Construction Management full notes (15CV61).pdf
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Apr 02, 2025
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About This Presentation
Manage of construction which reflects the cost management
Slide Content
Construction Management and Entrepreneurship (15CV61)
MODULE – 1
A) MANAGEMENT
Management has been defined by different thinkers in a number ways:
i. “Management is knowing exactly what you want men to do and then seeing that
they do it the best and in the cheapest ways” - F. W. Taylor
ii. “Management is to forecast and to plan, to organize, to command, to coordinate and
to control” - Henry Fayol
In other words, management refers to those people who manage an organization.
CHARACTERISTICS OF MANAGEMENT
1) Management is a universal process
It is a universal process which is applied in all types of institutions/ organizations – social,
religious, political, military, commercial, etc.,
2) Management is goal oriented
Management always aims at achieving specific goals.
3) Management is a social process
Because it involves people who are influenced by social traditions, customs and
regulations.
4) Management is a coordinating force
It coordinates the efforts of the employees in an organization through orderly arrangement
of activities so as to avoid duplication and overlapping.
5) Management is intangible
Management cannot be touched and felt. Its presence can only be felt by the results of its
efforts such as orderliness, efficiency, profits, employee satisfaction, etc.,
6) Management is dynamic
It is an on-going process. It is a journey, not a destination.
7) Management is multi-disciplinary
Management has received rich contribution from various disciplines like psychology,
sociology, anthropology, etc., The insight obtained from these disciplines help mangers in
understanding the human mind much better.
8) Management is a creative activity
Management provides creative ideas and new imagination apart from giving progressive
vision to group efforts.
9) Management is decision-making
It continuously takes decisions which decide the fate of the organization.
10) Management is a profession
Management is better managed by a professional than any common man.
Department of Civil Engineering Page 1
MODULE – 1
A) MANAGEMENT
Management has been defined by different thinkers in a number ways:
i. “Management is knowing exactly what you want men to do and then seeing that
they do it the best and in the cheapest ways” - F. W. Taylor
ii. “Management is to forecast and to plan, to organize, to command, to coordinate and
to control” - Henry Fayol
In other words, management refers to those people who manage an organization.
CHARACTERISTICS OF MANAGEMENT
1) Management is a universal process
It is a universal process which is applied in all types of institutions/ organizations – social,
religious, political, military, commercial, etc.,
2) Management is goal oriented
Management always aims at achieving specific goals.
3) Management is a social process
Because it involves people who are influenced by social traditions, customs and
regulations.
4) Management is a coordinating force
It coordinates the efforts of the employees in an organization through orderly arrangement
of activities so as to avoid duplication and overlapping.
5) Management is intangible
Management cannot be touched and felt. Its presence can only be felt by the results of its
efforts such as orderliness, efficiency, profits, employee satisfaction, etc.,
6) Management is dynamic
It is an on-going process. It is a journey, not a destination.
7) Management is multi-disciplinary
Management has received rich contribution from various disciplines like psychology,
sociology, anthropology, etc., The insight obtained from these disciplines help mangers in
understanding the human mind much better.
8) Management is a creative activity
Management provides creative ideas and new imagination apart from giving progressive
vision to group efforts.
9) Management is decision-making
It continuously takes decisions which decide the fate of the organization.
10) Management is a profession
Management is better managed by a professional than any common man.
Department of Civil Engineering Page 1
Construction Management and Entrepreneurship (15CV61)
FUNCTIONS OF MANAGEMENT
Functions of management involve planning, scheduling, organizing, staffing, directing, controlling,
coordinating, communicating and decision-making.
1) Planning
→It involves formulation of a number of work plans for achieving specified objectives and
finally selecting a plan which is best suited from the point of available resources.
→ It essentially covers the aspects of
(a) What to do?
(b) How to do?
2) Scheduling
→ It is fitting of final work plan to a timed scale.
→ It shows the duration and order of various construction activities.
→ It deals with the aspect of “When to do?”
3) Organizing
→Organizing is concerned with division of total construction work into manageable
department or sections and systematically arranging various operations by delegating
specific task to individuals.
4) Staffing
→ Recruiting the right people, arranging staff training courses and carrying out proper staff
assessment are the parts of staffing function.
5) Directing
→ The directing function is concerned with training sub-ordinates to carry out assigned
task, supervising their work and guiding their efforts.
6) Controlling
→ This function of management relates to monitoring the progress achieved in comparison
with the planned programme and identify the areas of deficiency so that remedial
measures may be taken to remove this deficiency.
7) Coordinating & Communicating
→This function of management relates to harmonizing the action and approach of various
groups of employees to achieve a common objective.
8) Decision-making
→ It is a process or means of selecting one alternative out of two or more available
alternatives.
→ It covers all the functions of management.
IMPORTANCE AND PURPOSE OF PLANNING
For the success of any organization, planning plays a major role. The importance of planning
process is as below:
1) Planning provides direction
Department of Civil Engineering Page 2
FUNCTIONS OF MANAGEMENT
Functions of management involve planning, scheduling, organizing, staffing, directing, controlling,
coordinating, communicating and decision-making.
1) Planning
→It involves formulation of a number of work plans for achieving specified objectives and
finally selecting a plan which is best suited from the point of available resources.
→ It essentially covers the aspects of
(a) What to do?
(b) How to do?
2) Scheduling
→ It is fitting of final work plan to a timed scale.
→ It shows the duration and order of various construction activities.
→ It deals with the aspect of “When to do?”
3) Organizing
→Organizing is concerned with division of total construction work into manageable
department or sections and systematically arranging various operations by delegating
specific task to individuals.
4) Staffing
→ Recruiting the right people, arranging staff training courses and carrying out proper staff
assessment are the parts of staffing function.
5) Directing
→ The directing function is concerned with training sub-ordinates to carry out assigned
task, supervising their work and guiding their efforts.
6) Controlling
→ This function of management relates to monitoring the progress achieved in comparison
with the planned programme and identify the areas of deficiency so that remedial
measures may be taken to remove this deficiency.
7) Coordinating & Communicating
→This function of management relates to harmonizing the action and approach of various
groups of employees to achieve a common objective.
8) Decision-making
→ It is a process or means of selecting one alternative out of two or more available
alternatives.
→ It covers all the functions of management.
IMPORTANCE AND PURPOSE OF PLANNING
For the success of any organization, planning plays a major role. The importance of planning
process is as below:
1) Planning provides direction
Department of Civil Engineering Page 2
Construction Management and Entrepreneurship (15CV61)
→It defines the job behavior of the various people for varied activities and paves the way
towards achieving the organizational goals.
2) Planning minimizes risk and uncertainty
→ Organizations today have to function and survive in an environment that is changing too
fast. In such situations, planning based on hard facts and data help managers to minimize
risk and uncertainties.
3) Planning ensures co-ordination
→ When all the members working in an organization are aware of the goals, planning is
done to find routes to achieve them and there is better co-ordination.
4) Planning leads to economy
→ Planning helps to accomplish optimal utilization of human resources and physical. This
leads to cost reduction, higher efficiency and higher productivity.
5) Planning facilitates decision-making
→ In an organization, managers at all levels are continuously involved in decision-making.
Planning provides guidelines and thus facilitates decision-making.
6) Planning reduces overlapping and wastage of efforts
→ Proper planning helps to easily identify inefficiencies of individuals and groups and
hence easier to eliminate wastage.
7) Planning encourages innovation and creativity
→ In order to overcome weaknesses and threats to their business, managers are compelled
to be creative and innovative all the time. It forces the managers to find out new and
improved ways of doing what they did all their lives.
8) Planning facilitates control
→ Control is the key to success in any organization. There is nothing to control without
planning and without proper control, planning is a waste.
9) Planning improves morale
→ Success leads to more profit and profit leads to a happy management and therefore, a
contented workforce. This fact that the workforces are also involved in the planning
process boosts their morale.
TYPES OF PLANS
Plans in an organization can be broadly classified as:
PLANS
STANDING PLANS SINGLE USE PLANS
Objective
Policies
Strategies
Procedures
Methods
Rules
Programmes
Schedules
Projects
Budgets
Department of Civil Engineering
Page 3
→It defines the job behavior of the various people for varied activities and paves the way
towards achieving the organizational goals.
2) Planning minimizes risk and uncertainty
→ Organizations today have to function and survive in an environment that is changing too
fast. In such situations, planning based on hard facts and data help managers to minimize
risk and uncertainties.
3) Planning ensures co-ordination
→ When all the members working in an organization are aware of the goals, planning is
done to find routes to achieve them and there is better co-ordination.
4) Planning leads to economy
→ Planning helps to accomplish optimal utilization of human resources and physical. This
leads to cost reduction, higher efficiency and higher productivity.
5) Planning facilitates decision-making
→ In an organization, managers at all levels are continuously involved in decision-making.
Planning provides guidelines and thus facilitates decision-making.
6) Planning reduces overlapping and wastage of efforts
→ Proper planning helps to easily identify inefficiencies of individuals and groups and
hence easier to eliminate wastage.
7) Planning encourages innovation and creativity
→ In order to overcome weaknesses and threats to their business, managers are compelled
to be creative and innovative all the time. It forces the managers to find out new and
improved ways of doing what they did all their lives.
8) Planning facilitates control
→ Control is the key to success in any organization. There is nothing to control without
planning and without proper control, planning is a waste.
9) Planning improves morale
→ Success leads to more profit and profit leads to a happy management and therefore, a
contented workforce. This fact that the workforces are also involved in the planning
process boosts their morale.
TYPES OF PLANS
Plans in an organization can be broadly classified as:
PLANS
STANDING PLANS SINGLE USE PLANS
Objective
Policies
Strategies
Procedures
Methods
Rules
Programmes
Schedules
Projects
Budgets
Department of Civil Engineering
Page 3
Construction Management and Entrepreneurship (15CV61)
Standing plans are plans which are out to use again and again, for repetitive matters. Standing
plans continue to be applied until they are modified or abandoned. Examples of standing plans
would be – planning for machine break-down, planning for demand fluctuation, planning for
employee absence, etc.,
Single-use plans are non-recurring in nature and are used for cases which are unique and non-
repetitive in nature. Such plans are used to deal with problems that probably will not be repeated
in the same form in future. Examples – organizing conference, making budgets, etc.,
1) Objectives – They are nothing but goals towards which all the business activities are
directed.
2) Policies – They are guidelines set up by the company for decision-making. Examples –
Policy for recruiting or promotion, policy on selling goods only for cash and not credit.
3) Strategies –They specify the route taken to achieve company objectives and policies. In
other words, a plan of action.
4) Procedures – They are ‘action guidelines’ which specifies how particular activities are to be
carried out. A good procedure has to be – Purposeful and functional, in written form,
simple and clear, not rigid and exposed to periodic review.
5) Methods – They are basically sub-units of procedure.
6) Rules – They are standard guidelines which specify what is good and what is bad for an
organization. They are established to direct or restrict action in order to govern the
behaviour of individual.
7) Programmes – It is a precise plan which lays down the operations to be carried out to
accomplish a given work.
8) Schedules – They are like time-tables which clearly specify when, what and where each
element of work is carried out.
9) Projects – A project is nothing but a small programme. Several projects together make up a
programme.
10) Budgets –It is a written plan of future activities of the company in monetary terms. It
defines the anticipated cost of attaining an objective.
References
K R Phaneesh, “Management and Entrepreneurship”, Sudha Publications, Bangalore.
Department of Civil Engineering Page 4
Standing plans are plans which are out to use again and again, for repetitive matters. Standing
plans continue to be applied until they are modified or abandoned. Examples of standing plans
would be – planning for machine break-down, planning for demand fluctuation, planning for
employee absence, etc.,
Single-use plans are non-recurring in nature and are used for cases which are unique and non-
repetitive in nature. Such plans are used to deal with problems that probably will not be repeated
in the same form in future. Examples – organizing conference, making budgets, etc.,
1) Objectives – They are nothing but goals towards which all the business activities are
directed.
2) Policies – They are guidelines set up by the company for decision-making. Examples –
Policy for recruiting or promotion, policy on selling goods only for cash and not credit.
3) Strategies –They specify the route taken to achieve company objectives and policies. In
other words, a plan of action.
4) Procedures – They are ‘action guidelines’ which specifies how particular activities are to be
carried out. A good procedure has to be – Purposeful and functional, in written form,
simple and clear, not rigid and exposed to periodic review.
5) Methods – They are basically sub-units of procedure.
6) Rules – They are standard guidelines which specify what is good and what is bad for an
organization. They are established to direct or restrict action in order to govern the
behaviour of individual.
7) Programmes – It is a precise plan which lays down the operations to be carried out to
accomplish a given work.
8) Schedules – They are like time-tables which clearly specify when, what and where each
element of work is carried out.
9) Projects – A project is nothing but a small programme. Several projects together make up a
programme.
10) Budgets –It is a written plan of future activities of the company in monetary terms. It
defines the anticipated cost of attaining an objective.
References
K R Phaneesh, “Management and Entrepreneurship”, Sudha Publications, Bangalore.
Department of Civil Engineering Page 4
Construction Management and Entrepreneurship (15CV61)
MODULE – 1
B) CONSTRUCTION PROJECT FORMULATION
INTRODUCTION TO CONSTRUCTION MANAGEMENT
Construction industry plays a basic role in the development of a country. It occupies a
fundamental position in the national economy. The construction projects are time consuming and
complex in nature.
Construction management is a systematic method which involves planning, organizing,
coordinating and controlling the various activities in any construction industry. It tries to secure
maximum returns by the use of available resources in optimum time and optimum cost.
Objectives of Construction Management
1) Completing the work within estimated budget and specified time.
2) Evolving a reputation for high quality workmanship.
3) Providing safe and satisfactory working conditions for all the workers.
4) Taking sound decisions at the lowest practical management level through delegation of
authority.
5) Motivating people to give their best within their capacities.
6) Creating an organization that works as a team.
Necessity of Construction Management
1) To arrange the completion of the work in the minimum possible time.
2) To check the wastage of material and labour.
3) To affect the economy in the cost of construction by adopting new techniques of
construction and supervision.
4) To improve the quality and speed of work by using modern equipment in construction.
5) Using modern techniques of management to have proper coordination between different
agencies and categories of people engaged on the work.
PROJECT ORGANIZATION
Traditional organizational structures are unsuitable for undertaking big projects of a construction
industry, under the present-day circumstances. Hence, there is a need for project organizational
structure.
Definition
A project organization is one, in which a project structure is created as a separate unit or division
within a permanent functional structure; drawing specialists and workers from various functional
departments who work under the overall leadership, control and coordination of a project
manager to complete projects of a technical and costly nature.
Department of Civil Engineering Page 5
MODULE – 1
B) CONSTRUCTION PROJECT FORMULATION
INTRODUCTION TO CONSTRUCTION MANAGEMENT
Construction industry plays a basic role in the development of a country. It occupies a
fundamental position in the national economy. The construction projects are time consuming and
complex in nature.
Construction management is a systematic method which involves planning, organizing,
coordinating and controlling the various activities in any construction industry. It tries to secure
maximum returns by the use of available resources in optimum time and optimum cost.
Objectives of Construction Management
1) Completing the work within estimated budget and specified time.
2) Evolving a reputation for high quality workmanship.
3) Providing safe and satisfactory working conditions for all the workers.
4) Taking sound decisions at the lowest practical management level through delegation of
authority.
5) Motivating people to give their best within their capacities.
6) Creating an organization that works as a team.
Necessity of Construction Management
1) To arrange the completion of the work in the minimum possible time.
2) To check the wastage of material and labour.
3) To affect the economy in the cost of construction by adopting new techniques of
construction and supervision.
4) To improve the quality and speed of work by using modern equipment in construction.
5) Using modern techniques of management to have proper coordination between different
agencies and categories of people engaged on the work.
PROJECT ORGANIZATION
Traditional organizational structures are unsuitable for undertaking big projects of a construction
industry, under the present-day circumstances. Hence, there is a need for project organizational
structure.
Definition
A project organization is one, in which a project structure is created as a separate unit or division
within a permanent functional structure; drawing specialists and workers from various functional
departments who work under the overall leadership, control and coordination of a project
manager to complete projects of a technical and costly nature.
Department of Civil Engineering Page 5
Construction Management and Entrepreneurship (15CV61)
It requires utmost precision and accuracy, huge cost and project completion within a limited
prescribed time.
Chart of Project Organization
The following chart depicts a typical organizational structure:
Director
Quantity Project Design
Surveyor Manager Engineer
Planning Project
Engineer Engineer
Site
Engineer 1
Site
Engineer 2
Project Organization Chart
Note: Activity for students
Merits and Limitations of Project Organization
a) Merits
1) Concentrated attention on project work – The project manager has no work other than
attending to project management. He has full powers to coordinate and control the project
activities.
2) Advantages of team specialization – As specialists from various functional areas are drawn
while forming a project team and this makes it phenomenal.
3) Timely completion of project.
b) Limitations
1) Increased problems of coordination – Because of the diverse viewpoints of team specialists.
2) Unclearly defined relationship – Usually, in a project organization, the relationships
between the project manager and functional specialists are not very clearly defined. This
situation may lead to tension between them, resulting in poor human relations, in the
project organization. Ultimately, the project work efficiency may be considerably reduced.
3) Feeling of insecurity – Usually, after the completion of a particular project work, there is a
feeling of uncertainty in the minds of the project personnel as to where they can seek
shelter.
4) Duplication of efforts – In a project organization, when multiple projects are undertaken,
there are possibilities of the same type of activities being duplicated.
Department of Civil Engineering Page 6
It requires utmost precision and accuracy, huge cost and project completion within a limited
prescribed time.
Chart of Project Organization
The following chart depicts a typical organizational structure:
Director
Quantity Project Design
Surveyor Manager Engineer
Planning Project
Engineer Engineer
Site
Engineer 1
Site
Engineer 2
Project Organization Chart
Note: Activity for students
Merits and Limitations of Project Organization
a) Merits
1) Concentrated attention on project work – The project manager has no work other than
attending to project management. He has full powers to coordinate and control the project
activities.
2) Advantages of team specialization – As specialists from various functional areas are drawn
while forming a project team and this makes it phenomenal.
3) Timely completion of project.
b) Limitations
1) Increased problems of coordination – Because of the diverse viewpoints of team specialists.
2) Unclearly defined relationship – Usually, in a project organization, the relationships
between the project manager and functional specialists are not very clearly defined. This
situation may lead to tension between them, resulting in poor human relations, in the
project organization. Ultimately, the project work efficiency may be considerably reduced.
3) Feeling of insecurity – Usually, after the completion of a particular project work, there is a
feeling of uncertainty in the minds of the project personnel as to where they can seek
shelter.
4) Duplication of efforts – In a project organization, when multiple projects are undertaken,
there are possibilities of the same type of activities being duplicated.
Department of Civil Engineering Page 6
Construction Management and Entrepreneurship (15CV61)
MANAGEMENT STYLES
Management Styles are characteristic ways of making decisions and relating to subordinates.
1) AUTOCRATIC
In this style, the manger makes decisions unilaterally and without regard for even
the most talented and experienced subordinates. As a result, it reflects the opinions
and personality of the manager.
Therefore, this style is used, temporarily, in times of crisis where there is no time for
discussions.
2) CONSULTATIVE
This style is advantageous when the management seeks the loyalty of the
subordinates for better efficiency of work and on time completion of project.
3) PERSUASIVE
It involves the manager sharing some characteristics with that of an autocratic
manager.
They maintain control over the entire decision-making process.
The most prominent difference here is that they will spend more time working with
their subordinates in order to try to convince them of the benefits of the decisions
that have been made.
Disadvantage is that, there may not be enough support from the employees for
management.
4) DEMOCRATIC
The manager allows the employees to take part in decision-making; therefore
everything is agreed upon by the majority.
The communication is two-way i.e., in between the employees and the leaders and
vice versa.
It is very useful when complex decisions are to be taken.
5) CHAOTIC
Here, the management gives the employees total control over decision-making
process.
6) LAISSEZ-FAIRE
Here, the management takes a back seat role in the company providing guidance
when needed.
Employees are allowed to let their own ideas and creativity flourish in their specific
areas.
The manager is looked upon as more of a mentor than a leader.
7) MANAGEMENT BY WALKING AROUND (MBWA)
It is a technique used by managers who are proactive listeners.
They use this style to gather as much information as possible so that a challenging
situation doesn’t turn into a bigger problem.
Department of Civil Engineering Page 7
MANAGEMENT STYLES
Management Styles are characteristic ways of making decisions and relating to subordinates.
1) AUTOCRATIC
In this style, the manger makes decisions unilaterally and without regard for even
the most talented and experienced subordinates. As a result, it reflects the opinions
and personality of the manager.
Therefore, this style is used, temporarily, in times of crisis where there is no time for
discussions.
2) CONSULTATIVE
This style is advantageous when the management seeks the loyalty of the
subordinates for better efficiency of work and on time completion of project.
