entry in the journal is recorded as a debit entry in the ledger. Every credit entry in the journal
is posted as a credit entry in the ledger. Consequently if no mistakes are made, the two
books must balance: The sum of the money recorded in the ledger must equal the sum of the
money posted in the journal.

Some contractors prefer a voucher system of keeping books instead of the preceding double-
entry system. In the voucher system, a cash voucher register is the book of original entry. In
addition to this register; the books comprise voucher envelopes or folders, voucher index,
voucher record, and the general ledger.

3.6.2 Accounting Methods

Accounting includes bookkeeping but also other services that provide more detail and
explanations affecting the financial health of a business. The main objective is determination

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of income and expense from each construction project. The cost estimate for each project
serves as a budget for it. Costs, as reported, are charged against the project that incurs them.

General practice for contractors is to an accounting procedure known as the accrual method.
(It differs from the alternative cash method in which income is recognized as received, not
when billed. Expense is posted as incurred.) For the accrual method, income is recorded in
the fiscal period during which it is earned, even though payment may not have been
received. Also, expenses are posted in the period in which they incur.

A procedure known as the straight accrual method is used for accounting for short-term
contracts (projects completed within a single accounting period). For long-term contracts
(projects started in one taxable year and completed in another), contractors usually use the
completed-contract or percentage-of-completion methods, which are variations of the
accrual method.

Percentage-of-Completion Method. In this procedure, income and expenses are reported

as a project progresses, thus on a current basis rather than at irregular intervals when
projects are completed. The method also reflects the status of ongoing projects through
current estimates of percent completion of projects or of costs to complete. Profit is
distributed over the fiscal year in which the project is under construction. The percentage of
the total anticipated profit earned to the end of any period is generally estimated as the
percentage that incurred costs to that date are of the anticipated total cost, with allowances
for revised estimates of costs to costs to complete.

Completed-Contract Method. In this procedure, income and expenses are reported only
when the project is completed. This method offers the advantage that income is reported
after final financial results are known rather than being dependent on estimates of costs to
complete the project. It has several drawbacks, however, one of which is the inability to
indicate the performance to date of long-term contracts. Also, it may result in irregular
reporting of income and expenses and hence, sometimes, in larger income taxes.

Because the percentage-of-completion and completed-contract methods have advantages

and disadvantages, particularly with respect to income taxes, a contractor may elect to use
percentage of completion method for financial statements and the completed contract
method for reporting income taxes. Or, a contractor may use one method for some projects
and the other method for other projects. But once a method has been adopted for tax
reporting purposes, approval of the Inland Revenue Authority is needed before the
contractor can change it.

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Financial Reports. Several types of financial reports are derived from business records.
Two of the most important are the income statement and the balance sheet.

Income, or profit and loss statement summarizes the nature and amounts of income and
expense over a specific period. A statement expresses profit or loss as the difference
between income received and expenses paid out during the period.
Balance sheet, also known as financial statements or statements of assets and liabilities,
summarizes assets, liabilities, and net worth as of a specific date, such as the end of a fiscal
year. These statements are intended to indicate the financial condition of a business. Balance
sheets derive their name from the requirement that total assets equal total liabilities plus net
worth. Assets include anything of value accruing to the business, such as all property owned
by the business (less depreciation), cash on hand or in the bank, receivables, and prepaid
expenses. Liabilities include financial obligations, such as notes and account payable;
accrued expenses, including wages and interest accrued; deferred taxes; and long-term debt.
Net worth represents the contractor's equity in the business.

The client may be called the promoter or the employer. He is concerned with the flow of
money to the project the project cash flow -throughout the life of the project from its
conception to the project completion. Projects are consequently capital intensive, i.e. a large
amount of investment is required over a long period of time before a substantial benefit is
achieved. He will enter into a legal agreement or contract with a contractor, or a number of
contractors, for the construction of the project. Contractors are commonly specialists in a
particular field. A contractor's pattern of investment is very different and the time scale of
his involvement is much shorter. His cash flow may well comprise a substantial investment
in construction plant, labor, and materials, particularly in the early stages of a contract,
offset by regular monthly payments received from the client for work completed. The
contractor must apply his expertise to produce a method statement for construction, assess
the risks, and submit a tender that is both realistic and competitive. His targets are defined in
his estimate and tender; thereafter he controls against them. The plan on which the tender is
based will represent the most efficient use of the contractor's resources to achieve the work
defined in the contract documents. It follows that any delay or change in the work content
may also affect the timing of the flow of money to and from the contractor, and any
involvement of additional funding from this capital as illustrated in the contract cash flow
given in Fig 3.11. If the disruption is cuased by the client, the contractor will expect to be
compensated. At any time, a contractor will probably be employed on a variety of contracts
in different locations for different clients and will also be tendering for future work. His
commercial skill is to utilize a relatively small amount of capital and to 'turn it over' as many
times as possible by employing it to finance several contracts.