3) PERSUASIVE
It involves the manager sharing some characteristics with that of an autocratic
manager.
They maintain control over the entire decision-making process.
The most prominent difference here is that they will spend more time working with
their subordinates in order to try to convince them of the benefits of the decisions
that have been made.
Disadvantage is that, there may not be enough support from the employees for
management.
4) DEMOCRATIC
The manager allows the employees to take part in decision-making; therefore
everything is agreed upon by the majority.
The communication is two-way i.e., in between the employees and the leaders and
vice versa.
It is very useful when complex decisions are to be taken.
5) CHAOTIC
Here, the management gives the employees total control over decision-making
process.
6) LAISSEZ-FAIRE
Here, the management takes a back seat role in the company providing guidance
when needed.
Employees are allowed to let their own ideas and creativity flourish in their specific
areas.
The manager is looked upon as more of a mentor than a leader.
7) MANAGEMENT BY WALKING AROUND (MBWA)
It is a technique used by managers who are proactive listeners.
They use this style to gather as much information as possible so that a challenging
situation doesn’t turn into a bigger problem.
Department of Civil Engineering Page 7
Construction Management and Entrepreneurship (15CV61)
MODULE – 1
C) CONSTRUCTION PLANNING AND SCHEDULING
INTRODUCTION
Planning is the starting point of all management functions. Planning leads to organizing and
staffing followed by directing, controlling and coordinating. A graphic schedule known as a
programme forms the basis for effective planning. The main aim of project planning is to execute
the project with minimum cost and time making the best use of available resources.
The objectives to be achieved in project planning can be done in three stages:
1) Planning Stage
In this stage, the given project is divided into number of tasks. These tasks are called
as activities.
The beginning and ending of activities are called events.
The times required for completion of these activities are then estimated.
Planning means thinking ahead of an operation to be performed.
It involves
a) Defining objectives of the project.
b) Listing of tasks that must be performed.
c) Preparing estimates of cost and duration of various tasks.
d) Determining gross requirements for material.
2) Scheduling Stage
Scheduling is a mechanical process for setting various planned activities by fixing
the start and finish dates.
It comprises of
a) Determination of amount of work to be performed.
b) The time when each activity will start.
c) The order in which the work is to be performed.
3) Controlling Stage
This stage involves supervision and monitoring the project as per schedule.
It consists of reviewing the difference between the schedule and the actual
performance of the project.
TYPES OF PROJECT PLANS
Schedule, cost, quality and safety can be identified as specific items on which the success of any
construction project is evaluated. Although there is complex interrelationship between these, it is
possible to discuss them independently – a statement such as a project being completed with very
high quality but with different levels of cost and time overruns can at least be technically
understood. Thus, at times it makes sense to have different plans for each of these criteria.
Department of Civil Engineering Page 8
MODULE – 1
C) CONSTRUCTION PLANNING AND SCHEDULING
INTRODUCTION
Planning is the starting point of all management functions. Planning leads to organizing and
staffing followed by directing, controlling and coordinating. A graphic schedule known as a
programme forms the basis for effective planning. The main aim of project planning is to execute
the project with minimum cost and time making the best use of available resources.
The objectives to be achieved in project planning can be done in three stages:
1) Planning Stage
In this stage, the given project is divided into number of tasks. These tasks are called
as activities.
The beginning and ending of activities are called events.
The times required for completion of these activities are then estimated.
Planning means thinking ahead of an operation to be performed.
It involves
a) Defining objectives of the project.
b) Listing of tasks that must be performed.
c) Preparing estimates of cost and duration of various tasks.
d) Determining gross requirements for material.
2) Scheduling Stage
Scheduling is a mechanical process for setting various planned activities by fixing
the start and finish dates.
It comprises of
a) Determination of amount of work to be performed.
b) The time when each activity will start.
c) The order in which the work is to be performed.
3) Controlling Stage
This stage involves supervision and monitoring the project as per schedule.
It consists of reviewing the difference between the schedule and the actual
performance of the project.
TYPES OF PROJECT PLANS
Schedule, cost, quality and safety can be identified as specific items on which the success of any
construction project is evaluated. Although there is complex interrelationship between these, it is
possible to discuss them independently – a statement such as a project being completed with very
high quality but with different levels of cost and time overruns can at least be technically
understood. Thus, at times it makes sense to have different plans for each of these criteria.
Department of Civil Engineering Page 8
Construction Management and Entrepreneurship (15CV61)
1) TIME PLAN – Time is the essence of all construction projects, and contracts often have
clauses outlining awards (bonus payments) or penalties (as liquidated damages) for
completing a work ahead or later than a scheduled date. The commonly used techniques
for time planning activities are Critical Path Method (CPM), Programme Evaluation and
Review Technique (PERT) and Time Scale Network (TSN). The choice of the method to be
used depends on the intended objective, the nature of the project, the target audience, etc.,
2) MANPOWER PLAN – This plan focuses on estimating the size of workforce, division in
functional teams and scheduling the deployment of manpower. It may be noted that
manpower planning also involves establishing labour productivity standards, providing
suitable environment and financial incentives for optimum productivity, and grouping the
manpower in suitable functional teams in order to get the optimum utilization.
3) MATERIAL PLAN – The material plan involves identification of required materials,
estimation of required quantities, defining specification and forecasting material
requirement, inventory control, procurement plans and monitoring the usage of materials.
4) CONSTRUCTION EQUIPMENT PLAN – Machines are used in construction for mass
excavation, trenching, compacting, grading, hoisting, concreting, drilling, material handling,
etc. This improves productivity and quality, besides reducing cost. It should also be kept in
mind that heavy equipments are very costly and should be optimally utilizedand their
characteristics also to be considered when drawing up an equipment plan.
5) FINANCE PLAN – Large projects require huge investments and long time for completion
and it is obvious that all the money is not required at any point in time. Contractors fund
their projects from their working capital, a part of which is raised by the contractors using
their own sources, whereas the rest comes from the client end in the form of mobilization
advance, running bills, etc. Thus, a careful analysis needs to be carried out to determine
how the requirement of funds varies with time.
WORK – BREAKDOWN STRUCTURE
The functional elements of a project and their interrelationship are determined by a technique
known as work – breakdown structure. Such a technique establishes the hierarchical order in a
system by breaking the project into recognizable systems, sub-systems and discrete activities.
In general, a system is broken down into sub-systems and each sub-system into major
components, and so on. The breakdown is continued till the system is reduced to components or
activities representing manageable units for planning. The objective is to identify discrete
activities or tasks that can be planned, estimated, scheduled, executed and controlled for
completion.
Work – breakdown structure for a typical building is shown in the figure below:
Department of Civil Engineering Page 9
1) TIME PLAN – Time is the essence of all construction projects, and contracts often have
clauses outlining awards (bonus payments) or penalties (as liquidated damages) for
completing a work ahead or later than a scheduled date. The commonly used techniques
for time planning activities are Critical Path Method (CPM), Programme Evaluation and
Review Technique (PERT) and Time Scale Network (TSN). The choice of the method to be
used depends on the intended objective, the nature of the project, the target audience, etc.,
2) MANPOWER PLAN – This plan focuses on estimating the size of workforce, division in
functional teams and scheduling the deployment of manpower. It may be noted that
manpower planning also involves establishing labour productivity standards, providing
suitable environment and financial incentives for optimum productivity, and grouping the
manpower in suitable functional teams in order to get the optimum utilization.
3) MATERIAL PLAN – The material plan involves identification of required materials,
estimation of required quantities, defining specification and forecasting material
requirement, inventory control, procurement plans and monitoring the usage of materials.
4) CONSTRUCTION EQUIPMENT PLAN – Machines are used in construction for mass
excavation, trenching, compacting, grading, hoisting, concreting, drilling, material handling,
etc. This improves productivity and quality, besides reducing cost. It should also be kept in
mind that heavy equipments are very costly and should be optimally utilizedand their
characteristics also to be considered when drawing up an equipment plan.
5) FINANCE PLAN – Large projects require huge investments and long time for completion
and it is obvious that all the money is not required at any point in time. Contractors fund
their projects from their working capital, a part of which is raised by the contractors using
their own sources, whereas the rest comes from the client end in the form of mobilization
advance, running bills, etc. Thus, a careful analysis needs to be carried out to determine
how the requirement of funds varies with time.
WORK – BREAKDOWN STRUCTURE
The functional elements of a project and their interrelationship are determined by a technique
known as work – breakdown structure. Such a technique establishes the hierarchical order in a
system by breaking the project into recognizable systems, sub-systems and discrete activities.
In general, a system is broken down into sub-systems and each sub-system into major
components, and so on. The breakdown is continued till the system is reduced to components or
activities representing manageable units for planning. The objective is to identify discrete
activities or tasks that can be planned, estimated, scheduled, executed and controlled for
completion.
Work – breakdown structure for a typical building is shown in the figure below:
Department of Civil Engineering Page 9
Construction Management and Entrepreneurship (15CV61)
BUILDING
SITE CLEARANCE
FOUNDATION SUPER
SANITARY AND
ELECTRICAL FINISHES COMPOUND
AND WATER SUPPLY
AND D.P.C STRUCTURE SERVICES
WALL
EXCAVTION SERVICES
SITE CLEARANCE
LEAN CONCRETE
PLASTERING
IN FOUNDATION
EXCAVATION
MASONRY IN
FLOORING FOUNDATION
ANTI-TERMITE
D.P.C PAINTING AND
TREATMENT
DISTEMPERING
Work – Breakdown Structure of a Building
GANTT CHART / BAR CHART
Bar chart is defined as graphical representation of activities and duration of activities
consisting of two-coordinate axes. These charts were developed by Henry L. Gantt and
hence it is also referred to as Gantt chart.
Bar chart is a time scale model of a project. Here each activity is represented by a bar
whose length is equal to the duration of the activity.
Each activity is plotted along the vertical axis and the time is plotted along the horizontal
axis.
Bar chart technique of scheduling the project is suitable for projects with smaller number
of activities.
Advantages
1) The chart is simple to prepare and interpret.
2) Each item of activity is shown separately.
3) Modifications to the chart as on required basis can be carried out easily.
4) It can be further improved by colour coding of various activities.
Department of Civil Engineering Page 10
BUILDING
SITE CLEARANCE
FOUNDATION SUPER
SANITARY AND
ELECTRICAL FINISHES COMPOUND
AND WATER SUPPLY
AND D.P.C STRUCTURE SERVICES
WALL
EXCAVTION SERVICES
SITE CLEARANCE
LEAN CONCRETE
PLASTERING
IN FOUNDATION
EXCAVATION
MASONRY IN
FLOORING FOUNDATION
ANTI-TERMITE
D.P.C PAINTING AND
TREATMENT
DISTEMPERING
Work – Breakdown Structure of a Building
GANTT CHART / BAR CHART
Bar chart is defined as graphical representation of activities and duration of activities
consisting of two-coordinate axes. These charts were developed by Henry L. Gantt and
hence it is also referred to as Gantt chart.
Bar chart is a time scale model of a project. Here each activity is represented by a bar
whose length is equal to the duration of the activity.
Each activity is plotted along the vertical axis and the time is plotted along the horizontal
axis.
Bar chart technique of scheduling the project is suitable for projects with smaller number
of activities.
Advantages
1) The chart is simple to prepare and interpret.
2) Each item of activity is shown separately.
3) Modifications to the chart as on required basis can be carried out easily.
4) It can be further improved by colour coding of various activities.
Department of Civil Engineering Page 10
Construction Management and Entrepreneurship (15CV61)
Disadvantages
1) The sequence of activities is not clearly defined.
2) The various activities are independent.
3) Non-control on progress of the work.
4) The chart is suitable only for simple and small jobs.
5) Time uncertainties.
6) Bar charts do not indicate which activities are critical and need careful supervision.
7) Bar chart is only a static representation of the planned programme and it does not indicate
the dynamic happenings on the construction site of a complete project.
PREPARATION OF NETWORK DIAGRAM
NETWORK
A network is a flow diagram consisting of activities and events connected logically and
sequentially.
In the network diagram, an activity is represented by arrows while events are represented
by circles.
Networks are of two types:
1) PERT Network
2) CPM Network
PROGRAMME EVALUATION AND REVIEW TECHNIQUE (PERT)
PERT system is preferred for those projects which are of non-repetitive nature. It uses a network
diagram consisting of events. It is event oriented. The expected time forms the basis of PERT
Networks. Three time estimates are used to determine the expected or average time of each
activity. Construction projects are mostly of a repetitive nature and data concerning various
activities is generally available. PERT, therefore, is not commonly used in construction projects.
TIME ESTIMATES
The three time estimates used in PERT are:
1) Optimistic Time Estimate (to) – It is the shortest possible time for completing an activity
if everything proceeds as planned without any problem i.e., the activity is performed under
ideal conditions.
Department of Civil Engineering Page 11
Disadvantages
1) The sequence of activities is not clearly defined.
2) The various activities are independent.
3) Non-control on progress of the work.
4) The chart is suitable only for simple and small jobs.
5) Time uncertainties.
6) Bar charts do not indicate which activities are critical and need careful supervision.
7) Bar chart is only a static representation of the planned programme and it does not indicate
the dynamic happenings on the construction site of a complete project.
PREPARATION OF NETWORK DIAGRAM
NETWORK
A network is a flow diagram consisting of activities and events connected logically and
sequentially.
In the network diagram, an activity is represented by arrows while events are represented
by circles.
Networks are of two types:
1) PERT Network
2) CPM Network
PROGRAMME EVALUATION AND REVIEW TECHNIQUE (PERT)
PERT system is preferred for those projects which are of non-repetitive nature. It uses a network
diagram consisting of events. It is event oriented. The expected time forms the basis of PERT
Networks. Three time estimates are used to determine the expected or average time of each
activity. Construction projects are mostly of a repetitive nature and data concerning various
activities is generally available. PERT, therefore, is not commonly used in construction projects.
TIME ESTIMATES
The three time estimates used in PERT are:
1) Optimistic Time Estimate (to) – It is the shortest possible time for completing an activity
if everything proceeds as planned without any problem i.e., the activity is performed under
ideal conditions.
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Construction Management and Entrepreneurship (15CV61)
2) Most Likely Time Estimate (tm) – It is the time for completing activity under normal
conditions.
3) Pessimistic Time Estimate (tp) – It is the maximum time required to complete an activity
under abnormal or extremely adverse conditions in which everything goes wrong.
The expected time estimate for each activity is computed as follows:
te=
to + 4tm +tp
6
where, te = expected time of the activity
to = optimistic time estimate
tm = most likely time estimate
tp= pessimistic time estimate
The variance (σ2) of the estimated time over the mean is given by,
σ2 = (
−
6 ) ²
Further, the standard deviation (SD) is given by,
SD = (
−
6 )
Problem
1) Estimate the expected time of each of the following activities from the three time
estimates:
Solution
Activity
Estimated time in days
te =
Optimistic (to)
Most likely (tm)
Pessimistic (tp)
1 – 2 3 6 15 7
1 – 5 2 4 6 4
2 – 3 1 2 3 3
2 – 4 4 6 8 9
3 – 5 1 2 3 3
4 – 5 4 6 8 9
CRITICAL PATH METHOD (CPM)
In CPM network, the whole project consists of a number of clearly recognizable job called
activities.
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2) Most Likely Time Estimate (tm) – It is the time for completing activity under normal
conditions.
3) Pessimistic Time Estimate (tp) – It is the maximum time required to complete an activity
under abnormal or extremely adverse conditions in which everything goes wrong.
The expected time estimate for each activity is computed as follows:
te=
to + 4tm +tp
6
where, te = expected time of the activity
to = optimistic time estimate
tm = most likely time estimate
tp= pessimistic time estimate
The variance (σ2) of the estimated time over the mean is given by,
σ2 = (
−
6 ) ²
Further, the standard deviation (SD) is given by,
SD = (
−
6 )
Problem
1) Estimate the expected time of each of the following activities from the three time
estimates:
Solution
Activity
Estimated time in days
te =
Optimistic (to)
Most likely (tm)
Pessimistic (tp)
1 – 2 3 6 15 7
1 – 5 2 4 6 4
2 – 3 1 2 3 3
2 – 4 4 6 8 9
3 – 5 1 2 3 3
4 – 5 4 6 8 9
CRITICAL PATH METHOD (CPM)
In CPM network, the whole project consists of a number of clearly recognizable job called
activities.
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Construction Management and Entrepreneurship (15CV61)
The junctions between activities are termed as events.
The CPM networks are often referred to as activity oriented in which the activity is
represented by an arrow and the sequence in which the activities are performed is shown
by the sequence of arrows.
CPM networks are generally used for repetitive type of projects like construction projects.
COMPARISON BETWEEN CPM AND PERT
CPM PERT
1) Time estimate for completion of activity has 1) Time estimate for completion of activity are
high degree of accuracy. not so accurate and definite.
2) Cost is not directly proportional to time. 2) It is assumed that cost varies directly with
time.
3) Cost is controlling factor. 3) Time is controlling factor.
4) Used in those projects where time can be 4) Used in those projects where there is an
estimated fairly well. extreme degree of uncertainties.
5) Activity oriented. 5) Event oriented.
6) One time estimate. 6) Three time estimates.
NETWORK DIAGRAM
Network diagram is a linear draft mode of an organizational system comprising of the
activities and events arranged in logical and sequential order.
Each activity in a network diagram is represented by two numbers i.e., i and j.
The number ‘i’ represents starting of the activity called tail event and the number ‘j’
represents ending of the activity called head event.
In the network diagram of each activity is represented in the form of arrows and each event
is represented in the form of nodes.
Network diagram
Department of Civil Engineering Page 13
The junctions between activities are termed as events.
The CPM networks are often referred to as activity oriented in which the activity is
represented by an arrow and the sequence in which the activities are performed is shown
by the sequence of arrows.
CPM networks are generally used for repetitive type of projects like construction projects.
COMPARISON BETWEEN CPM AND PERT
CPM PERT
1) Time estimate for completion of activity has 1) Time estimate for completion of activity are
high degree of accuracy. not so accurate and definite.
2) Cost is not directly proportional to time. 2) It is assumed that cost varies directly with
time.
3) Cost is controlling factor. 3) Time is controlling factor.
4) Used in those projects where time can be 4) Used in those projects where there is an
estimated fairly well. extreme degree of uncertainties.
5) Activity oriented. 5) Event oriented.
6) One time estimate. 6) Three time estimates.
NETWORK DIAGRAM
Network diagram is a linear draft mode of an organizational system comprising of the
activities and events arranged in logical and sequential order.
Each activity in a network diagram is represented by two numbers i.e., i and j.
The number ‘i’ represents starting of the activity called tail event and the number ‘j’
represents ending of the activity called head event.
In the network diagram of each activity is represented in the form of arrows and each event
is represented in the form of nodes.
Network diagram
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Construction Management and Entrepreneurship (15CV61)
RULES FOR DEVELOPING NETWORKS
Rule 1:
No activity can commence until all preceding activities have been completed as explained below:
Ex : (i) ‘Plastering of wall’ can commence only after ‘Building of wall’ is completed.
Building of wall Plastering of wall
4 1
(ii) ‘Concrete Foundation (D)’ can commence only after ‘Cement Procurement (A)’, ‘Aggregate
Procurement (B)’ and ‘Installation of Concrete Mixer (C)’.
Rule 2:
A ‘dummy activity’ is introduced in the network either to show dependency or to avoid duplication
numbering of activities. A ‘dummy activity’ is an artificial activity and is shown by a dotted line. It
consumes no time or resources.
Ex: ‘Beam Erection (C)’ can be taken up only when both ‘Concrete Pier (A)’ and ‘Precast Beams (B)’
are completed. Dummy activity 2 – 3 Shows this dependency and also avoids duplicate numbering
of activities ‘Concrete Pier’ and ‘Precast Beams’.
Rule 3:
The logical placement of an activity in the network is governed by the following
three considerations:
a) Which activities must be completed before this activity can commence? (Precedence)
b) Which activities can be carried out along with this activity? (Concurrence)
Department of Civil Engineering Page 14
RULES FOR DEVELOPING NETWORKS
Rule 1:
No activity can commence until all preceding activities have been completed as explained below:
Ex : (i) ‘Plastering of wall’ can commence only after ‘Building of wall’ is completed.
Building of wall Plastering of wall
4 1
(ii) ‘Concrete Foundation (D)’ can commence only after ‘Cement Procurement (A)’, ‘Aggregate
Procurement (B)’ and ‘Installation of Concrete Mixer (C)’.
Rule 2:
A ‘dummy activity’ is introduced in the network either to show dependency or to avoid duplication
numbering of activities. A ‘dummy activity’ is an artificial activity and is shown by a dotted line. It
consumes no time or resources.
Ex: ‘Beam Erection (C)’ can be taken up only when both ‘Concrete Pier (A)’ and ‘Precast Beams (B)’
are completed. Dummy activity 2 – 3 Shows this dependency and also avoids duplicate numbering
of activities ‘Concrete Pier’ and ‘Precast Beams’.
Rule 3:
The logical placement of an activity in the network is governed by the following
three considerations:
a) Which activities must be completed before this activity can commence? (Precedence)
b) Which activities can be carried out along with this activity? (Concurrence)
Department of Civil Engineering Page 14
Construction Management and Entrepreneurship (15CV61)
c) Which activities cannot commence until this activity is completed? (Subsequence)
Ex: Consider the following activities pertaining to the construction of a mass concrete foundation:
Excavate (B) 3 days
Prepare shuttering (A) 2 days
Fix shuttering (C) 1 day
Concrete foundation (D) 1 day
Rule 4:
No activity should lead back to a previous event i.e., there must not be any ‘looping’.
Ex:
‘Concrete curing’ cannot commence until ‘Placing of concrete’ is completed and ‘Concrete testing’
cannot begin until ‘Concrete curing’ is completed. However, ‘Placing of concrete’ cannot start until
‘Concrete testing’ is completed.
Rule 5:
In any network, there must be only one start and one finish (with any number of activities in
between) i.e., no activity should be left dangling.
Department of Civil Engineering Page 15
c) Which activities cannot commence until this activity is completed? (Subsequence)
Ex: Consider the following activities pertaining to the construction of a mass concrete foundation:
Excavate (B) 3 days
Prepare shuttering (A) 2 days
Fix shuttering (C) 1 day
Concrete foundation (D) 1 day
Rule 4:
No activity should lead back to a previous event i.e., there must not be any ‘looping’.
Ex:
‘Concrete curing’ cannot commence until ‘Placing of concrete’ is completed and ‘Concrete testing’
cannot begin until ‘Concrete curing’ is completed. However, ‘Placing of concrete’ cannot start until
‘Concrete testing’ is completed.
Rule 5:
In any network, there must be only one start and one finish (with any number of activities in
between) i.e., no activity should be left dangling.
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Construction Management and Entrepreneurship (15CV61)
LOGIC FOR NETWORK DEVELOPMENT
The following questions must be asked for logical development of a network:
1) Which activities must immediately precede this activity?
2) Which activities should immediately follow this activity?
3) Which activities can take place concurrently with this activity?
Based on these questions and the rules for network development, each activity is connected in one
or several of the ways as below:
Network Elements Interpretation
Activity C cannot start before activity B is
completed (OR) Activity C follows Activity B
(OR) Activity B precedes Activity C
Activities D and E cannot start before Activity
C is completed. However, once Activity C is
completed both activities D and E can start
simultaneously.
Activity C cannot start before both the
activities A and B are completed.
Activity C follows B and E follows D.
However, both activity chains are
independent of each other.
Department of Civil Engineering Page 16
LOGIC FOR NETWORK DEVELOPMENT
The following questions must be asked for logical development of a network:
1) Which activities must immediately precede this activity?
2) Which activities should immediately follow this activity?
3) Which activities can take place concurrently with this activity?
Based on these questions and the rules for network development, each activity is connected in one
or several of the ways as below:
Network Elements Interpretation
Activity C cannot start before activity B is
completed (OR) Activity C follows Activity B
(OR) Activity B precedes Activity C
Activities D and E cannot start before Activity
C is completed. However, once Activity C is
completed both activities D and E can start
simultaneously.
Activity C cannot start before both the
activities A and B are completed.
Activity C follows B and E follows D.
However, both activity chains are
independent of each other.
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Construction Management and Entrepreneurship (15CV61)
NETWORK TECHNIQUES
Terminology
a) Activity – Performance of a specific task, operation, job or function which consumes time and
resources and has a definite beginning and end is called an activity. For example, excavate
foundation, lay brickwork, backfill trench, fix shuttering, concrete wall, etc., are all activities.
b) Event –An instantaneous point in time marking the beginning or end of one or more activities
is called an event. An event consumes no time or resources. For example, excavation completed,
brickwork laid, shuttering fixed etc., are all events.
c) Network – A network is the diagrammatic representation of a work plan showing the activities,
step-by-step, leading to the established goal. It depicts the inter-dependence between the various
activities i.e., which activities can be done together and which activities must precede or succeed
others.
d) Dummy activity – It is an imaginary activity of zero duration (consuming no resources)
represented by dotted line (--------). It indicates that an activity following the dummy cannot be
started until the activity preceding it is completed.
e) Duration (D)– It is the estimated time required (in days, weeks or months) to perform an
activity.
f) Earliest Start Time (EST) – This is the earliest time that an activity can be started.
g) Earliest Finish Time (EFT) – It is the earliest time that an activity can be finished.
EFT = EST + D
h) Latest Start Time (LST) - It is the latest time that an activity can be started without
delaying the completion of project.
i) Latest Finish Time (LFT) – It is the latest time that an activity can be finished without
delaying the completion of the project.
LST = LFT – D
j) Total Float (TF) / Slack – It is the amount of time that an activity can be delayed without
delaying the completion of the project.
TF = LFT – EFT
TF = LST – EST
k) Free Float (FF) – This is the amount of time that the finish of an activity can be
delayed without delaying the earliest starting time of a following activity.
FF = EST
(Following activity)
– EFT
(This activity)
l) Critical Path - It is the series of inter-connected activities through the network for which each
activity has zero float time. Critical path determines the minimum time required to complete a
project and also represent the longest path in a network.
Department of Civil Engineering Page 17
NETWORK TECHNIQUES
Terminology
a) Activity – Performance of a specific task, operation, job or function which consumes time and
resources and has a definite beginning and end is called an activity. For example, excavate
foundation, lay brickwork, backfill trench, fix shuttering, concrete wall, etc., are all activities.
b) Event –An instantaneous point in time marking the beginning or end of one or more activities
is called an event. An event consumes no time or resources. For example, excavation completed,
brickwork laid, shuttering fixed etc., are all events.
c) Network – A network is the diagrammatic representation of a work plan showing the activities,
step-by-step, leading to the established goal. It depicts the inter-dependence between the various
activities i.e., which activities can be done together and which activities must precede or succeed
others.
d) Dummy activity – It is an imaginary activity of zero duration (consuming no resources)
represented by dotted line (--------). It indicates that an activity following the dummy cannot be
started until the activity preceding it is completed.
e) Duration (D)– It is the estimated time required (in days, weeks or months) to perform an
activity.
f) Earliest Start Time (EST) – This is the earliest time that an activity can be started.
g) Earliest Finish Time (EFT) – It is the earliest time that an activity can be finished.
EFT = EST + D
h) Latest Start Time (LST) - It is the latest time that an activity can be started without
delaying the completion of project.
i) Latest Finish Time (LFT) – It is the latest time that an activity can be finished without
delaying the completion of the project.
LST = LFT – D
j) Total Float (TF) / Slack – It is the amount of time that an activity can be delayed without
delaying the completion of the project.
TF = LFT – EFT
TF = LST – EST
k) Free Float (FF) – This is the amount of time that the finish of an activity can be
delayed without delaying the earliest starting time of a following activity.
FF = EST
(Following activity)
– EFT
(This activity)
l) Critical Path - It is the series of inter-connected activities through the network for which each
activity has zero float time. Critical path determines the minimum time required to complete a
project and also represent the longest path in a network.
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Construction Management and Entrepreneurship (15CV61)
Network Representation
The following two systems of network representation, namely, Activity-on-Arrow (A-O-A) system
and Activity-on-Node (A-O-N) system are used for development and analysis of networks in CPM.
a) Activity-on-Arrow (A-O-A) System
In this system, an activity is graphically represented by an arrow drawn from left to right. The
description of the activity is written above the arrow and the time taken to complete the activity is
written below it as shown in the figure below. The length of the arrow has no relationship to the
duration of the activity that it represents.
Fix Shuttering
4 (days)
Representation of Activity
An event is graphically represented by a number enclosed in a circle. The beginning of an activity
is marked by a ‘tail event’ or preceding event and the end by a ‘head event’ or succeeding event as
shown below:
Pour concrete
2 (days)
Tail Event Head Event
Representation of Event
An example of the graphical representation of a network on the A-O-A system is shown below:
Network on A-O-A System
b) Activity-on-Node (A-O-N) System
In this system, activities are represented on the nodes, and arrows are used to show the
dependency relationships between the activity nodes. The time required to complete an activity is
also indicated in the node.
The A-O-N System is widely used in network techniques and is very popular in construction
projects.
The A-O-A network shown in the figure above is depicted on the A-O-N System as shown below:
Department of Civil Engineering Page 18
Network Representation
The following two systems of network representation, namely, Activity-on-Arrow (A-O-A) system
and Activity-on-Node (A-O-N) system are used for development and analysis of networks in CPM.
a) Activity-on-Arrow (A-O-A) System
In this system, an activity is graphically represented by an arrow drawn from left to right. The
description of the activity is written above the arrow and the time taken to complete the activity is
written below it as shown in the figure below. The length of the arrow has no relationship to the
duration of the activity that it represents.
Fix Shuttering
4 (days)
Representation of Activity
An event is graphically represented by a number enclosed in a circle. The beginning of an activity
is marked by a ‘tail event’ or preceding event and the end by a ‘head event’ or succeeding event as
shown below:
Pour concrete
2 (days)
Tail Event Head Event
Representation of Event
An example of the graphical representation of a network on the A-O-A system is shown below:
Network on A-O-A System
b) Activity-on-Node (A-O-N) System
In this system, activities are represented on the nodes, and arrows are used to show the
dependency relationships between the activity nodes. The time required to complete an activity is
also indicated in the node.
The A-O-N System is widely used in network techniques and is very popular in construction
projects.
The A-O-A network shown in the figure above is depicted on the A-O-N System as shown below:
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Construction Management and Entrepreneurship (15CV61)
Network on A-O-N System
Problems
1) The following are the activities and the logic for a project. Develop the network for the
project.
Activities – A, B, E, Q, K, X, J, Z, G, F, C
Logic
1) A and B can be carried out at the same time. They represent the beginning of the job.
2) K follows E.
3) X depends on Q and K.
4) Neither F nor G can be started before R is completed, but they can be
concurrently performed.
5) E and Q follows A.
6) Q must be carried out before J.
7) C depends on the completion of F and G.
8) E and Q can be executed at the same time.
9) Z can only be started when C, X and J are finished.
10) Z is the last activity.
2) A project consists of 8 activities M, N, O, P, Q, R, S and T. Draw a network using the logic as
under:
a) Activities M, N, and Q can start concurrently and represent start of the project.
b) Activities O and P are concurrent and depend on completion of both M and N.
c) Activities R and S are concurrent and depend on the completion of O.
d) Activity T depends upon the completion of P, Q and R.
Department of Civil Engineering Page 19
Network on A-O-N System
Problems
1) The following are the activities and the logic for a project. Develop the network for the
project.
Activities – A, B, E, Q, K, X, J, Z, G, F, C
Logic
1) A and B can be carried out at the same time. They represent the beginning of the job.
2) K follows E.
3) X depends on Q and K.
4) Neither F nor G can be started before R is completed, but they can be
concurrently performed.
5) E and Q follows A.
6) Q must be carried out before J.
7) C depends on the completion of F and G.
8) E and Q can be executed at the same time.
9) Z can only be started when C, X and J are finished.
10) Z is the last activity.
2) A project consists of 8 activities M, N, O, P, Q, R, S and T. Draw a network using the logic as
under:
a) Activities M, N, and Q can start concurrently and represent start of the project.
b) Activities O and P are concurrent and depend on completion of both M and N.
c) Activities R and S are concurrent and depend on the completion of O.
d) Activity T depends upon the completion of P, Q and R.
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Construction Management and Entrepreneurship (15CV61)
e) The project is complete when S and T are completed.
3) Develop a network on the A-O-A System for a job with the following activities and logical
sequence:
a) A is the first operation.
b) B and C are performed simultaneously and are the immediate successor to A.
c) D, E and F follow B.
d) G follows E.
e) H follows D, but it cannot start until E is over.
f) I and J succeed G.
g) F and J precede K.
h) H and I precede L.
i) M succeeds L and K.
j) The last operation N succeeds M and C.
4) Draw the network and calculate the expected time. Also establish the critical path.
Activity
Duration (days)
to tm
tp
1 – 2 2 5 14
1 – 3 3 12 21
2 – 4 5 14 17
3 – 4 2 5 8
4 – 5 1 4 7
3 – 5 6 15 30
5) The following table shows the activities and their time estimates.
Activity
Duration (days)
to tm
tp
10 – 20 4 8 12
20 – 30 1 4 7
20 – 40 8 12 16
30 – 50 3 5 7
40 – 50 0 0 0
40 – 60 3 6 9
50 – 70 3 6 9
50 – 80 4 6 8
Department of Civil Engineering Page 20
e) The project is complete when S and T are completed.
3) Develop a network on the A-O-A System for a job with the following activities and logical
sequence:
a) A is the first operation.
b) B and C are performed simultaneously and are the immediate successor to A.
c) D, E and F follow B.
d) G follows E.
e) H follows D, but it cannot start until E is over.
f) I and J succeed G.
g) F and J precede K.
h) H and I precede L.
i) M succeeds L and K.
j) The last operation N succeeds M and C.
4) Draw the network and calculate the expected time. Also establish the critical path.
Activity
Duration (days)
to tm
tp
1 – 2 2 5 14
1 – 3 3 12 21
2 – 4 5 14 17
3 – 4 2 5 8
4 – 5 1 4 7
3 – 5 6 15 30
5) The following table shows the activities and their time estimates.
Activity
Duration (days)
to tm
tp
10 – 20 4 8 12
20 – 30 1 4 7
20 – 40 8 12 16
30 – 50 3 5 7
40 – 50 0 0 0
40 – 60 3 6 9
50 – 70 3 6 9
50 – 80 4 6 8
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Construction Management and Entrepreneurship (15CV61)
70 – 90 4 8 12
80 – 90 2 5 8
60 – 100 4 6 8
90 – 100 4 10 16
a) Draw the network and find the expected length of duration.
b) What is the probability of completing the project in 48 days?
c) What is the variance?
6)
Activity
Duration (days)
to tm tp
1 – 2 4 7 12
1 – 3 3 6 15
2 – 4 2 5 8
3 – 4 2 6 9
a) Find the duration of the project.
b) What is the probability of completion of project in 12 days?
c) What is the variance?
7) Determine the critical path for the following project and calculate the earliest project
completion time. Assume that the project starts at zero time.
Activity Duration (weeks) Predecessors
A 10 -
B 11 -
C 9 A
D 12 A
E 6 B
F 6 B
G 7 E
H 8 C,G
I 10 C,G
J 6 F,H
K 14 D,I,J
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70 – 90 4 8 12
80 – 90 2 5 8
60 – 100 4 6 8
90 – 100 4 10 16
a) Draw the network and find the expected length of duration.
b) What is the probability of completing the project in 48 days?
c) What is the variance?
6)
Activity
Duration (days)
to tm tp
1 – 2 4 7 12
1 – 3 3 6 15
2 – 4 2 5 8
3 – 4 2 6 9
a) Find the duration of the project.
b) What is the probability of completion of project in 12 days?
c) What is the variance?
7) Determine the critical path for the following project and calculate the earliest project
completion time. Assume that the project starts at zero time.
Activity Duration (weeks) Predecessors
A 10 -
B 11 -
C 9 A
D 12 A
E 6 B
F 6 B
G 7 E
H 8 C,G
I 10 C,G
J 6 F,H
K 14 D,I,J
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Construction Management and Entrepreneurship (15CV61)
8) With the following table, prepare the A-O-N network and find the critical path.
(a)
Activity Duration (days) Predecessors
A 6 -
B 8 -
C 4 A
D 10 A,B
E 5 B
F 6 C
G 8 B,D
H 12 E
I 4 F,G,H
b)
Activity Duration (days) Predecessors
A 6 -
B 8 A
C 4 A
D 8 B
E 6 B
F 4 D
G 5 C,E
H 7 C
I 7 D,G
J 6 H
K 5 F,I,J
9) A project consists of 14 activities. Table shows the duration for each activity and their
interrelationships. Draw the network. Establish the critical path and tabulate EST, EFT, LST,
LFT, TF and FF.
Activity Duration (days) Predecessors
A 4 -
B 8 A
C 6 A
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8) With the following table, prepare the A-O-N network and find the critical path.
(a)
Activity Duration (days) Predecessors
A 6 -
B 8 -
C 4 A
D 10 A,B
E 5 B
F 6 C
G 8 B,D
H 12 E
I 4 F,G,H
b)
Activity Duration (days) Predecessors
A 6 -
B 8 A
C 4 A
D 8 B
E 6 B
F 4 D
G 5 C,E
H 7 C
I 7 D,G
J 6 H
K 5 F,I,J
9) A project consists of 14 activities. Table shows the duration for each activity and their
interrelationships. Draw the network. Establish the critical path and tabulate EST, EFT, LST,
LFT, TF and FF.
Activity Duration (days) Predecessors
A 4 -
B 8 A
C 6 A
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Construction Management and Entrepreneurship (15CV61)
D 8 C
E 4 C
F 12 E
G 8 E
H 2 A
J 8 H
K 6 F
L 4 G,K
M 4 D,J,L
N 4 B
O 4 M,N
10) A project consists of 11 activities. The table shows the duration for each activity and
their interrelationships. Draw the network and establish the critical path. Tabulate EST,
EFT, LST, LFT, TF, and FF.
Activity Duration (days) Predecessors
A 6 -
B 4 -
C 10 A
D 5 A,B
E 8 B
F 4 C
G 3 D,E
H 8 E
I 7 F
J 5 C,G
K 6 H
Department of Civil Engineering Page 23
D 8 C
E 4 C
F 12 E
G 8 E
H 2 A
J 8 H
K 6 F
L 4 G,K
M 4 D,J,L
N 4 B
O 4 M,N
10) A project consists of 11 activities. The table shows the duration for each activity and
their interrelationships. Draw the network and establish the critical path. Tabulate EST,
EFT, LST, LFT, TF, and FF.
Activity Duration (days) Predecessors
A 6 -
B 4 -
C 10 A
D 5 A,B
E 8 B
F 4 C
G 3 D,E
H 8 E
I 7 F
J 5 C,G
K 6 H
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Construction Management and Entrepreneurship (15CV61)
MODULE – 2
A) RESOURCE MANAGEMENT
BASIC CONCEPTS OF RESOURCE MANAGEMENT
Construction companies face the challenge of delivering often complex projects to a schedule,
within a budget, and hopefully with a reasonable profit margin. Resource management is the
process of planning the resources necessary to meet the objectives of the project, and to satisfy the
client’s requirements.
Without proper resource management, projects can fall behind schedule, or can become
unprofitable. The objective is to ensure the adequate and timely supply of resources, while at the
same time maximizing the utilization of resources between projects.
Construction resources include:
Products and materials
Construction plant, tools and equipment
Human resources
Finance
Space and facilities
Fundamental to resource management is real-time visibility of what resources are needed, what
resources are available, where resources are located, and the ability to reschedule those resources
accordingly.
RESOURCE MANAGEMENT PLANS
A resource management plan can be used to:
1) Ensure resource availability and resolve resource conflicts.
2) Optimize time, effort and cost.
3) Ensure workers with the right skills are available.
4) Identify limitations, such as site access, weather conditions, and so on.
5) Reassign resources in response to circumstances.
6) Track resources utilization to avoid excessive resourcing or under-utilization.
TERMINOLOGIES
1) Acceleration – It may become necessary to accelerate the progress of works, either to
achieve the completion date, or to meet a new requirement imposed by the client (such as
accommodating additional works, or bringing the completion date forward). Typically, this
will require additional resources, although it might be achieved by a reduction in scope of
other works, or changes to the design.
Department of Civil Engineering Page 24
MODULE – 2
A) RESOURCE MANAGEMENT
BASIC CONCEPTS OF RESOURCE MANAGEMENT
Construction companies face the challenge of delivering often complex projects to a schedule,
within a budget, and hopefully with a reasonable profit margin. Resource management is the
process of planning the resources necessary to meet the objectives of the project, and to satisfy the
client’s requirements.
Without proper resource management, projects can fall behind schedule, or can become
unprofitable. The objective is to ensure the adequate and timely supply of resources, while at the
same time maximizing the utilization of resources between projects.
Construction resources include:
Products and materials
Construction plant, tools and equipment
Human resources
Finance
Space and facilities
Fundamental to resource management is real-time visibility of what resources are needed, what
resources are available, where resources are located, and the ability to reschedule those resources
accordingly.
RESOURCE MANAGEMENT PLANS
A resource management plan can be used to:
1) Ensure resource availability and resolve resource conflicts.
2) Optimize time, effort and cost.
3) Ensure workers with the right skills are available.
4) Identify limitations, such as site access, weather conditions, and so on.
5) Reassign resources in response to circumstances.
6) Track resources utilization to avoid excessive resourcing or under-utilization.