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3.6.3 Cash flow

In order to quantify both the demand for money to meet the project or contract costs and the
pattern of income it will generate it is necessary to predict the cash flow. A cash flow is a
financial model of the project or contract which quantifies the actual flow of money, i.e. it
makes account of delays between incurring a commitment and making a money transaction.
The model is compiled simply by adding the costs and revenues to every activity on a bar
chart or network program which extends over the entire life cycle of the project or contract.

When developing cash flow it is vital to distinguish between different categories of charge:
(1) Fixed charges which occur when certain stages are reached, e.g. a mobilization
payment at the start of a construction contract.
(2) Time-related charges which are paid or received in regular increments over a period
of time e.g. the cost of site overheads, the weekly hire charge for a crane and
payments to employees.
(3) Quantity proportional charge which are related to the quantity of material used or to
the number of units of production of a plant.

Only in this way will it be possible to use the model to predict realistically the effect on
investment or return of such diverse factors as variations in output, delay, disruption, cost or
wastage of materials.

Contract cash flow

The significance to the contractor's cash flow of different patterns of payment from the
client and of delays is illustrated in Fig. 3.11 by consideration of a small hypothetical
contract of 2 years duration.
The estimated cost curve (I) is seen in Fig. 3.11 (a) to be a flat 'S' due to the dominance of
time-related costs for resources and overheads. The anticipated predicted revenue (2)
assumes monthly payments for work completed and a 4-week delay between certification
and payment by client. The shaded area between the curves represents the funding to be
provided by the contractor. This would be considerably reduced if the client agreed to a 10%
advance mobilization payment (3), or increased if payments were received late (4), as
illustrated in Fig. 3.10(b). The effect of delay in completion is also serious as cost increases
and payment for completed work is delayed (see (Fig. 3.10(c). If the delay was caused by
factors outside the contractor's control, an extension of time may be granted and payment
increased but this will depend on the circumstances and the contract conditions.

In all cases, the effect on the contractor's investment is significant. The cumulative effects of
reduction of credit by suppliers, delay in payment by the client, perhaps on several contracts,
can be that a contractor will be led quickly into bankruptcy.

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3.6 Human Resource Management Aspect of Construction Projects

People are gathered and kept together by a group who see there are benefits in working
together toward some common goal. This goal will be to produce some thing of use for the
society or give service to the society. Program or method for achievement of goals must be
worked out, and this is called plan. With out plan for what it must do, no organization is
likely to be effective. Organizations must also acquire and allocate resources necessary to
achieve their goals. Management is the practice of consciously and continually shaping
organizations so that they achieve their goals. These people who are responsible for helping
organizations to achieve their goals are managers; therefore, management is the process of
planning, organizing, leading, and controlling the efforts of organization members and of
using all other organizational resources to achieve stated organizational goals. First
planning, organizing, leading, staffing and controlling will treated which will be followed by
evolution of management thoughts (theories).

Planning
Planning implies that managers think through their goals and actions in advance and that
their actions are based on some method, plan, or logic rather than on a hunch. Plans give

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Fig 3.11 Contract cash flow. The contractor's investment is sensitive to change in payment
due to delay

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The organization its objectives and set up the best procedures for reaching them. In
addition, plans are the guides by which (1) the organization obtains and commits the
resources required to reach its objectives; (2) members of the organization carry on activities
consistent with the chosen objectives and procedures; and (3) progress toward the objectives
is monitored and measured so that corrective action can be taken if progress is
unsatisfactory.