TERMINOLOGIES
1) Acceleration – It may become necessary to accelerate the progress of works, either to
achieve the completion date, or to meet a new requirement imposed by the client (such as
accommodating additional works, or bringing the completion date forward). Typically, this
will require additional resources, although it might be achieved by a reduction in scope of
other works, or changes to the design.
Department of Civil Engineering Page 24
Construction Management and Entrepreneurship (15CV61)
2) Fast-track construction – It is a scheduling technique that can be used to reduce the
overall duration of projects by overlapping tasks that on a traditional contract would not be
commenced until the previous task was completed. While the same number of tasks needs
to be performed, they are condensed into a shorter period, and so are likely to require
more resources.
3) Resource leveling – It is a project management technique in which the demand for limited
resources is accommodated by adjusting the project programme. In construction, resource
leveling can be used to analyze the variations in resource usage that can occur over time,
and which can be inefficient and costly.
CLASS OF LABOUR
Workers at the project site are made to perform a specified function and its connected tasks.
These workers include supervisors, construction workers, operators and drivers, and
administrative personnel. For ease of estimating, planning, accounting, and controlling, the project
workers are classified into two groups, namely, direct workers and indirect workers.
1) DIRECT LABOUR
These are construction site workers who can be identified with execution of the client’s
permanent works, listed in the bill of quantities (BOQ). The direct manpower constitutes 70-85%
of the total manpower, which is employed at the project site.
The direct construction workers include foremen and tradesmen, skilled in various engineering
trades, in addition to the semi-skilled and unskilled manpower. The tradesmen include, shuttering,
carpenters, fabricators, masons, plumbers, electricians, metal workers, painters and decorators.
Generally, the wages of construction site workers are accounted on daily or monthly basis, while,
their activity-wise requirement is computed using the Labours’ Productivity standards.
2) INDIRECT LABOUR
The indirect labour covers all supervisors, staff and workers. It is required to support the direct
manpower, both, technically and administratively. It generally consists of the project management
and administration group. They are accounted on monthly basis.
Further, construction labours can also be classified as follows:
1) Unskilled labour
2) Semi-skilled labour
3) Skilled labour
Unskilled Labour – It refers to workers who possess no particular skills and likely have no formal
education. This type of work usually involved simple duties that don’t require judgment. In most
of the cases, unskilled labour requires to exert more physical strength. But due to technological
Department of Civil Engineering Page 25
2) Fast-track construction – It is a scheduling technique that can be used to reduce the
overall duration of projects by overlapping tasks that on a traditional contract would not be
commenced until the previous task was completed. While the same number of tasks needs
to be performed, they are condensed into a shorter period, and so are likely to require
more resources.
3) Resource leveling – It is a project management technique in which the demand for limited
resources is accommodated by adjusting the project programme. In construction, resource
leveling can be used to analyze the variations in resource usage that can occur over time,
and which can be inefficient and costly.
CLASS OF LABOUR
Workers at the project site are made to perform a specified function and its connected tasks.
These workers include supervisors, construction workers, operators and drivers, and
administrative personnel. For ease of estimating, planning, accounting, and controlling, the project
workers are classified into two groups, namely, direct workers and indirect workers.
1) DIRECT LABOUR
These are construction site workers who can be identified with execution of the client’s
permanent works, listed in the bill of quantities (BOQ). The direct manpower constitutes 70-85%
of the total manpower, which is employed at the project site.
The direct construction workers include foremen and tradesmen, skilled in various engineering
trades, in addition to the semi-skilled and unskilled manpower. The tradesmen include, shuttering,
carpenters, fabricators, masons, plumbers, electricians, metal workers, painters and decorators.
Generally, the wages of construction site workers are accounted on daily or monthly basis, while,
their activity-wise requirement is computed using the Labours’ Productivity standards.
2) INDIRECT LABOUR
The indirect labour covers all supervisors, staff and workers. It is required to support the direct
manpower, both, technically and administratively. It generally consists of the project management
and administration group. They are accounted on monthly basis.
Further, construction labours can also be classified as follows:
1) Unskilled labour
2) Semi-skilled labour
3) Skilled labour
Unskilled Labour – It refers to workers who possess no particular skills and likely have no formal
education. This type of work usually involved simple duties that don’t require judgment. In most
of the cases, unskilled labour requires to exert more physical strength. But due to technological
Department of Civil Engineering Page 25
Construction Management and Entrepreneurship (15CV61)
advancements and demand for skills, unskilled labour in the construction industry will need to
advance their skill set.
Semi-skilled Labour – They do not require advanced training or specialized skills, but it does
require more skills than an unskilled labour job. The types of skills necessary for this are not
complex but usually include the ability to monitor and perform repetitive tasks. These types of
skills are more likely to be transferrable and useful in other jobs.
Skilled Labour – It refers to workers who have specialized training or skills. These labours are
capable of exercising judgment and have knowledge of the particular construction activity they
are working on.
WAGES & STATUTORY REQUIREMENTS
Construction workers are paid very low wages. The net worth of wages is considerably reduced
due to periods of unemployment. There are two methods of making wage payments to labours:
1) Time rate system
2) Piece rate system
1) Time Rate System
In this system, a suitable rate of payment is fixed per unit of time that labour is engaged on the
work. The unit of time may be hour, day, week, fortnight or month. In India, the rate of payment
for casual labour is determined per day and that of regular employees per month.
2) Piece Rate System
In this system, payment is based on output or production of workers. Payment is made at the
agreed rate for the actual quantum of work done by each labour. In this system, a good worker can
make more money by increasing his output.
MINIMUM WAGES ACT, 1948
The Minimum Wages Act of 1948, as amended in 1986, was passed for fixing the minimum rate of
wages of labour in certain employments keeping in mind the welfare of the workers. There is
likelihood that construction labour may offer to work even on starvation wages because of the
acute problem of unemployment in our country. This act makes provisions for the statutory
fixation of a minimum rate of wages in a number of industries where there are chances of
exploitation of labour.
CONTRACT LABOUR (REGULATION AND ABOLITION) ACT, 1970
The Contract Labour (Regulation and Abolition) Act of 1970, as amended in 1986, was enacted
with the object of regulating the employment of contract labour in certain establishments and
providing for abolition of contract labour in certain circumstances. The act incorporates
provisions for improving the condition of contract labour. The act is of special importance to the
Department of Civil Engineering Page 26
advancements and demand for skills, unskilled labour in the construction industry will need to
advance their skill set.
Semi-skilled Labour – They do not require advanced training or specialized skills, but it does
require more skills than an unskilled labour job. The types of skills necessary for this are not
complex but usually include the ability to monitor and perform repetitive tasks. These types of
skills are more likely to be transferrable and useful in other jobs.
Skilled Labour – It refers to workers who have specialized training or skills. These labours are
capable of exercising judgment and have knowledge of the particular construction activity they
are working on.
WAGES & STATUTORY REQUIREMENTS
Construction workers are paid very low wages. The net worth of wages is considerably reduced
due to periods of unemployment. There are two methods of making wage payments to labours:
1) Time rate system
2) Piece rate system
1) Time Rate System
In this system, a suitable rate of payment is fixed per unit of time that labour is engaged on the
work. The unit of time may be hour, day, week, fortnight or month. In India, the rate of payment
for casual labour is determined per day and that of regular employees per month.
2) Piece Rate System
In this system, payment is based on output or production of workers. Payment is made at the
agreed rate for the actual quantum of work done by each labour. In this system, a good worker can
make more money by increasing his output.
MINIMUM WAGES ACT, 1948
The Minimum Wages Act of 1948, as amended in 1986, was passed for fixing the minimum rate of
wages of labour in certain employments keeping in mind the welfare of the workers. There is
likelihood that construction labour may offer to work even on starvation wages because of the
acute problem of unemployment in our country. This act makes provisions for the statutory
fixation of a minimum rate of wages in a number of industries where there are chances of
exploitation of labour.
CONTRACT LABOUR (REGULATION AND ABOLITION) ACT, 1970
The Contract Labour (Regulation and Abolition) Act of 1970, as amended in 1986, was enacted
with the object of regulating the employment of contract labour in certain establishments and
providing for abolition of contract labour in certain circumstances. The act incorporates
provisions for improving the condition of contract labour. The act is of special importance to the
Department of Civil Engineering Page 26
Construction Management and Entrepreneurship (15CV61)
construction industry wherein works are generally executed on contract basis involving contract
labour.
LABOUR PRODUCTION RATE (or) PRODUCTIVITY
The measure of the rate at which work is performed by a labour is called “productivity”. It is a
ratio of production output to what is required to produce it. The measure of productivity is
defined as a total output per one unit of the total output.
In construction, the output is usually expressed in weight, length, or volume, and the input
resource is usually in cost of labour or man-hours. There are many standards available in the
construction industry for contractors as reference values for purposes of construction cost
estimation. These standards may vary in values but most are similar in principle.
Increased productivity means within the defined time frame, the production increases without
any cost variation per unit.
Workers’ Production Standard = Worker output * Production efficiency factor
Workers required = Work quantity *
′
Problems
1) Consider a task involving 160 m2 of fixing timber formwork for the roof slab of a single storey
building. The time earmarked for completion is four days, working eight hours per day. If a
workers’ team consisting of two skilled and an unskilled worker can install the fair-face formwork
at the rate of 1.25 m2 per team hour, then calculate the number of labours required.
FACTORS AFFECTING LABOUR OUTPUT (or) PRODUCTIVITY
There are many factors that affect the productivity of labour in construction. They are:
1) Overtime – Scheduling of extended work days or weeks exceeding a standard work day or
40 hour work week lowers work output and efficiency through physical fatigue and poor
mental attitude.
2) Fatigue–Fatigue can be caused by prolonged or unusual physical exertion.
3) Concurrent operations – This is the effect of adding operations to any sequence of
operations that has already been planned, without a gradual and controlled
implementation of additional operations.
4) Mobilize/Demobilize – This relates to moving resources on and moving off to projects as
a result from changes or delays, causing work disruptions. Productivity may drop during
these periods as time is lost when labours move from one area or work assignment to
another.
Department of Civil Engineering Page 27
construction industry wherein works are generally executed on contract basis involving contract
labour.
LABOUR PRODUCTION RATE (or) PRODUCTIVITY
The measure of the rate at which work is performed by a labour is called “productivity”. It is a
ratio of production output to what is required to produce it. The measure of productivity is
defined as a total output per one unit of the total output.
In construction, the output is usually expressed in weight, length, or volume, and the input
resource is usually in cost of labour or man-hours. There are many standards available in the
construction industry for contractors as reference values for purposes of construction cost
estimation. These standards may vary in values but most are similar in principle.
Increased productivity means within the defined time frame, the production increases without
any cost variation per unit.
Workers’ Production Standard = Worker output * Production efficiency factor
Workers required = Work quantity *
′
Problems
1) Consider a task involving 160 m2 of fixing timber formwork for the roof slab of a single storey
building. The time earmarked for completion is four days, working eight hours per day. If a
workers’ team consisting of two skilled and an unskilled worker can install the fair-face formwork
at the rate of 1.25 m2 per team hour, then calculate the number of labours required.
FACTORS AFFECTING LABOUR OUTPUT (or) PRODUCTIVITY
There are many factors that affect the productivity of labour in construction. They are:
1) Overtime – Scheduling of extended work days or weeks exceeding a standard work day or
40 hour work week lowers work output and efficiency through physical fatigue and poor
mental attitude.
2) Fatigue–Fatigue can be caused by prolonged or unusual physical exertion.
3) Concurrent operations – This is the effect of adding operations to any sequence of
operations that has already been planned, without a gradual and controlled
implementation of additional operations.
4) Mobilize/Demobilize – This relates to moving resources on and moving off to projects as
a result from changes or delays, causing work disruptions. Productivity may drop during
these periods as time is lost when labours move from one area or work assignment to
another.
Department of Civil Engineering Page 27
Construction Management and Entrepreneurship (15CV61)
5) Reassignment of manpower – When workers are reassigned, they experience unexpected
or excessive changes, losses caused by move-on or move-off, reorientation, and other
issues that result in a loss of productivity.
6) Start/Stop – These results from a work stoppage or suspension of work, which may cause
a break in the schedule, usually, triggering a start/stop of work activity. Start-stops can
have an impact on productivity and cost of a project.
7) Site Access–This is a result of interferences to the convenient or planned access to work
areas. This can be due to blocked stairways, roads, walkways, insufficient man-lifts, or
congested work sites.
8) Hazardous work area – This is caused when working in an area that is classified as
hazardous, requiring special safety equipment and clothing. Restrictions may limit time
and exposure of workers to the area, resulting in less time on tools in the area.
9) Shorter daylight hours– Delays can cause work to be deferred from one time period to the
next, which may involve seasonal changes. Different regions and locations around the
world also have different amounts of daylight hours, depending on the season.
10) Weather and season changes – Performing work in a change season, temperature zone,
or climate change resulting in work performed in either very hot or very cold weather, rain,
snow, or other changes in temperature or climate can impact workers beyond normal
conditions.
11) Shift work – This is when work is performed at any time other than the first shift or the
morning shift of a work day. Work on second and third shifts are less efficient and may even
be based on a shorter work period.
12) Tool and Equipment shortage – This is caused when there is insufficient quantity or
quality of tools and equipment to meet the needs of the project.
13) Proximity of work - This is caused by working in remote areas, proximity of tools, break
areas, material lay down yard, or other resources causing a loss of time for access.
14) Alternating, Staggered or Rotating work schedules – This usually results in unusual or
unique scheduled work periods designed to optimize the hours worked, attract labour to
remote sites, compete for labour resources and minimize fatigue.
Department of Civil Engineering Page 28
5) Reassignment of manpower – When workers are reassigned, they experience unexpected
or excessive changes, losses caused by move-on or move-off, reorientation, and other
issues that result in a loss of productivity.
6) Start/Stop – These results from a work stoppage or suspension of work, which may cause
a break in the schedule, usually, triggering a start/stop of work activity. Start-stops can
have an impact on productivity and cost of a project.
7) Site Access–This is a result of interferences to the convenient or planned access to work
areas. This can be due to blocked stairways, roads, walkways, insufficient man-lifts, or
congested work sites.
8) Hazardous work area – This is caused when working in an area that is classified as
hazardous, requiring special safety equipment and clothing. Restrictions may limit time
and exposure of workers to the area, resulting in less time on tools in the area.
9) Shorter daylight hours– Delays can cause work to be deferred from one time period to the
next, which may involve seasonal changes. Different regions and locations around the
world also have different amounts of daylight hours, depending on the season.
10) Weather and season changes – Performing work in a change season, temperature zone,
or climate change resulting in work performed in either very hot or very cold weather, rain,
snow, or other changes in temperature or climate can impact workers beyond normal
conditions.
11) Shift work – This is when work is performed at any time other than the first shift or the
morning shift of a work day. Work on second and third shifts are less efficient and may even
be based on a shorter work period.
12) Tool and Equipment shortage – This is caused when there is insufficient quantity or
quality of tools and equipment to meet the needs of the project.
13) Proximity of work - This is caused by working in remote areas, proximity of tools, break
areas, material lay down yard, or other resources causing a loss of time for access.
14) Alternating, Staggered or Rotating work schedules – This usually results in unusual or
unique scheduled work periods designed to optimize the hours worked, attract labour to
remote sites, compete for labour resources and minimize fatigue.
Department of Civil Engineering Page 28
Construction Management and Entrepreneurship (15CV61)
MODULE – 2
B) CONSTRUCTION EQUIPMENT
INTRODUCTION
Construction equipment is one of the very important resources of modern-day construction,
especially in infrastructure projects. Such projects utilize equipments for most of works including
earth moving operations, aggregate production, concrete production and its placement, and so on.
The choice of construction equipment defines the construction method, which in a way leads to
the determination of time and cost for the project. In order to select the right equipment to
perform a specific task at the least cost, it is essential to know the features of construction
equipment including its rate of production and the associated cost to operate the equipment.
For a contractor, the decision to employ a particular type of equipment is influenced by the
contract he enters with the owners, the site condition and the location of the project site.
CLASSIFICATION OF CONSTRUCTION EQUIPMENTS
Construction equipments can be classified in the following ways:
1) Based on the function the equipment performs– For example, material loading function,
material transporting function, etc. In the functional classification, equipments are grouped into
(a) power units, (b) prime movers, which make it possible for the equipment to operate, (c)
tractors, (d) material-handling equipment and (e) material-processing equipment.
2) Based on the operation for which the equipment is used – For example, (a) equipments
used for loosening and moving the materials found in their natural state like excavators,
earthmoving equipment, trenchers, conveying and hauling equipments, (b) equipments used for
processing the materials, such as aggregate, concrete and asphalt production equipment, (c)
equipments used for transporting the processed materials and (d) equipments used for placing
finished materials.
3) Based on the purpose – It can be general-purpose or special purpose equipments. For
example, in general-purpose equipment, we have earthwork equipment, material-hoisting
equipment, concreting equipment, etc., while in special-purpose equipment, we have bridge-
construction equipment, marine equipment, pipe-laying equipment, and so on. Classification
based on purpose could be company-specific. For example, if a construction company is into
tunnel construction, the tunnel boring machine could be the general-purpose equipment for this
company, while it may be special-purpose equipment for a company that is mostly into building
construction.
FACTORS BEHIND THE SELECTION OF CONSTRUCTION EQUIPMENTS
1) Economic Considerations – The economic considerations such as owning cost and operating
cost of equipment are most important in selection of equipment. Besides, the resale value, the
Department of Civil Engineering Page 29
MODULE – 2
B) CONSTRUCTION EQUIPMENT
INTRODUCTION
Construction equipment is one of the very important resources of modern-day construction,
especially in infrastructure projects. Such projects utilize equipments for most of works including
earth moving operations, aggregate production, concrete production and its placement, and so on.
The choice of construction equipment defines the construction method, which in a way leads to
the determination of time and cost for the project. In order to select the right equipment to
perform a specific task at the least cost, it is essential to know the features of construction
equipment including its rate of production and the associated cost to operate the equipment.
For a contractor, the decision to employ a particular type of equipment is influenced by the
contract he enters with the owners, the site condition and the location of the project site.
CLASSIFICATION OF CONSTRUCTION EQUIPMENTS
Construction equipments can be classified in the following ways:
1) Based on the function the equipment performs– For example, material loading function,
material transporting function, etc. In the functional classification, equipments are grouped into
(a) power units, (b) prime movers, which make it possible for the equipment to operate, (c)
tractors, (d) material-handling equipment and (e) material-processing equipment.
2) Based on the operation for which the equipment is used – For example, (a) equipments
used for loosening and moving the materials found in their natural state like excavators,
earthmoving equipment, trenchers, conveying and hauling equipments, (b) equipments used for
processing the materials, such as aggregate, concrete and asphalt production equipment, (c)
equipments used for transporting the processed materials and (d) equipments used for placing
finished materials.
3) Based on the purpose – It can be general-purpose or special purpose equipments. For
example, in general-purpose equipment, we have earthwork equipment, material-hoisting
equipment, concreting equipment, etc., while in special-purpose equipment, we have bridge-
construction equipment, marine equipment, pipe-laying equipment, and so on. Classification
based on purpose could be company-specific. For example, if a construction company is into
tunnel construction, the tunnel boring machine could be the general-purpose equipment for this
company, while it may be special-purpose equipment for a company that is mostly into building
construction.
FACTORS BEHIND THE SELECTION OF CONSTRUCTION EQUIPMENTS
1) Economic Considerations – The economic considerations such as owning cost and operating
cost of equipment are most important in selection of equipment. Besides, the resale value, the
Department of Civil Engineering Page 29
Construction Management and Entrepreneurship (15CV61)
replacement cost of existing equipment and the salvage associated with equipment are also
important.
2) Company Specific – The selection of equipment for a company is governed by its policy on
‘owning’ or ‘renting’. While emphasis on ‘owning’ may result in purchase of equipment keeping in
mind the future requirements of projects. The emphasis on ‘renting’ may lead to putting too much
focus on short-term benefits.
3) Site Specific – Site conditions – both ground and climatic conditions may affect the equipment
selection decision. For example: The soil and profile of a site may dictate whether to go for
crawler-mounted equipment or wheel-mounted equipment. Similarly, climatic conditions such as
the presence of strong winds, visibility level and noise level may affect equipment selection
decision.
4) Equipment Specific – Construction equipment come with high price tags while it may be
tempting to go for the equipment with low initial price. It is preferable to opt for standard
equipments. Such equipments are manufactured in large numbers by the manufacturers and their
spare parts are easily available. Also, they can fetch good salvage money at the time of their
disposal. The size of the equipment selected is also an important consideration.
5) Client and Project Specific – The client in a certain project may have certain preferences that
are not in line with the construction companies preferred policies as far as equipment
procurement is concerned.
6) Manufacturer Specific – A construction company mat prefer to buy equipment from the same
manufacturer again and again and that too from a specific dealer. This may be to bring uniformity
in the equipment possessed by the company (or) because the company is familiar with the
working style of the manufacturer and the dealer.
7) Labour Considerations – Shortage of manpower in some situation may lead to the decision in
favor of procuring equipment i.e., highly automated. Further, the selection of equipment may be
governed by the availability (or) non-availability of trained manpower.
EQUIPMENT COSTS
1) OWNERSHIP COST– It is the cumulative results of those cash flows an owner experiences
whether (or) not the equipment is productively employed on the project. Significant cash flows
affecting the ownership cost are:
a) Purchase expenses – The cash outflow a firm experiences in acquiring ownership of an
equipment (or) used value is known as purchase expense.
b) Salvage value – It is the cash inflow a firm receives if the equipment still has a value at the
time of its disposal.
c) Tax savings from depreciation – Under the tax laws, depreciating machine loss in value
with age will lessen the net cost of machine ownership. The cost of savings afforded by tax
depreciation is a result of shielding the company from taxes.
Department of Civil Engineering Page 30
replacement cost of existing equipment and the salvage associated with equipment are also
important.
2) Company Specific – The selection of equipment for a company is governed by its policy on
‘owning’ or ‘renting’. While emphasis on ‘owning’ may result in purchase of equipment keeping in
mind the future requirements of projects. The emphasis on ‘renting’ may lead to putting too much
focus on short-term benefits.
3) Site Specific – Site conditions – both ground and climatic conditions may affect the equipment
selection decision. For example: The soil and profile of a site may dictate whether to go for
crawler-mounted equipment or wheel-mounted equipment. Similarly, climatic conditions such as
the presence of strong winds, visibility level and noise level may affect equipment selection
decision.
4) Equipment Specific – Construction equipment come with high price tags while it may be
tempting to go for the equipment with low initial price. It is preferable to opt for standard
equipments. Such equipments are manufactured in large numbers by the manufacturers and their
spare parts are easily available. Also, they can fetch good salvage money at the time of their
disposal. The size of the equipment selected is also an important consideration.
5) Client and Project Specific – The client in a certain project may have certain preferences that
are not in line with the construction companies preferred policies as far as equipment
procurement is concerned.
6) Manufacturer Specific – A construction company mat prefer to buy equipment from the same
manufacturer again and again and that too from a specific dealer. This may be to bring uniformity
in the equipment possessed by the company (or) because the company is familiar with the
working style of the manufacturer and the dealer.
7) Labour Considerations – Shortage of manpower in some situation may lead to the decision in
favor of procuring equipment i.e., highly automated. Further, the selection of equipment may be
governed by the availability (or) non-availability of trained manpower.
EQUIPMENT COSTS
1) OWNERSHIP COST– It is the cumulative results of those cash flows an owner experiences
whether (or) not the equipment is productively employed on the project. Significant cash flows
affecting the ownership cost are:
a) Purchase expenses – The cash outflow a firm experiences in acquiring ownership of an
equipment (or) used value is known as purchase expense.
b) Salvage value – It is the cash inflow a firm receives if the equipment still has a value at the
time of its disposal.
c) Tax savings from depreciation – Under the tax laws, depreciating machine loss in value
with age will lessen the net cost of machine ownership. The cost of savings afforded by tax
depreciation is a result of shielding the company from taxes.
Department of Civil Engineering Page 30
Construction Management and Entrepreneurship (15CV61)
d) Major repairs (or) overhauls – These are included in the ownership because of they
result in increased (or) extension of the equipment service life. They can be considered as
an investment in case of new equipment. This cost should be added to the basis of
equipments and then depreciation.
e) Property taxes – This refers to the ownership costs that are charged by the government
subdivisions commonly assessed by the percentage rate applied against the book value of
the equipment. It can range up to 4.5% of the assessed equipment value.
f) Insurance – It includes the cost to cover fire, theft and damage to the equipments. Annual
rates can range from 1 – 3%. This cost can be on actual payment premium paid to
insurance companies by the equipment owners.
g) Storage and Miscellaneous – Between jobs and during bad weather, a company will
require storage facilities. Typical expenses include rental space, utilities and wages for
labours (or) watchman. This expenses range may be 5%.
2) OPERATING COSTS – Typical expenses include,
a) Minor (or) Normal Maintenance cost
b) Repairs
c) Fuel
d) Lubricating oil
e) Replacement cost – wear & tear items
For Investment Cost
It is the fixed cost continued to be incurred even when the equipment is not used. It consists of the
interest on procurement of the equipment plus various taxes plus insurance and storage cost.
Average Cost = ( +1)+ ( −1)
2
where, P = Purchase price
F = Salvage value; normally 10% of P, if not given
N = Economic life
Annual Fixed Cost = Depreciation =
−
NOTE: For salvage value of F = 0,
( +1)
Average Cost =
The maintenance and repair constitute about 60 – 80% of depreciation cost.
Department of Civil Engineering Page 31
d) Major repairs (or) overhauls – These are included in the ownership because of they
result in increased (or) extension of the equipment service life. They can be considered as
an investment in case of new equipment. This cost should be added to the basis of
equipments and then depreciation.
e) Property taxes – This refers to the ownership costs that are charged by the government
subdivisions commonly assessed by the percentage rate applied against the book value of
the equipment. It can range up to 4.5% of the assessed equipment value.
f) Insurance – It includes the cost to cover fire, theft and damage to the equipments. Annual
rates can range from 1 – 3%. This cost can be on actual payment premium paid to
insurance companies by the equipment owners.
g) Storage and Miscellaneous – Between jobs and during bad weather, a company will
require storage facilities. Typical expenses include rental space, utilities and wages for
labours (or) watchman. This expenses range may be 5%.
2) OPERATING COSTS – Typical expenses include,
a) Minor (or) Normal Maintenance cost
b) Repairs
c) Fuel
d) Lubricating oil
e) Replacement cost – wear & tear items
For Investment Cost
It is the fixed cost continued to be incurred even when the equipment is not used. It consists of the
interest on procurement of the equipment plus various taxes plus insurance and storage cost.
Average Cost = ( +1)+ ( −1)
2
where, P = Purchase price
F = Salvage value; normally 10% of P, if not given
N = Economic life
Annual Fixed Cost = Depreciation =
−
NOTE: For salvage value of F = 0,
( +1)
Average Cost =
The maintenance and repair constitute about 60 – 80% of depreciation cost.
Department of Civil Engineering Page 31
Construction Management and Entrepreneurship (15CV61)
For operating cost
HP =
0.746
Petrol cost = 0.225 litres * HP/hour
Diesel cost = 0.150 litres * HP/hour
∗ ∗0.003
+
Lubricating oil =
(litres/hour) 0.74 5
where, C = Crank capacity (litres)
t = time between oil changes (hours)
Problems
1) Determine the probable cost of ownership and operation of a power shovel with the following
details: Engine capacity = 150kW, Diesel operating factor = 0.5, C = 25 litres, t = time between oil
changes = 100 hours, N = 5 years, No. of usage hours/year = 2000, cost of equipment = Rs. 600000,
Salvage value = 10% of P, maintenance cost = 80% of depreciation cost, cost of fuel = Rs. 60/litre,
cost of lubricating oil = Rs. 200. Assume investment cost = 15% of average cost.
2) Following data refers to the down value. Calculate the cost of ownership and operation on
hourly basis: Purchase value = Rs. 900000, Salvage value = 10% of P, Engine capacity = 60HP,
operating factor of diesel engine = 0.6, C = 25 litres, t = 80 hours, N = 10 years, Hours usage/year =
2000, cost of fuel = Rs. 43/litre, cost of lubricating oil = Rs. 180/litre, investment cost = 15% of
average cost, maintenance cost = 80% of depreciation cost.
ESTIMATION OF PRODUCTIVITY OF VARIOUS CONSTRUCTION EQUIPMENTS
Earthwork Equipments
Description Purpose Application Remarks
Back hoe
For excavation below the Cutting of trenches, pits, Suitable for heavy
ground (lower elevation) etc., leveling and loading positive cutting
For excavation above its For cutting and for
Suitable for heavy
Shovel positive cutting in all
own track (or) wheel level loading
types of dry soil
For bulk excavation in For canals and pit Suitable for loose soils,
Dragline loose soils below its own excavation, cutting and marshy land and areas
track level de-silting of ditches containing water
Clamshell
For deep confined cutting
For shafts, pits and wells
Consist of a
hydraulically controlled
in pits and trenches
bucket suspended from
Department of Civil Engineering Page 32
For operating cost
HP =
0.746
Petrol cost = 0.225 litres * HP/hour
Diesel cost = 0.150 litres * HP/hour
∗ ∗0.003
+
Lubricating oil =
(litres/hour) 0.74 5
where, C = Crank capacity (litres)
t = time between oil changes (hours)
Problems
1) Determine the probable cost of ownership and operation of a power shovel with the following
details: Engine capacity = 150kW, Diesel operating factor = 0.5, C = 25 litres, t = time between oil
changes = 100 hours, N = 5 years, No. of usage hours/year = 2000, cost of equipment = Rs. 600000,
Salvage value = 10% of P, maintenance cost = 80% of depreciation cost, cost of fuel = Rs. 60/litre,
cost of lubricating oil = Rs. 200. Assume investment cost = 15% of average cost.
2) Following data refers to the down value. Calculate the cost of ownership and operation on
hourly basis: Purchase value = Rs. 900000, Salvage value = 10% of P, Engine capacity = 60HP,
operating factor of diesel engine = 0.6, C = 25 litres, t = 80 hours, N = 10 years, Hours usage/year =
2000, cost of fuel = Rs. 43/litre, cost of lubricating oil = Rs. 180/litre, investment cost = 15% of
average cost, maintenance cost = 80% of depreciation cost.
ESTIMATION OF PRODUCTIVITY OF VARIOUS CONSTRUCTION EQUIPMENTS
Earthwork Equipments
Description Purpose Application Remarks
Back hoe
For excavation below the Cutting of trenches, pits, Suitable for heavy
ground (lower elevation) etc., leveling and loading positive cutting
For excavation above its For cutting and for
Suitable for heavy
Shovel positive cutting in all
own track (or) wheel level loading
types of dry soil
For bulk excavation in For canals and pit Suitable for loose soils,
Dragline loose soils below its own excavation, cutting and marshy land and areas
track level de-silting of ditches containing water
Clamshell
For deep confined cutting
For shafts, pits and wells
Consist of a
hydraulically controlled
in pits and trenches
bucket suspended from
Department of Civil Engineering Page 32
Construction Management and Entrepreneurship (15CV61)
lifting arm
For moving earth up to a
distance of about 100m, Clearing and grubbing
Can be crawler-
shallow excavation and the pits, excavation of
Dozers mounted (or) wheel-
acting as a towing tractor surface earth and
mounted
and pusher to scraper maintaining roads
machines
Comes in different
varieties such as
Roller For compaction of earth
Used for larger works of smooth-wheeled
highways, canals and rollers, vibratory
Compactor (or) other materials
airports rollers, pneumatic-
tyred rollers and sheep-
foot roller
For site stripping and Best suitable for haul Comes in different
Scraper
leveling, loading, hauling distances varying varieties such as towed
and discharging over long between 150m and scrapers (or) two to
distances 900m three axle scrapers
Suitable for hauling on Comes in different
For horizontal softer subgrades, large varieties with front
Dumper transportation of capacity dumpers are tipping, side tipping
materials on and off sites used in mining (or) (or) elevated tipping
quarries arrangements
For spreading fill and fine
Grading and finishing the
trimming the subgrade.
upper surface of earthen Graders usually operate
Grader Grader performs a follow
formation and in forward direction
up operation to scraping
embankment
(or) bulldozing
Equipment Suitability
The most important factor that determines the suitability of equipment for earthwork is the soil
(or) the earth itself. The type of earth moving equipment required varies with the nature of the
soil and task to be performed.
1) Excavating and lifting soft earth
a) Deep pit excavation – Clamshell and dragline
b) Shallow pit excavation – Back hoe
c) Ground level excavation – Power shovels
d) Shallow trenching – Back hoe (excavator)
e) Wet soil excavation – Dragline
2) Cutting over areas
Department of Civil Engineering Page 33
lifting arm
For moving earth up to a
distance of about 100m, Clearing and grubbing
Can be crawler-
shallow excavation and the pits, excavation of
Dozers mounted (or) wheel-
acting as a towing tractor surface earth and
mounted
and pusher to scraper maintaining roads
machines
Comes in different
varieties such as
Roller For compaction of earth
Used for larger works of smooth-wheeled
highways, canals and rollers, vibratory
Compactor (or) other materials
airports rollers, pneumatic-
tyred rollers and sheep-
foot roller
For site stripping and Best suitable for haul Comes in different
Scraper
leveling, loading, hauling distances varying varieties such as towed
and discharging over long between 150m and scrapers (or) two to
distances 900m three axle scrapers
Suitable for hauling on Comes in different
For horizontal softer subgrades, large varieties with front
Dumper transportation of capacity dumpers are tipping, side tipping
materials on and off sites used in mining (or) (or) elevated tipping
quarries arrangements
For spreading fill and fine
Grading and finishing the
trimming the subgrade.
upper surface of earthen Graders usually operate
Grader Grader performs a follow
formation and in forward direction
up operation to scraping
embankment
(or) bulldozing
Equipment Suitability
The most important factor that determines the suitability of equipment for earthwork is the soil
(or) the earth itself. The type of earth moving equipment required varies with the nature of the
soil and task to be performed.
1) Excavating and lifting soft earth
a) Deep pit excavation – Clamshell and dragline
b) Shallow pit excavation – Back hoe
c) Ground level excavation – Power shovels
d) Shallow trenching – Back hoe (excavator)
e) Wet soil excavation – Dragline
2) Cutting over areas
Department of Civil Engineering Page 33
Construction Management and Entrepreneurship (15CV61)
a) Short hauls – Dozers
b) Long hauls – Scrapers
3) Loading and transporting the excavated soil
a) For loading soil – loaders, power shovels, excavators
b) For transporting soil – tippers, dumpers, scrapers
The main ground characteristics which influence the performance of equipment are,
1) Suitability of an equipment
2) Digging effort
3) Volume conversion
4) Equipment output
Digging Effort – It depends upon the nature of the soil. The typical soil factors which determine
comparative equipment efforts required in various types of soil are as follows:
Nature of soil Digging effort Soil factor
Loam, sand, gravel Easy 1.0
Common earth
Medium 0.85
(ordinary soil)
Stiff clay, soft rock Hard 0.61
Volume Conversion – The volume of the soil in its place in natural state is referred to as bank
volume. When it is in loose state, it is called as loose volume and when it is in compacted state, it is
called compacted volume.
Nature of soil Bank Volume Loose Volume Compacted Volume
Common earth 1 1.25 0.90
Sand 1 1.12 0.95
Clay 1 1.27 0.90
Rock (blasted) 1 1.50 1.30
Problem
1) 250m3 of unexcavated earth is required to be hauled. The nature of the soil is sand and clay.
What will be its volume when it is excavated and ready for handling? What will be its volume
when it is compacted?
Department of Civil Engineering Page 34
a) Short hauls – Dozers
b) Long hauls – Scrapers
3) Loading and transporting the excavated soil
a) For loading soil – loaders, power shovels, excavators
b) For transporting soil – tippers, dumpers, scrapers
The main ground characteristics which influence the performance of equipment are,
1) Suitability of an equipment
2) Digging effort
3) Volume conversion
4) Equipment output
Digging Effort – It depends upon the nature of the soil. The typical soil factors which determine
comparative equipment efforts required in various types of soil are as follows:
Nature of soil Digging effort Soil factor
Loam, sand, gravel Easy 1.0
Common earth
Medium 0.85
(ordinary soil)
Stiff clay, soft rock Hard 0.61
Volume Conversion – The volume of the soil in its place in natural state is referred to as bank
volume. When it is in loose state, it is called as loose volume and when it is in compacted state, it is
called compacted volume.
Nature of soil Bank Volume Loose Volume Compacted Volume
Common earth 1 1.25 0.90
Sand 1 1.12 0.95
Clay 1 1.27 0.90
Rock (blasted) 1 1.50 1.30
Problem
1) 250m3 of unexcavated earth is required to be hauled. The nature of the soil is sand and clay.
What will be its volume when it is excavated and ready for handling? What will be its volume
when it is compacted?
Department of Civil Engineering Page 34
Construction Management and Entrepreneurship (15CV61)
Equipment Output
a) Equipment Actual Production
Equipment Actual Production/hour = (Actual load/cycle) * (cycle/hour)
Problem
1) For loads operated by a skilled person for bucket capacity 1.5m3 on a job involves easy digging
and moves the load of 1.5m3 of loose soil in 1 cycle. If each cycle time is 1.2 minutes, then
determine actual production/hour.
b)Equipment planning output
Equipment output/hour for planning purpose can be calculated from the haul volume/cycle and
the number of cycles from the following formula:
Equipment hourly output = ℎ ( )/ . /ℎ
Planned output/hour = Ideal output/hour * Correction factor * Performance efficiency factor P = Q
* q * N * E * C
P = Q * q *
60
* E * C
where, P = Production/hour in m3/hour
Q = Ideal Output/cycle in loose soil under ideal conditions in m3/hour
q = Soil volume conversion factor
N = No. of cycles/hour =
60
Cm = Cycle time in minutes
C = Correction factors for job condition
E = Job performance efficiency factor related to equipment conditions and
operators’ skill
Performance Efficiency Factor
Assessed equipment
Performance
efficiency working
efficiency factor
(min/hr)
60 1.0
55 0.92
50 0.85
45 0.75
40 0.67
Department of Civil Engineering Page 35
Equipment Output
a) Equipment Actual Production
Equipment Actual Production/hour = (Actual load/cycle) * (cycle/hour)
Problem
1) For loads operated by a skilled person for bucket capacity 1.5m3 on a job involves easy digging
and moves the load of 1.5m3 of loose soil in 1 cycle. If each cycle time is 1.2 minutes, then
determine actual production/hour.
b)Equipment planning output
Equipment output/hour for planning purpose can be calculated from the haul volume/cycle and
the number of cycles from the following formula:
Equipment hourly output = ℎ ( )/ . /ℎ
Planned output/hour = Ideal output/hour * Correction factor * Performance efficiency factor P = Q
* q * N * E * C
P = Q * q *
60
* E * C
where, P = Production/hour in m3/hour
Q = Ideal Output/cycle in loose soil under ideal conditions in m3/hour
q = Soil volume conversion factor
N = No. of cycles/hour =
60
Cm = Cycle time in minutes
C = Correction factors for job condition
E = Job performance efficiency factor related to equipment conditions and
operators’ skill
Performance Efficiency Factor
Assessed equipment
Performance
efficiency working
efficiency factor
(min/hr)
60 1.0
55 0.92
50 0.85
45 0.75
40 0.67
Department of Civil Engineering Page 35
Construction Management and Entrepreneurship (15CV61)
Correction Factor
1) Equipment Performance Comparison
Equipment Factor multiplier
Power Shovel 1.0
Back Hoe 0.80
Dragline 0.75
Grab 0.40
2) Soil Digging Factor
Digging effort Factor multiplier
Easy digging 1.0
Medium digging 0.85
Hard digging 0.67
3) Swing Factor
Angle of Swing 45° 60° 75° 90° 120° 150° 180°
Factor value 1.20 1.16 1.05 1.0 0.88 0.79 0.71
4) Load Casting Factor
Method of casting
Factor multiplier
Open area
Restricted area
Side casting 1.0 0.80
Loading in vehicle 0.80 0.60
Problem
1) Estimate the hourly production in bulk volume in LCM of a back hoe with bucket capacity of
0.96m3 that is employed on excavation of a foundation, which is 4m deep in hard digging soil. The
excavated earth is to be loaded in waiting dump trucks, placed at a swing angle of 75°. The
expected performance efficiency is 83%.
Dozer Planning Output
Bulldozers are versatile machines which is used for moving earth up to 100m, moving and
grubbing the sites, used for pushing scrapers, spreading soil to level the surface, maintaining
roads, etc.,
The ideal output is measured in bulk volume (loose soil) assuming a forward dozing speed of
3km/hour, return speed of 6km/hour, manoeuvring time of 0.15 minutes, easy going on general
level ground and dozing of materials using straight S-blade.
Dozer output = Dozer ideal output * Correction factor * Performance factor (in LCM)
Department of Civil Engineering Page 36
Correction Factor
1) Equipment Performance Comparison
Equipment Factor multiplier
Power Shovel 1.0
Back Hoe 0.80
Dragline 0.75
Grab 0.40
2) Soil Digging Factor
Digging effort Factor multiplier
Easy digging 1.0
Medium digging 0.85
Hard digging 0.67
3) Swing Factor
Angle of Swing 45° 60° 75° 90° 120° 150° 180°
Factor value 1.20 1.16 1.05 1.0 0.88 0.79 0.71
4) Load Casting Factor
Method of casting
Factor multiplier
Open area
Restricted area
Side casting 1.0 0.80
Loading in vehicle 0.80 0.60
Problem
1) Estimate the hourly production in bulk volume in LCM of a back hoe with bucket capacity of
0.96m3 that is employed on excavation of a foundation, which is 4m deep in hard digging soil. The
excavated earth is to be loaded in waiting dump trucks, placed at a swing angle of 75°. The
expected performance efficiency is 83%.