The first step in planning is the selection of goals for the organization. Once these are
determined, programs are established for achieving goals in a systematic manner.

Organizing
Organizing is the process of arranging and allocating work, authority, and resources among
the organization’s members so they can achieve the organization’s goals.

Different goals require different structures. An organization that aims to develop computer
software, for example, needs a different structure than assembly-0line manufacturing. Thus,
managers must match an organization’s structure to its goals and resources, a process called
organizational design.

Relationships and time are central to organizing. Organizing produces a structure for the
relationships in an organization, and it is through these structured relationships that future
plans will be pursued. Another aspect of relationships that is part of organizing is seeking
new people to join the structure of relationships. This search is called staffing.

Leading

Leading involves directing, influencing, and motivating employees to perform essential

tasks. Relationships and time are central to leading activities. In fact, leading gets to the
heart of managers’ relationships with each of the people working for them. Managers lead
in an attempt to persuade others to join them in pursuit of the achievement of goals of the
organization for which the method, work and authority are allocated in the planning and
organizing steps. By creating conducive atmosphere, managers help their employees do
their best.

Managerial leadership is defined as the process of directing and influencing the task related
activities of group members. There are four important implications of this definition.

First, leadership involves other people – employees or followers. By their willingness to

accept directions from the leader, group members help define the leader’s status and make
the leadership process possible; without people to lead, all the leadership qualities of a
manager would be irrelevant.

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Second, leadership involves an unequal distribution of power between leaders and group
members. Group members are not powerless; they can and do shape group activities in a
number of ways. Still the leader will usually have more power. (Power is the ability to
exert influence, i.e., to change the attitudes or behavior of individuals or groups)

Thus, a third aspect of leadership is the ability to use the different forms of power to
influence followers’ behaviors in a number of ways. Influence is any actions or examples
of behavior that cause a change in attitude or behavior of another person or group. The
power of influence brings us to the fourth aspect of leadership.

This fourth aspect combines the first three and acknowledges that leadership is about values.
Moral leadership concerns values and requires that followers be given enough knowledge of
alternatives to make intelligent choices when time comes to respond to a leader’s proposal to
lead. As noted ethicist Michael Josephson has argued, “We don’t learn ethics from people
who sermonize or moralize or try to preach to us about ethics; we learn ethics from the
people whom we admire and respect who have power over us. They’re the real teachers of
ethics. It’s important to reinforce ideals. It is very important for leaders and role models to
make positive statements of ethics.

The third important jcomp0onent of leading is motivating employees. It is long believed

that organizational goals are unattainable without the commitment of members of the
organization. Motivation is a human psychological characteristic that contributes to a
person’s degree of commitment. It includes the factors that cause, channel, and sustain
human behavior in a particular committed direction. Motivating is the management process
of influencing people’s behavior based on this knowle4dge of “What makes people
aroused”. Motivation deal with the range of conscious human behavior somewhere between
two extremes: (1) reflex actions, such as a sneeze or flutter of the eyelids; and (2) learned
habits, such as brushing one’s teeth or handwriting style. This range of behavior is shown in
Fig. 3.12.

Fig 3.12 Motivating in a range of human behavior

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Maslow’s hierarchy of needs, developed by Abraham Maslow, has probably received more
attention than any other theory of motivation. Maslow viewed human motivation as a
hierarchy of five needs, ranging from the most basic physiological needs to the highest
needs for self-actualization (see Fig. 3.13). According to Maslow, individuals will be
motivated to fulfill whichever need is proponent, or most powerful, for them at a given time.
The prepotency of a need depends on the individual’s current situation, and recent
experiences. Starting with the physical needs, which are most basic, each need must be
satisfied before the individual desires to satisfy a need at a higher level. It is to align
organizational needs with human needs in policy formulations and implementations for
effectiveness and organizational success.

Fig 3.13 Pyramid representing Maslow's hierarchy of needs

Controlling
Finally, organizations use control procedures to ensure they are making satisfactory
progress toward their goals and using their resources efficiently. Controlling is the process
of ensuring actual activities conform to planned activities. Controlling involves (1)
establishing standards of performance: (2) measuring current performance: (3) comparing
this performance to the established standards: and (4) taking corrective action if deviations
are detected. Through the controlling function, the manager keeps the organization on track.

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