Dozer Planning Output
Bulldozers are versatile machines which is used for moving earth up to 100m, moving and
grubbing the sites, used for pushing scrapers, spreading soil to level the surface, maintaining
roads, etc.,
The ideal output is measured in bulk volume (loose soil) assuming a forward dozing speed of
3km/hour, return speed of 6km/hour, manoeuvring time of 0.15 minutes, easy going on general
level ground and dozing of materials using straight S-blade.
Dozer output = Dozer ideal output * Correction factor * Performance factor (in LCM)
Department of Civil Engineering Page 36
Construction Management and Entrepreneurship (15CV61)
Correction Factors
1) Blade Factor Multiplier
Type of blade Blade Factor
S-blade 1.0
A-blade 0.75
U-blade
1.25 (used only for
loose soil)
2) Transmission Factor – Take 80% of the ideal output if it is based on power shift system.
3) Grade Factor
Nature of slope Effect on output (%)
Downhill working Increase 2.5 * grade (%)
Uphill working Decrease 2 * grade (%)
4) Soil Factor
Digging effort Soil Factor
Easy digging 1.0
Medium digging 0.85
Hard digging 0.67
5) Swell Factor
Type of soil Swell factor
Common earth 1.2
Sand & Gravel 1.1
Dry clay 1.3
Rock 1.5
The ideal output is stated in terms of bulk (or loose) volume excavated. This output can be
converted into bank volume by dividing the bulk materials with the swell factor.
Problems
1) Determine the output of a bulldozer having 215HP engine, fitted with A-blade rated capacity
4.40m3. The dozer is employed for excavating a hard clayey area with average haulage of 50m on a
ground with down slope of 10%. It has direct drive transmission and its expected performance is
50 minutes per/hour.
Department of Civil Engineering Page 37
Correction Factors
1) Blade Factor Multiplier
Type of blade Blade Factor
S-blade 1.0
A-blade 0.75
U-blade
1.25 (used only for
loose soil)
2) Transmission Factor – Take 80% of the ideal output if it is based on power shift system.
3) Grade Factor
Nature of slope Effect on output (%)
Downhill working Increase 2.5 * grade (%)
Uphill working Decrease 2 * grade (%)
4) Soil Factor
Digging effort Soil Factor
Easy digging 1.0
Medium digging 0.85
Hard digging 0.67
5) Swell Factor
Type of soil Swell factor
Common earth 1.2
Sand & Gravel 1.1
Dry clay 1.3
Rock 1.5
The ideal output is stated in terms of bulk (or loose) volume excavated. This output can be
converted into bank volume by dividing the bulk materials with the swell factor.
Problems
1) Determine the output of a bulldozer having 215HP engine, fitted with A-blade rated capacity
4.40m3. The dozer is employed for excavating a hard clayey area with average haulage of 50m on a
ground with down slope of 10%. It has direct drive transmission and its expected performance is
50 minutes per/hour.
Department of Civil Engineering Page 37
Construction Management and Entrepreneurship (15CV61)
Scraper Planning Output
Scraper is equipment that is commonly used for scraping, loading, hauling and discharging. It also
includes spreading large quantities of earth over long distances for around 3 km and in layers of
15 cm to 30 cm depth. There are two main categories of scrapers, namely,
a) Towed scrapers – They are best suited for medium distances up to 400 m. It can operate in
small areas and scrape in heavy soil areas.
b) Motorized scrapers – These include single engine scraper, double engine scraper and
elevating scraper.
Scrapers per pusher = ℎ ℎ
Scraper output/hour in LCM = Ideal output * Correction factor * Performance factor
Problems
1) The cycle time of a scraper is 6 minutes and a pusher to fill a scraper is 1.5 minutes. Calculate
the number of scrapers, which a pusher can serve. Determine the number of pushers to serve 10
scrapers.
2) A new motorized scraper, working under average conditions, is deployed in spreading of
excavated materials along a road alignment 1.5 km long using the following data:
Scraper capacity =
16
23.7
Gross vehicle weight (empty) = 36 tonnes
Maximum pay load = 34020 kg
Material density = 1500 kg/m
Job efficiency = 50 min/hour
Rated power of engine = 450 HP
Correction factor = 0.91
Evaluate the output per hour after making adjustments for various factors affecting production.
Hauling Equipment
The type of earth hauling equipment primarily depends on the haulage distance.
Type of Equipment Range of Haulage Distance (m)
1) Front-end loader truck Up to 80
2) Front-end loader (wheeled) Up to 200
3) Bulldozers Up to 80
4) Towed scrapers 100 – 300
Department of Civil Engineering Page 38
Scraper Planning Output
Scraper is equipment that is commonly used for scraping, loading, hauling and discharging. It also
includes spreading large quantities of earth over long distances for around 3 km and in layers of
15 cm to 30 cm depth. There are two main categories of scrapers, namely,
a) Towed scrapers – They are best suited for medium distances up to 400 m. It can operate in
small areas and scrape in heavy soil areas.
b) Motorized scrapers – These include single engine scraper, double engine scraper and
elevating scraper.
Scrapers per pusher = ℎ ℎ
Scraper output/hour in LCM = Ideal output * Correction factor * Performance factor
Problems
1) The cycle time of a scraper is 6 minutes and a pusher to fill a scraper is 1.5 minutes. Calculate
the number of scrapers, which a pusher can serve. Determine the number of pushers to serve 10
scrapers.
2) A new motorized scraper, working under average conditions, is deployed in spreading of
excavated materials along a road alignment 1.5 km long using the following data:
Scraper capacity =
16
23.7
Gross vehicle weight (empty) = 36 tonnes
Maximum pay load = 34020 kg
Material density = 1500 kg/m
Job efficiency = 50 min/hour
Rated power of engine = 450 HP
Correction factor = 0.91
Evaluate the output per hour after making adjustments for various factors affecting production.
Hauling Equipment
The type of earth hauling equipment primarily depends on the haulage distance.
Type of Equipment Range of Haulage Distance (m)
1) Front-end loader truck Up to 80
2) Front-end loader (wheeled) Up to 200
3) Bulldozers Up to 80
4) Towed scrapers 100 – 300
Department of Civil Engineering Page 38
Construction Management and Entrepreneurship (15CV61)
5) Elevating self-loading
100 – 1000
scrapers
6) Single engine scrapers (dozer
500 – 1500
pusher arrangement)
7) Double engine scrapers
2000 and above
(push pull arrangement)
8) Tippers and dump trucks 800 and above
The number of haulage vehicles required can be calculated as under:
Haulage vehicle required = 1 +
ℎ
ℎ
Problems
1) Construction of a military helipad at an altitude of 2400 m involves 80000 m3 (loose) of
excavation area in soft soil. This task needs to be completed in 200 working hours. The company
entrusted two dozers each with an output of 220 m3/hour under job conditions for task execution.
It also holds wheel loaders and 22 m3 dump trucks. One loader can load in trucks of about 120 m3
of excavated soil per hour. The dump truck cycle time for disposal of excavated materials is 35
minutes. This includes 7 minutes of loading time by a loader team that consists of 2 loaders.
Estimate the output of front-end loader for loading excavated soil heap into dump trucks and
determine approximately the number of dozers, loaders, and dumpers required to complete the
task on time.
Production Output of Roller Compactors
The nature of soil dictates the type of compacting equipment required and the dry density, which
can be achieved. After the compacting equipment is selected, its average output can be calculated
as under:
Compaction in m3/hour =
where, W = Width compacted per pass (m)
S = Compactor speed (m/hour)
T = Thickness of compacted layer
E = Job efficiency factor
C = Compacting factor
p = Number of passes required (varies from 4 to 6)
Water requirement in litres per hour = (Weight of loose soil to be compacted per hour in kg) *
(optimum moisture content – natural moisture content)
Department of Civil Engineering Page 39
5) Elevating self-loading
100 – 1000
scrapers
6) Single engine scrapers (dozer
500 – 1500
pusher arrangement)
7) Double engine scrapers
2000 and above
(push pull arrangement)
8) Tippers and dump trucks 800 and above
The number of haulage vehicles required can be calculated as under:
Haulage vehicle required = 1 +
ℎ
ℎ
Problems
1) Construction of a military helipad at an altitude of 2400 m involves 80000 m3 (loose) of
excavation area in soft soil. This task needs to be completed in 200 working hours. The company
entrusted two dozers each with an output of 220 m3/hour under job conditions for task execution.
It also holds wheel loaders and 22 m3 dump trucks. One loader can load in trucks of about 120 m3
of excavated soil per hour. The dump truck cycle time for disposal of excavated materials is 35
minutes. This includes 7 minutes of loading time by a loader team that consists of 2 loaders.
Estimate the output of front-end loader for loading excavated soil heap into dump trucks and
determine approximately the number of dozers, loaders, and dumpers required to complete the
task on time.
Production Output of Roller Compactors
The nature of soil dictates the type of compacting equipment required and the dry density, which
can be achieved. After the compacting equipment is selected, its average output can be calculated
as under:
Compaction in m3/hour =
where, W = Width compacted per pass (m)
S = Compactor speed (m/hour)
T = Thickness of compacted layer
E = Job efficiency factor
C = Compacting factor
p = Number of passes required (varies from 4 to 6)
Water requirement in litres per hour = (Weight of loose soil to be compacted per hour in kg) *
(optimum moisture content – natural moisture content)
Department of Civil Engineering Page 39
Construction Management and Entrepreneurship (15CV61)
Problems
1) Water required per hour for compacting loose soil being spread by a shovel and dozer at the
rate of 230 m3/hour for a soil having density of 1.5 g/m3 and 8% moisture content needing 12%
optimum moisture content for compaction.
Grader Production Output
These are used to grade earthen road formations and embankments to their finished shape, within
specifies limits by trimming the surface. The graders can also be used for forming ditches, mixing
and spreading soils and backfilling.
Distance in metres 50 100 200 500
Task efficiency 0.4 0.6 0.8 1.0
Grader output in m2/hour =
where, W = Width graded per pass (m)
S = Average speed (m/hour)
E = Job efficiency factor
p = Number of passes required (varies from 4 to 6)
The grader speeds for various operations are:
Operation Speed (km/h)
Rough grading 4 – 10
Finishing (including grading) 6 – 15
Mixing 15 – 30
Spreading 6 – 15
Self-transporting 10 – 40
Problems
1) Calculate the time required to grade and finish 30km of road formation with width equal to
thrice the width of the motor grader, using six passes of the motor grader with speed for each of
the successive two passes as 6 km/h, 8 km/h and 10 km/h respectively. Assume machine
efficiency based on operator’s skill, machine characteristics and working conditions as 75%.
Department of Civil Engineering Page 40
Problems
1) Water required per hour for compacting loose soil being spread by a shovel and dozer at the
rate of 230 m3/hour for a soil having density of 1.5 g/m3 and 8% moisture content needing 12%
optimum moisture content for compaction.
Grader Production Output
These are used to grade earthen road formations and embankments to their finished shape, within
specifies limits by trimming the surface. The graders can also be used for forming ditches, mixing
and spreading soils and backfilling.
Distance in metres 50 100 200 500
Task efficiency 0.4 0.6 0.8 1.0
Grader output in m2/hour =
where, W = Width graded per pass (m)
S = Average speed (m/hour)
E = Job efficiency factor
p = Number of passes required (varies from 4 to 6)
The grader speeds for various operations are:
Operation Speed (km/h)
Rough grading 4 – 10
Finishing (including grading) 6 – 15
Mixing 15 – 30
Spreading 6 – 15
Self-transporting 10 – 40
Problems
1) Calculate the time required to grade and finish 30km of road formation with width equal to
thrice the width of the motor grader, using six passes of the motor grader with speed for each of
the successive two passes as 6 km/h, 8 km/h and 10 km/h respectively. Assume machine
efficiency based on operator’s skill, machine characteristics and working conditions as 75%.
Department of Civil Engineering Page 40
Construction Management and Entrepreneurship (15CV61)
MODULE – 2
C) MATERIAL MANAGEMENT
The term ‘materials’ refers to the whole range of goods and services that are purchased or
otherwise procured from sources outside the organization and are used to finish the given
construction work.
A typical construction project requires a variety of materials. Materials in a project are broadly
classified under capital equipment, construction machineries, and consumables. Some companies
classify their materials under two broad categories – capital items and revenue items. Plant and
machinery, vehicles, office equipment, land and buildings are placed under capital items, while
small and heavy tools, consumables, electrical items, construction materials are designated under
revenue items.
The importance of material management can be gauged from the fact that in any typical building
project, the share of the material costs is about 55 percent; labour costs is about 25 percent; and
POL (Petrol, Oil and Lubricants), overheads, tax components and profits, about 5 percent each.
Thus, material management occupies an important place in construction management.
OBJECTIVES OF MATERIAL MANAGEMENT
1) minimize material cost
2) procure and provide material of desired quality when required
3) reduce investment tied in inventories for use in other productive purposes and to develop
high inventory turnover ratios
4) purchase, receive, transport and store material efficiently and to reduce the related costs
5) cut down costs through simplification, standardization, value analysis, import substitution,
etc.,
6) modify paper-work procedure in order to minimize delays in procuring material
7) train personnel in the field of material management in order to increase operational
efficiency.
In general, material management aims to provide the right item of the right quality, in the right
quantity, at the right price, at the right place, and at the right time for ensuring uninterrupted
execution of works.
MATERIAL MANAGEMENT FUNCTIONS
The functions involved in material management are:
1) Materials Planning
The site-planning engineer is responsible for this function. Normally, purchase of
any material is initiated by requisitioning for it.
It is a good idea to have some specific engineer approving the material requisition.
Materials schedule should be the basis for raising material requisitions.
Department of Civil Engineering Page 41
MODULE – 2
C) MATERIAL MANAGEMENT
The term ‘materials’ refers to the whole range of goods and services that are purchased or
otherwise procured from sources outside the organization and are used to finish the given
construction work.
A typical construction project requires a variety of materials. Materials in a project are broadly
classified under capital equipment, construction machineries, and consumables. Some companies
classify their materials under two broad categories – capital items and revenue items. Plant and
machinery, vehicles, office equipment, land and buildings are placed under capital items, while
small and heavy tools, consumables, electrical items, construction materials are designated under
revenue items.
The importance of material management can be gauged from the fact that in any typical building
project, the share of the material costs is about 55 percent; labour costs is about 25 percent; and
POL (Petrol, Oil and Lubricants), overheads, tax components and profits, about 5 percent each.
Thus, material management occupies an important place in construction management.
OBJECTIVES OF MATERIAL MANAGEMENT
1) minimize material cost
2) procure and provide material of desired quality when required
3) reduce investment tied in inventories for use in other productive purposes and to develop
high inventory turnover ratios
4) purchase, receive, transport and store material efficiently and to reduce the related costs
5) cut down costs through simplification, standardization, value analysis, import substitution,
etc.,
6) modify paper-work procedure in order to minimize delays in procuring material
7) train personnel in the field of material management in order to increase operational
efficiency.
In general, material management aims to provide the right item of the right quality, in the right
quantity, at the right price, at the right place, and at the right time for ensuring uninterrupted
execution of works.
MATERIAL MANAGEMENT FUNCTIONS
The functions involved in material management are:
1) Materials Planning
The site-planning engineer is responsible for this function. Normally, purchase of
any material is initiated by requisitioning for it.
It is a good idea to have some specific engineer approving the material requisition.
Materials schedule should be the basis for raising material requisitions.
Department of Civil Engineering Page 41
Construction Management and Entrepreneurship (15CV61)
Materials planning involve identifying materials, estimating quantities, defining
specifications, forecasting requirements and locating right sources for procurement.
2) Procurement
Before procurement, the site-planning engineer along with the materials engineer
survey the local market and identify the items that are to be procured locally and
those that are to be procured from the head office under centralized procurement
system
Local procurement should be kept minimum and, as far as possible, limited to non-
engineered items and consumables.
Centralized procurement helps in dealing with regular suppliers and, hence, better
negotiated price. Also, low unit price due to large volume of purchase.
3) Custody (Receiving, Warehousing and Issuing)
The main documents used are – inward register, material receipt note (MRN),
delivery challan (DC), indent, dispatch covering note, outward register, loan
register, repair register, and plant and machinery movement register.
The functions of warehousing include receipt, inspection, storage, issue/ dispatch,
materials accounting, valuation and insurance.
4) Material Accounting
The main purpose of materials accounting is monitoring inflow and consumption of
raw materials.
Materials accounting involves materials stock accounting, material issues and
returns accounting, monthly stock taking of selected materials and materials
wastage analysis.
5) Transportation
Construction materials used at project undergo considerable movement right from
their point of origin to storage point, to the actual point of consumption.
In some construction companies, materials are first received in central stores, from
where they are dispatched to the project stores located at project sites and then
finally to the workplace.
The construction materials could be in the form of raw materials and proper care
should be taken while planning for transportation of raw and semi-finished
materials so as to prevent the low performance of materials.
6) Inventory Monitoring and Control
Inventory may be defined as ‘usable but idle resource’. If resource is some physical
and tangible object such as materials, then it is generally termed as stock.
It is very important to have a check on the inventory level.
Inventory management is an extremely important problem area in material
management function.
Inventory management is highly amenable to control and there is substantial
potential for cost reduction.
Department of Civil Engineering Page 42
Materials planning involve identifying materials, estimating quantities, defining
specifications, forecasting requirements and locating right sources for procurement.
2) Procurement
Before procurement, the site-planning engineer along with the materials engineer
survey the local market and identify the items that are to be procured locally and
those that are to be procured from the head office under centralized procurement
system
Local procurement should be kept minimum and, as far as possible, limited to non-
engineered items and consumables.
Centralized procurement helps in dealing with regular suppliers and, hence, better
negotiated price. Also, low unit price due to large volume of purchase.
3) Custody (Receiving, Warehousing and Issuing)
The main documents used are – inward register, material receipt note (MRN),
delivery challan (DC), indent, dispatch covering note, outward register, loan
register, repair register, and plant and machinery movement register.
The functions of warehousing include receipt, inspection, storage, issue/ dispatch,
materials accounting, valuation and insurance.
4) Material Accounting
The main purpose of materials accounting is monitoring inflow and consumption of
raw materials.
Materials accounting involves materials stock accounting, material issues and
returns accounting, monthly stock taking of selected materials and materials
wastage analysis.
5) Transportation
Construction materials used at project undergo considerable movement right from
their point of origin to storage point, to the actual point of consumption.
In some construction companies, materials are first received in central stores, from
where they are dispatched to the project stores located at project sites and then
finally to the workplace.
The construction materials could be in the form of raw materials and proper care
should be taken while planning for transportation of raw and semi-finished
materials so as to prevent the low performance of materials.
6) Inventory Monitoring and Control
Inventory may be defined as ‘usable but idle resource’. If resource is some physical
and tangible object such as materials, then it is generally termed as stock.
It is very important to have a check on the inventory level.
Inventory management is an extremely important problem area in material
management function.
Inventory management is highly amenable to control and there is substantial
potential for cost reduction.
Department of Civil Engineering Page 42
Construction Management and Entrepreneurship (15CV61)
7) Materials Codification
Codification is an important function in material management, especially for
construction companies where various items are used all along the project duration.
There are different systems of codification followed by construction organizations –
namely, numeric, alphanumeric and colour codification.
A proper system of material codification serves the following purposes:
proper identification of items by all departments
concerned avoiding use of long description of items
avoiding duplicate stocks under different
descriptions material accounting and control helps in
mechanization of records
8) Computerization
Computers are being used in the application of construction materials management.
Their applications are as follows:
forecasting the prices of materials based on past data
planning of use of different materials
developing the specification of materials
purchasing of materials inventory
control
9) Source Development (Vendor Development)
Source development is a continuous activity.
As a policy, for every major item, more than one source should be identified.
The vendor’s performance should be evaluated regularly and only satisfactory
vendors should be encouraged.
It is not an easy task to manage a large number of vendors.
It is also necessary to develop a long-term relationship with the vendors.
10) Disposal
Every year, old and used items that are not economical to use have to be disposed
off in a planned way.
For this, the quantity and quality of materials to be disposed off should be assessed.
The reusable items from the scrap can be retained for further use.
The remaining scrap is disposed off either by selling it to some scrap dealer or
through the process of floating enquiry, collecting quotation and awarding to the
highest bidder.
INVENTORY MANAGEMENT
The problem of inventory management is of maintaining an adequate supply of something to meet
an expected demand pattern for a given financial investment. This could be raw materials, work in
progress, finished products, or spares and other indirect materials. Inventory is one of the
Department of Civil Engineering Page 43
7) Materials Codification
Codification is an important function in material management, especially for
construction companies where various items are used all along the project duration.
There are different systems of codification followed by construction organizations –
namely, numeric, alphanumeric and colour codification.
A proper system of material codification serves the following purposes:
proper identification of items by all departments
concerned avoiding use of long description of items
avoiding duplicate stocks under different
descriptions material accounting and control helps in
mechanization of records
8) Computerization
Computers are being used in the application of construction materials management.
Their applications are as follows:
forecasting the prices of materials based on past data
planning of use of different materials
developing the specification of materials
purchasing of materials inventory
control
9) Source Development (Vendor Development)
Source development is a continuous activity.
As a policy, for every major item, more than one source should be identified.
The vendor’s performance should be evaluated regularly and only satisfactory
vendors should be encouraged.
It is not an easy task to manage a large number of vendors.
It is also necessary to develop a long-term relationship with the vendors.
10) Disposal
Every year, old and used items that are not economical to use have to be disposed
off in a planned way.
For this, the quantity and quality of materials to be disposed off should be assessed.
The reusable items from the scrap can be retained for further use.
The remaining scrap is disposed off either by selling it to some scrap dealer or
through the process of floating enquiry, collecting quotation and awarding to the
highest bidder.
INVENTORY MANAGEMENT
The problem of inventory management is of maintaining an adequate supply of something to meet
an expected demand pattern for a given financial investment. This could be raw materials, work in
progress, finished products, or spares and other indirect materials. Inventory is one of the
Department of Civil Engineering Page 43
Construction Management and Entrepreneurship (15CV61)
indicators of management effectiveness on the materials management front. Inventory turnover
ratio (annual ratio) is an index of business performance.
Inventory management deals with the determination of optimal policies and procedures for
procurement of commodities.
Inventory – Related Cost
Inventory – related cost has the following components:
1) Cost of carrying inventories (Holding Cost)
2) Cost of incurring shortages (Stock-out Cost)
3) Cost of replenishing inventories (Ordering Cost)
1) Cost of Carrying Inventories (Holding Cost)
This is expressed as Rs./item held in stock/unit time.
This is the opportunity cost of blocking material in the non-productive form as inventories.
It comprises of cost of blocking capital (interest rate), cost of insurances, storage cost and
cost due to wastages, etc.
For example, if the fraction of carrying charge is 20 percent per year and a material worth
Rs. 1000 is kept in inventory for one year, the unit carrying cost will be Rs. 200/year.
For perishable items, the carrying cost will be higher.
2) Cost of Incurring Shortages (Stock-Out Cost)
It is the opportunity cost of not having an item in stock when one is demanded. This is
generally expressed in Rs./order.
It may be due to lost sales or backlogging.
In lost sales, the order is lost.
In backlogging (or back – ordering), the order is not lost but is backlogged, to be cleared as
soon as the item is available on the stock.
3) Cost of Replenishing Inventories (Ordering Cost)
This the amount of money and efforts expended in procurement or acquisition of stock.
It is generally called ordering cost. It is expressed in Rs./order.
This cost is usually assumed to be independent of the quantity ordered, because the fixed –
cost component is generally more significant than the variable component.
Functions of inventory
1) Demand and lead-time uncertainties necessitate building safety stock (buffer stock) so as
to enable various sub-systems to operate somewhat in a decoupled manner.
2) Time lag in deliveries also necessitates building of inventories.
3) Cycle stocks may be maintained to get the economies of scale so that total system cost due
to ordering, carrying inventory and backlogging is minimized.
Department of Civil Engineering Page 44
indicators of management effectiveness on the materials management front. Inventory turnover
ratio (annual ratio) is an index of business performance.
Inventory management deals with the determination of optimal policies and procedures for
procurement of commodities.
Inventory – Related Cost
Inventory – related cost has the following components:
1) Cost of carrying inventories (Holding Cost)
2) Cost of incurring shortages (Stock-out Cost)
3) Cost of replenishing inventories (Ordering Cost)
1) Cost of Carrying Inventories (Holding Cost)
This is expressed as Rs./item held in stock/unit time.
This is the opportunity cost of blocking material in the non-productive form as inventories.
It comprises of cost of blocking capital (interest rate), cost of insurances, storage cost and
cost due to wastages, etc.
For example, if the fraction of carrying charge is 20 percent per year and a material worth
Rs. 1000 is kept in inventory for one year, the unit carrying cost will be Rs. 200/year.
For perishable items, the carrying cost will be higher.
2) Cost of Incurring Shortages (Stock-Out Cost)
It is the opportunity cost of not having an item in stock when one is demanded. This is
generally expressed in Rs./order.
It may be due to lost sales or backlogging.
In lost sales, the order is lost.
In backlogging (or back – ordering), the order is not lost but is backlogged, to be cleared as
soon as the item is available on the stock.
3) Cost of Replenishing Inventories (Ordering Cost)
This the amount of money and efforts expended in procurement or acquisition of stock.
It is generally called ordering cost. It is expressed in Rs./order.
This cost is usually assumed to be independent of the quantity ordered, because the fixed –
cost component is generally more significant than the variable component.
Functions of inventory
1) Demand and lead-time uncertainties necessitate building safety stock (buffer stock) so as
to enable various sub-systems to operate somewhat in a decoupled manner.
2) Time lag in deliveries also necessitates building of inventories.
3) Cycle stocks may be maintained to get the economies of scale so that total system cost due
to ordering, carrying inventory and backlogging is minimized.
Department of Civil Engineering Page 44
Construction Management and Entrepreneurship (15CV61)
4) When the demand is seasonal, it may become economical to build inventory during periods
of low demand to ease the strain of peak period demand.
5) Stocks may build up as pipeline inventory or work-in-progress inventory due to finiteness
of production and transportation rates.
Inventory Policies
The common inventory policies are:
a) Lot size reorder point policy
b) Fixed order interval scheduling policy
c) Optional replenishment policy
d) Two-bin system
Some of the factors affecting the choice of an inventory policy are – the nature of the problem; the
usage value of an item; and situational parameters.
a) LOT SIZE REORDER POINT POLICY
The inventory status is continuously reviewed and as soon as the inventory level falls to a
prescribed value called ‘reorder point’, a fresh replenishment order of fixed quantity
known as EOQ is placed.
This is one of the classical types of inventory policies.
Figure shows the typical stock balance under this type of inventory policy. The solid line in
this figure represents the actual inventory held with a finite lead time, while the broken
line shows the ideal situation if no lead time existed.
Department of Civil Engineering Page 45
4) When the demand is seasonal, it may become economical to build inventory during periods
of low demand to ease the strain of peak period demand.
5) Stocks may build up as pipeline inventory or work-in-progress inventory due to finiteness
of production and transportation rates.
Inventory Policies
The common inventory policies are:
a) Lot size reorder point policy
b) Fixed order interval scheduling policy
c) Optional replenishment policy
d) Two-bin system
Some of the factors affecting the choice of an inventory policy are – the nature of the problem; the
usage value of an item; and situational parameters.
a) LOT SIZE REORDER POINT POLICY
The inventory status is continuously reviewed and as soon as the inventory level falls to a
prescribed value called ‘reorder point’, a fresh replenishment order of fixed quantity
known as EOQ is placed.
This is one of the classical types of inventory policies.
Figure shows the typical stock balance under this type of inventory policy. The solid line in
this figure represents the actual inventory held with a finite lead time, while the broken
line shows the ideal situation if no lead time existed.
Department of Civil Engineering Page 45
Construction Management and Entrepreneurship (15CV61)
b) FIXED ORDER INTERVAL SCHEDULING POLICY
The time between the consecutive replenishment orders is constant.
A maximum stock level (S) is prescribed and the inventory status is reviewed periodically
with a fixed interval (T).
At each review, an order of size O is placed, which takes the stock on hand plus an order
equal to the maximum stock level.
The order quantity should vary from period to period.
In this policy, when the level of stock on hand is high at review, a smaller size
replenishment order is placed.
c) OPTIONAL REPLENISHMENT POLICY
This policy is also known as (s,S) policy.
The status of stock is periodically reviewed and maximum stock level (S) and minimum
stock level (s) are prescribed.
At the time of review, if the stock on hand is less than or equal to ‘s’, an order of size Q is
placed so that stock on hand plus the order equals the maximum stock level ‘S’.
If the stock on hand at review is higher than ‘s’, no order is placed and the situation is
reviewed at the next review period.
Department of Civil Engineering Page 46
b) FIXED ORDER INTERVAL SCHEDULING POLICY
The time between the consecutive replenishment orders is constant.
A maximum stock level (S) is prescribed and the inventory status is reviewed periodically
with a fixed interval (T).
At each review, an order of size O is placed, which takes the stock on hand plus an order
equal to the maximum stock level.
The order quantity should vary from period to period.
In this policy, when the level of stock on hand is high at review, a smaller size
replenishment order is placed.
c) OPTIONAL REPLENISHMENT POLICY
This policy is also known as (s,S) policy.
The status of stock is periodically reviewed and maximum stock level (S) and minimum
stock level (s) are prescribed.
At the time of review, if the stock on hand is less than or equal to ‘s’, an order of size Q is
placed so that stock on hand plus the order equals the maximum stock level ‘S’.
If the stock on hand at review is higher than ‘s’, no order is placed and the situation is
reviewed at the next review period.
Department of Civil Engineering Page 46
Construction Management and Entrepreneurship (15CV61)
d) TWO-BIN SYSTEM
This system is simple to operate and easy to understand.
There are two bins kept full of items and the item from the first bin is used first.
The moment the first bin is exhausted, an order is placed for items and the second bin acts
as buffer or safety stock.
Bin 1 Bin 2 Bin 1 Bin 2 Bin 1 Bin 2
Stage 1 Stage 2 Time to place order
Stage 3
Bin 1 Bin 2 Bin 1 Bin 2
Wait to receive order Replenishment order received
Stage 4 Stage 5
Department of Civil Engineering Page 47
d) TWO-BIN SYSTEM
This system is simple to operate and easy to understand.
There are two bins kept full of items and the item from the first bin is used first.
The moment the first bin is exhausted, an order is placed for items and the second bin acts
as buffer or safety stock.
Bin 1 Bin 2 Bin 1 Bin 2 Bin 1 Bin 2
Stage 1 Stage 2 Time to place order
Stage 3
Bin 1 Bin 2 Bin 1 Bin 2
Wait to receive order Replenishment order received
Stage 4 Stage 5
Department of Civil Engineering Page 47
Construction Management and Entrepreneurship (15CV61)
Selective Inventory Control
Inventory control has to be exercised selectively. Depending upon the value of criticality and
usage frequency of an item, we may have to decide on an appropriate type of inventory policy.
Selective inventory control, thus, plays a crucial role so that we can apply our limited control
efforts more judiciously to the more significant group of items. The table below shows some of the
ways to group the items based on the value, criticality and usage frequency.
Name of the
Expansion Basis of classification Remarks
policy
Vital, essential and
It is based on the criticality of Classification depends on the
VED the item, which are classified consequences of material
desirable
in 3 categories. stock-out when demanded.
Fast. slow and
It is based on the
It is helpful in controlling
FSN consumption rate of the
normal obsolescence.
inventory.
High, medium and It is based on unit price of
It is mainly used to control
HML the inventory of purchased
low the material.
material.
XYZ
Value of balance It is used for classifying Its main use in review of
stocks very high materials in storage. inventory.
It is based on the level of
It is useful in lead-time
SDE
Scarce, difficult and analysis and decision related
easy to obtain
difficulty in the procurement
to the procurement of
of inventory.
purchasing strategies.
Government, It is useful for decision
GOLF ordinary, local, It is based on the inventory. related to the procurement
foreign strategy.
HML
High , medium and It is based on the prices of It is useful for delegating the
low price material. purchasing responsibilities.
ABC ANALYSIS
This is based on Pareto’s Law, which says that in any large group there are ‘significant few’
and ‘insignificant many’.
For example, only 20 percent of the items may be accounting for 80 percent of the total
material cost procured by a construction organization. Here, the 20 percent constitute the
‘significant few’ that require utmost attention.
To prepare an ABC-type curve, we may follow a simple procedure:
1) Different materials required for the project are identified and their estimated quantities are
worked out. The quantity estimate could be on the basis of either annual consumption or
the project’s total requirement.
2) The unit rates of materials are estimated.
Department of Civil Engineering Page 48
Selective Inventory Control
Inventory control has to be exercised selectively. Depending upon the value of criticality and
usage frequency of an item, we may have to decide on an appropriate type of inventory policy.
Selective inventory control, thus, plays a crucial role so that we can apply our limited control
efforts more judiciously to the more significant group of items. The table below shows some of the
ways to group the items based on the value, criticality and usage frequency.
Name of the
Expansion Basis of classification Remarks
policy
Vital, essential and
It is based on the criticality of Classification depends on the
VED the item, which are classified consequences of material
desirable
in 3 categories. stock-out when demanded.
Fast. slow and
It is based on the
It is helpful in controlling
FSN consumption rate of the
normal obsolescence.
inventory.
High, medium and It is based on unit price of
It is mainly used to control
HML the inventory of purchased
low the material.
material.
XYZ
Value of balance It is used for classifying Its main use in review of
stocks very high materials in storage. inventory.
It is based on the level of
It is useful in lead-time
SDE
Scarce, difficult and analysis and decision related
easy to obtain
difficulty in the procurement
to the procurement of
of inventory.
purchasing strategies.
Government, It is useful for decision
GOLF ordinary, local, It is based on the inventory. related to the procurement
foreign strategy.
HML
High , medium and It is based on the prices of It is useful for delegating the
low price material. purchasing responsibilities.
ABC ANALYSIS
This is based on Pareto’s Law, which says that in any large group there are ‘significant few’
and ‘insignificant many’.
For example, only 20 percent of the items may be accounting for 80 percent of the total
material cost procured by a construction organization. Here, the 20 percent constitute the
‘significant few’ that require utmost attention.
To prepare an ABC-type curve, we may follow a simple procedure:
1) Different materials required for the project are identified and their estimated quantities are
worked out. The quantity estimate could be on the basis of either annual consumption or
the project’s total requirement.
2) The unit rates of materials are estimated.
Department of Civil Engineering Page 48
Construction Management and Entrepreneurship (15CV61)
3) The usage values for each of the materials are obtained by multiplying the estimated
quantities and their unit rates. These values are converted into percentage of total annual
usage cost or total project cost.
4) The percentage usage cost for each of the materials is arranged in the descending order of
their ranking, i.e., highest to lowest usage value. The cumulative percentage usage value is
also calculated.
5) A curve as below is plotted, and the points on the curve at which there are perceptible
sudden changes of slopes are identified. In the absence of such sharp points, cut-off points
corresponding to the 10 percent and the 20 percent or so are marked as general indicator
of A, B, and C type of materials.
6) According to an empirical approach, ‘A’ class items account for about 70 percent of the
usage value, ‘B’ class items for about 20 percent of the usage value, and ‘C’ class items for
about 10 percent of the usage value. In terms of numbers, ‘A’ class items constitute about
10 percent of the total items, ‘B’ class items about 20 percent of total items, and ‘C’ class
items about 70 percent of total items.
Item type ‘A’ – The salient features are:
accurate forecast of quantities needed
involvement of senior level for purchasing
ordering is on requirement basis
Department of Civil Engineering Page 49
3) The usage values for each of the materials are obtained by multiplying the estimated
quantities and their unit rates. These values are converted into percentage of total annual
usage cost or total project cost.
4) The percentage usage cost for each of the materials is arranged in the descending order of
their ranking, i.e., highest to lowest usage value. The cumulative percentage usage value is
also calculated.
5) A curve as below is plotted, and the points on the curve at which there are perceptible
sudden changes of slopes are identified. In the absence of such sharp points, cut-off points
corresponding to the 10 percent and the 20 percent or so are marked as general indicator
of A, B, and C type of materials.
6) According to an empirical approach, ‘A’ class items account for about 70 percent of the
usage value, ‘B’ class items for about 20 percent of the usage value, and ‘C’ class items for
about 10 percent of the usage value. In terms of numbers, ‘A’ class items constitute about
10 percent of the total items, ‘B’ class items about 20 percent of total items, and ‘C’ class
items about 70 percent of total items.
Item type ‘A’ – The salient features are:
accurate forecast of quantities needed
involvement of senior level for purchasing
ordering is on requirement basis
Department of Civil Engineering Page 49
Construction Management and Entrepreneurship (15CV61)
enquiries for procurement need to be sent to a large number of suppliers
monitoring on weekly basis
low safety stock is needed
Item type ‘B’ – The salient features is:
approximate forecast of quantities needed
requires involvement of middle level for purchasing
ordering is on EOQ basis
enquiries for procurement need to be sent to three to five reliable suppliers
monitoring on monthly basis
moderate safety stock is needed
Item type ‘C’ – The salient features are:
no need of forecasting i.e., even rough quantity estimate is sufficient
junior-level staff is authorized to order purchase
bulk ordering is preferred
quotations from two or three reliable suppliers are sufficient
monitoring can be done on a quarterly basis
adequate safety stock can be maintained
ECONOMIC ORDER QUANTITY (EOQ)
The EOQ model provides answer on how much to order. The figure shows the behaviour of EOQ
model.
The reorder point R and the quantity to be ordered Q shown in the figure, as in the lead time L.
The ordered quantity derived from this model is known as Economic Order Quantity (EOQ).
It is usually less expensive to purchase (and transport) or produce a bunch of material at once
than to order it in small quantities. If orders for large quantities are specified, there will be fewer
orders placed. For purchasing, this means that quantity discounts and transportation efficiencies
may be realized. The other side of the coin, however, is that larger lot sizes result in more
inventory, and inventory is expensive to hold. EOQ model attempts to specify a balance between
these opposing costs. This aspect is shown graphically below, where it is clear that there is a
Department of Civil Engineering Page 50
enquiries for procurement need to be sent to a large number of suppliers
monitoring on weekly basis
low safety stock is needed
Item type ‘B’ – The salient features is:
approximate forecast of quantities needed
requires involvement of middle level for purchasing
ordering is on EOQ basis
enquiries for procurement need to be sent to three to five reliable suppliers
monitoring on monthly basis
moderate safety stock is needed
Item type ‘C’ – The salient features are:
no need of forecasting i.e., even rough quantity estimate is sufficient
junior-level staff is authorized to order purchase
bulk ordering is preferred
quotations from two or three reliable suppliers are sufficient
monitoring can be done on a quarterly basis
adequate safety stock can be maintained
ECONOMIC ORDER QUANTITY (EOQ)
The EOQ model provides answer on how much to order. The figure shows the behaviour of EOQ
model.
The reorder point R and the quantity to be ordered Q shown in the figure, as in the lead time L.
The ordered quantity derived from this model is known as Economic Order Quantity (EOQ).
It is usually less expensive to purchase (and transport) or produce a bunch of material at once
than to order it in small quantities. If orders for large quantities are specified, there will be fewer
orders placed. For purchasing, this means that quantity discounts and transportation efficiencies
may be realized. The other side of the coin, however, is that larger lot sizes result in more
inventory, and inventory is expensive to hold. EOQ model attempts to specify a balance between
these opposing costs. This aspect is shown graphically below, where it is clear that there is a
Department of Civil Engineering Page 50
Construction Management and Entrepreneurship (15CV61)
decrease in cost associated with increase in order quantity, while there is increase in cost with
increase of inventory.
Total Cost, TC = Ordering cost + Carrying cost … (1)
The following notations are used to develop the EOQ model:
D = Demand rate; unit/year
A = Ordering cost; Rs/order
C = Unit cost; Rs/unit of item
I = Inventory-carrying charges per year
H = Annual cost of carrying inventory/unit item
Q = Order quantity; number of units per lot
Average inventory =
0+
2= 2(Since demand is at uniform rate)
Total number of orders per year =
Ordering Cost per year =
+
Carrying Cost per year =
∗ ∗
2=
∗
2
Department of Civil Engineering Page 51
decrease in cost associated with increase in order quantity, while there is increase in cost with
increase of inventory.
Total Cost, TC = Ordering cost + Carrying cost … (1)
The following notations are used to develop the EOQ model:
D = Demand rate; unit/year
A = Ordering cost; Rs/order
C = Unit cost; Rs/unit of item
I = Inventory-carrying charges per year
H = Annual cost of carrying inventory/unit item
Q = Order quantity; number of units per lot
Average inventory =
0+
2= 2(Since demand is at uniform rate)
Total number of orders per year =
Ordering Cost per year =
+
Carrying Cost per year =
∗ ∗
2=
∗
2
Department of Civil Engineering Page 51
Construction Management and Entrepreneurship (15CV61)
where, H = C*I
Therefore, Total Cost, TC =
+
+
∗
2
Economic Order Quantity, EOQ =√
2∗ ∗
= √
2∗ ∗
∗
Also, Reorder point = Demand (or) usage per period * Lead time
Average Inventory carried = + Safety Stock 2
NOTE : Safety Stock = √
Transit Inventory = Days in transit * Inventory carried per day
Problems
1) A construction material trading company receives total of 200 tons as annual demand for steel
reinforcement. The annual cost of carrying per unit ton of reinforcement is Rs. 2000 and cost to
place an order is Rs. 25000. What is the economic order quantity?
2) A construction company purchases 10000 bags of cement annually. Each bag of cement cost is
Rs. 200 and the cost incurred in procuring each lot is Rs. 100. The cost of carrying is 25%. What is
the most economic order quantity? What is the average inventory level?
3) For the data in Problem (2), if the lead time for procuring cement is 2 weeks, determine the
reorder point.
4) A shop dealing in construction goods has 7 different items in its inventory. The average number
of units of each of these items held in the store along with their unit cost is given in the table
below. The shopkeeper has decided to employ ABC inventory system. Classify the items in A, B,
and C categories.
Items Average number of units Average cost/unit in inventory (Rs)
1 10000 121.50
2 10000 100.00
3 24000 14.50
4 16000 19.75
5 60000 3.10
6 50000 2.45
7 30000 0.50
Department of Civil Engineering Page 52
where, H = C*I
Therefore, Total Cost, TC =
+
+
∗
2
Economic Order Quantity, EOQ =√
2∗ ∗
= √
2∗ ∗
∗
Also, Reorder point = Demand (or) usage per period * Lead time
Average Inventory carried = + Safety Stock 2
NOTE : Safety Stock = √
Transit Inventory = Days in transit * Inventory carried per day
Problems
1) A construction material trading company receives total of 200 tons as annual demand for steel
reinforcement. The annual cost of carrying per unit ton of reinforcement is Rs. 2000 and cost to
place an order is Rs. 25000. What is the economic order quantity?
2) A construction company purchases 10000 bags of cement annually. Each bag of cement cost is
Rs. 200 and the cost incurred in procuring each lot is Rs. 100. The cost of carrying is 25%. What is
the most economic order quantity? What is the average inventory level?
3) For the data in Problem (2), if the lead time for procuring cement is 2 weeks, determine the
reorder point.
4) A shop dealing in construction goods has 7 different items in its inventory. The average number
of units of each of these items held in the store along with their unit cost is given in the table
below. The shopkeeper has decided to employ ABC inventory system. Classify the items in A, B,
and C categories.
Items Average number of units Average cost/unit in inventory (Rs)
1 10000 121.50
2 10000 100.00
3 24000 14.50
4 16000 19.75
5 60000 3.10
6 50000 2.45
7 30000 0.50
Department of Civil Engineering Page 52
Construction Management and Entrepreneurship (15CV61)
5) A construction company stores various items as in the table below, in the central stores. The
average annual consumption and cost per unit of items stored are given. Classify the items using
ABC analysis.
Name of the item Average annual consumption (No.) Average cost/unit (Rs)
a 5000 45.00
b 1000 90.00
c 2000 225.00
d 4000 11.25
e 50 300.00
f 6000 62.50
g 2000 67.50
h 4000 18.75
i 50 375.00
j 250 105.00
k 200 187.50
l 50 150.00
Department of Civil Engineering Page 53
5) A construction company stores various items as in the table below, in the central stores. The
average annual consumption and cost per unit of items stored are given. Classify the items using
ABC analysis.
Name of the item Average annual consumption (No.) Average cost/unit (Rs)
a 5000 45.00
b 1000 90.00
c 2000 225.00
d 4000 11.25
e 50 300.00
f 6000 62.50
g 2000 67.50
h 4000 18.75
i 50 375.00
j 250 105.00
k 200 187.50
l 50 150.00
Department of Civil Engineering Page 53
Construction Management and Entrepreneurship (15CV61)
MODULE – 3
A) CONSTRUCTION QUALITY
CONSTRUCTION QUALITY PROCESS
The quality of construction is one of the matters of great concern with most civil engineering
constructions. The following statement recorded during the reign of a Babylonian king is worth
mentioning:
“If a builder constructed a house but did not make his work strong with the result that the house
which he built collapsed and so caused the death of the owner of the house, the builder shall be
put to death.”
Construction quality has not got enough attention due to the policy of awarding the project on bid
price alone (lowest bidder system). The inherent assumption in adopting such a policy is that
given the same set of drawings and specifications, all contractors including the contractor with the
lowest bid price will produce similar construction quality. Unfortunately, this is not often the case.
The lowest bidder reeling under cutthroat price tries to cut corners and starts compromising on
quality. The majority among such contractors tend to neglect the complaints of the customer and
produce bad quality of work. In the short run, such contractors do rise very fast, but in the long
run, they ultimately fail. On the other hand, there are some contractors who consistently make
attempts to produce good-quality work. In the short run, such contractors may seem to be on the
losing side, but in the long run, however, they prove to be quite successful and in fact, some
customers engage them even by paying extra price.
DEFINITION OF QUALITY
The term ‘quality’ gives different understanding when used by different stakeholders. Some of
them are:
It is the fitness for purpose.
It is conformance to specification.
It is about meeting or exceeding the needs of the customer.
It is value for money.
It is customer satisfaction/customer delight.
It is doing it right the first time and every time.
It is reduction of variability.
No matter what definition we follow for quality, it becomes very complex when we try to put it in
actual practice. For a user, quality is nothing but satisfaction with the appearance, performance
and reliability of the project for a given price range. The term ‘quality’ is often associated with the
products that are costly; however, it does not mean that the products of low price cannot be of
good quality.
Department of Civil Engineering Page 54
MODULE – 3
A) CONSTRUCTION QUALITY
CONSTRUCTION QUALITY PROCESS
The quality of construction is one of the matters of great concern with most civil engineering
constructions. The following statement recorded during the reign of a Babylonian king is worth
mentioning:
“If a builder constructed a house but did not make his work strong with the result that the house
which he built collapsed and so caused the death of the owner of the house, the builder shall be
put to death.”
Construction quality has not got enough attention due to the policy of awarding the project on bid
price alone (lowest bidder system). The inherent assumption in adopting such a policy is that
given the same set of drawings and specifications, all contractors including the contractor with the
lowest bid price will produce similar construction quality. Unfortunately, this is not often the case.
The lowest bidder reeling under cutthroat price tries to cut corners and starts compromising on
quality. The majority among such contractors tend to neglect the complaints of the customer and
produce bad quality of work. In the short run, such contractors do rise very fast, but in the long
run, they ultimately fail. On the other hand, there are some contractors who consistently make
attempts to produce good-quality work. In the short run, such contractors may seem to be on the
losing side, but in the long run, however, they prove to be quite successful and in fact, some
customers engage them even by paying extra price.
DEFINITION OF QUALITY
The term ‘quality’ gives different understanding when used by different stakeholders. Some of
them are:
It is the fitness for purpose.
It is conformance to specification.
It is about meeting or exceeding the needs of the customer.
It is value for money.
It is customer satisfaction/customer delight.
It is doing it right the first time and every time.
It is reduction of variability.
No matter what definition we follow for quality, it becomes very complex when we try to put it in
actual practice. For a user, quality is nothing but satisfaction with the appearance, performance
and reliability of the project for a given price range. The term ‘quality’ is often associated with the
products that are costly; however, it does not mean that the products of low price cannot be of
good quality.
Department of Civil Engineering Page 54
Construction Management and Entrepreneurship (15CV61)
Examples in the context of construction,
a) Suppose the contractor provides (i) a 110 mm thick RCC slab or (ii) a 95 mm thick RCC
slab, against the customer’s requirement of 100 mm thick RCC slab, can these be
considered quality products?
b) Suppose the owner has desired that M25 grade of concrete be used in the slab, and the
contractor has provided M25 grade concrete but the concrete that was supposed to have
been received by the customer on Monday reached him on Tuesday, has the contractor
done a quality job?
c) Suppose a contractor has not used the specified material in the specified quantity and he is
still able to achieve the strength and serviceability requirement, can this product be called
a quality product?
Schexnayder and Mayo (2004) extended the definition of construction quality beyond just
‘supplying the right materials’ and add that construction quality is also about finishing the project
safely, on time, within budget, and without claims and litigation.
EVOLUTION OF QUALITY MOVEMENT
In the early 1900’s, F W Taylor (Father of Scientific Management) emphasized on quality by
including product inspection and gauging in his list of fundamental areas of manufacturing
management. During 1924, Walter Shewart introduced Statistical Quality Control (SQC) Charts to
monitor production limits. Around 1930, H F Donge and H G Romig introduced tables for
acceptance sampling. After the World War II, a dramatic increase introduced Statistical Quality
Control Methods to Japanese manufacturing ways to enable them to compete in the world
markets. At the same time, Joseph Juran began his ‘Cost of Quality Approach’ emphasized on
accurate and complete identification and measurement of cost of projects. In mid 1950s, Armand
Fiegen Baum proposed Total Quality Control (TQC) which enlarges the focus of quality from
manufacturing to product design and incoming raw materials. During 1960s, the concept of ‘zero
defects’ gained favour and Philip Crosby proposed this.
QUALITY MOVEMENT IN INDIA
Quality has been a tradition in India (but not a policy) rather than practice. Monuments, relics,
handcrafts, jewelleries and craftsmanship have woven quality into our heritage. Quality
movement was consulted in 1980s in the industry to bring about synergy of resources by
pioneering efforts of Confederation of Indian Standards (CIS). Walter Shewart, the father of SQC
visited India for a period of three months during 1947-48 and initiated SQC movements through
visits to factories, personal discussions and lectures.
PHASES OF QUALITY
1) Performance
2) Features
3) Reliability
Department of Civil Engineering Page 55
Examples in the context of construction,
a) Suppose the contractor provides (i) a 110 mm thick RCC slab or (ii) a 95 mm thick RCC
slab, against the customer’s requirement of 100 mm thick RCC slab, can these be
considered quality products?
b) Suppose the owner has desired that M25 grade of concrete be used in the slab, and the
contractor has provided M25 grade concrete but the concrete that was supposed to have
been received by the customer on Monday reached him on Tuesday, has the contractor
done a quality job?
c) Suppose a contractor has not used the specified material in the specified quantity and he is
still able to achieve the strength and serviceability requirement, can this product be called
a quality product?
Schexnayder and Mayo (2004) extended the definition of construction quality beyond just
‘supplying the right materials’ and add that construction quality is also about finishing the project
safely, on time, within budget, and without claims and litigation.
EVOLUTION OF QUALITY MOVEMENT
In the early 1900’s, F W Taylor (Father of Scientific Management) emphasized on quality by
including product inspection and gauging in his list of fundamental areas of manufacturing
management. During 1924, Walter Shewart introduced Statistical Quality Control (SQC) Charts to
monitor production limits. Around 1930, H F Donge and H G Romig introduced tables for
acceptance sampling. After the World War II, a dramatic increase introduced Statistical Quality
Control Methods to Japanese manufacturing ways to enable them to compete in the world
markets. At the same time, Joseph Juran began his ‘Cost of Quality Approach’ emphasized on
accurate and complete identification and measurement of cost of projects. In mid 1950s, Armand
Fiegen Baum proposed Total Quality Control (TQC) which enlarges the focus of quality from
manufacturing to product design and incoming raw materials. During 1960s, the concept of ‘zero
defects’ gained favour and Philip Crosby proposed this.
QUALITY MOVEMENT IN INDIA
Quality has been a tradition in India (but not a policy) rather than practice. Monuments, relics,
handcrafts, jewelleries and craftsmanship have woven quality into our heritage. Quality
movement was consulted in 1980s in the industry to bring about synergy of resources by
pioneering efforts of Confederation of Indian Standards (CIS). Walter Shewart, the father of SQC
visited India for a period of three months during 1947-48 and initiated SQC movements through
visits to factories, personal discussions and lectures.
PHASES OF QUALITY
1) Performance
2) Features
3) Reliability
Department of Civil Engineering Page 55
Construction Management and Entrepreneurship (15CV61)
4) Conformance
5) Durability
6) Serviceability
7) Aesthetics
INSPECTION AND QUALITY CONTROL
The objective of inspection and quality control is to achieve sound construction work which
results in structures of good quality at reasonable cost. Inspection and quality control are required
on all construction projects to ensure that the work is done in accordance with plans,
specifications and good practice and to avoid defects. Therefore, careful inspection and quality
control is as important as preliminary investigation and design.
INSPECTION
Inspection is the most common method of attaining standardization, uniformity and quality of
workmanship. It is the function of quality control.
Purpose of Inspection
To distinguish good lots from bad lots.
To determine if the process is charging.
To determine if the process is achieving specification limits.
To rate quality of the product.
To rate the accuracy of the inspectors.
To measure the precision of the measuring instruments.
Stages of Inspection
Generally, inspection of construction of work at various stages covers,
1) Sampling, identification, examination and field testing of materials.
2) Measurement and proportioning of construction material.
3) Examination of layout, formwork, foundations, concreting, etc.,
4) Testing specimens in the laboratory.
5) Observation of construction equipment and plant.
6) Preparation of records and reports.
Inspection Procedure
1) Floor Inspection – It suggests checks of materials in process at the machine or in the
production time by patrolling inspectors. These inspectors move from machine to machine
and from one to other work centres.
2) Centralised Inspection –Materials in process may be inspected or checked at the
centralised inspection centres which are located at one or more places in the
manufacturing process.
Department of Civil Engineering Page 56
4) Conformance
5) Durability
6) Serviceability
7) Aesthetics
INSPECTION AND QUALITY CONTROL
The objective of inspection and quality control is to achieve sound construction work which
results in structures of good quality at reasonable cost. Inspection and quality control are required
on all construction projects to ensure that the work is done in accordance with plans,
specifications and good practice and to avoid defects. Therefore, careful inspection and quality
control is as important as preliminary investigation and design.
INSPECTION
Inspection is the most common method of attaining standardization, uniformity and quality of
workmanship. It is the function of quality control.
Purpose of Inspection
To distinguish good lots from bad lots.
To determine if the process is charging.
To determine if the process is achieving specification limits.
To rate quality of the product.
To rate the accuracy of the inspectors.
To measure the precision of the measuring instruments.
Stages of Inspection
Generally, inspection of construction of work at various stages covers,
1) Sampling, identification, examination and field testing of materials.
2) Measurement and proportioning of construction material.
3) Examination of layout, formwork, foundations, concreting, etc.,
4) Testing specimens in the laboratory.
5) Observation of construction equipment and plant.
6) Preparation of records and reports.
Inspection Procedure
1) Floor Inspection – It suggests checks of materials in process at the machine or in the
production time by patrolling inspectors. These inspectors move from machine to machine
and from one to other work centres.
2) Centralised Inspection –Materials in process may be inspected or checked at the
centralised inspection centres which are located at one or more places in the
manufacturing process.
Department of Civil Engineering Page 56
Construction Management and Entrepreneurship (15CV61)
3) Combined Inspection – Combination of both the methods, the main objective is to locate
and prevent defects which may not repeat itself in its subsequent operations.
Methods of Inspection
1) 100% Inspection – Careful inspection in detail of quality at each strategic point (or) stages
of manufacture where the test involved is non-destructive and every piece is separately
inspected. It requires more number of inspectors and hence it is an expensive method.
There is no sampling error. This subjected to inspection error arising out of fatigue,
negligence, difficulty of supervision. It is suitable when a small number of pieces are there
(or) very high degree of quality is required.
2) Sampling Method – In this method, randomly selected samples are inspected. Samples
taken from different patches of products are representatives. If the sample proofs to be
defected, the entire lot is to be rejected (or) recovered. It requires less number of
inspectors. Hence, it costs less. It is subjected to sampling errors but magnitudes of
sampling techniques are desirable.
QUALITY CONTROL (QC)
In 1995, Oakland defined ‘quality control’ has essentially the activities and techniques employed
to achieve and maintain the quality of the products, process (or) service. It involves a monitoring
activity but also concerns finding and eliminating causes of quality problems so that the
requirements of the customer are continuously met. According to ISO, quality control is defined as
a set of activities (or) techniques whose purpose is to ensure that all quality requirements are
being met. Inorder to achieve this purpose, processes are monitored and performance problems
are solved. Thus, quality control is basically the responsibility of production personnel.
In the context of construction, quality control is administered by the contractors (or) specialist
consultants such as consulting engineers or testing laboratories. Construction quality control
includes performing inspection, test, measurement and documentation necessary to check, verify
and correct the quality of construction materials and methods. Primary objectives of construction
quality control are to produce safe, reliable and durable structure so that the owner (or) client gets
the best value for his investment.
The construction industry does not abide by the formal quality control programme. Quality
control on some projects could be haphazard and inconsistent. Because of too many activities
involved in construction process, it is impossible to employ a uniform check for quality standards
of construction work. The three major methods commonly used on construction project are:
1) Inspection
2) Testing
3) Sampling
Department of Civil Engineering Page 57
3) Combined Inspection – Combination of both the methods, the main objective is to locate
and prevent defects which may not repeat itself in its subsequent operations.
Methods of Inspection
1) 100% Inspection – Careful inspection in detail of quality at each strategic point (or) stages
of manufacture where the test involved is non-destructive and every piece is separately
inspected. It requires more number of inspectors and hence it is an expensive method.
There is no sampling error. This subjected to inspection error arising out of fatigue,
negligence, difficulty of supervision. It is suitable when a small number of pieces are there
(or) very high degree of quality is required.
2) Sampling Method – In this method, randomly selected samples are inspected. Samples
taken from different patches of products are representatives. If the sample proofs to be
defected, the entire lot is to be rejected (or) recovered. It requires less number of
inspectors. Hence, it costs less. It is subjected to sampling errors but magnitudes of
sampling techniques are desirable.
QUALITY CONTROL (QC)
In 1995, Oakland defined ‘quality control’ has essentially the activities and techniques employed
to achieve and maintain the quality of the products, process (or) service. It involves a monitoring
activity but also concerns finding and eliminating causes of quality problems so that the
requirements of the customer are continuously met. According to ISO, quality control is defined as
a set of activities (or) techniques whose purpose is to ensure that all quality requirements are
being met. Inorder to achieve this purpose, processes are monitored and performance problems
are solved. Thus, quality control is basically the responsibility of production personnel.
In the context of construction, quality control is administered by the contractors (or) specialist
consultants such as consulting engineers or testing laboratories. Construction quality control
includes performing inspection, test, measurement and documentation necessary to check, verify
and correct the quality of construction materials and methods. Primary objectives of construction
quality control are to produce safe, reliable and durable structure so that the owner (or) client gets
the best value for his investment.
The construction industry does not abide by the formal quality control programme. Quality
control on some projects could be haphazard and inconsistent. Because of too many activities
involved in construction process, it is impossible to employ a uniform check for quality standards
of construction work. The three major methods commonly used on construction project are:
1) Inspection
2) Testing
3) Sampling
Department of Civil Engineering Page 57
Construction Management and Entrepreneurship (15CV61)
QUALITY ASSURANCE (QA)
According to Oakland, Quality Assurance is the prevention of quality problems through planned
and systematic activities (including documentation). This will include the establishment of good
quality management system, assessment of its adequacy, the audit of the operation of the system
and review of the system itself. According to ISO, quality assurance is defined as a set of activities
whose purpose is to demonstrate that an entity (products) meets all quality requirements.
In the context of construction, quality assurance includes all those planned and systematic
administrative and surveillance functions initiated by the project owner to enforce and certify,
with adequate confidence, compliance with established project quality standards to ensure that
the completed structure and/or its components will fulfill the desired purposes efficiently,
effectively and economically.
Quality assurance programmes include the following:
1) Establish the procedure for defining, developing quality standards in design, construction
of the structure (or) its components at various stages.
2) Establish the procedure to be used to monitor, test, inspect, measure and perform the
current and reviewed activities to check for the conformance of quality standards w.r.t
construction materials, methods and personnel.
3) Define the administrative procedure and the requirements, organizational relationships
and responsibilities, communication and information pattern and other management
system/activities required to execute, document and assure attainment of established
quality standards.
Generally, it is commonly observed that the engineers/contractors use the term QA and QC
interchangeably, which is not correct. While QA is the construction management process, QC is a
sampling (or) inspection process. The focus is QA is on defect prevention, while the focus in QC is
on defect detection once the components are constructed. Therefore, it can be said that quality
control is an element of quality assurance programme.
COST OF QUALITY
According to Juran, the cost of quality can be considered in terms of economics of the conformance
quality. The cost breakdown is given below:
Quality costs
Quality control costs Failure costs
Prevention costs Appraisal cost External failure Internal failure
cost
cost
Department of Civil Engineering Page 58
QUALITY ASSURANCE (QA)
According to Oakland, Quality Assurance is the prevention of quality problems through planned
and systematic activities (including documentation). This will include the establishment of good
quality management system, assessment of its adequacy, the audit of the operation of the system
and review of the system itself. According to ISO, quality assurance is defined as a set of activities
whose purpose is to demonstrate that an entity (products) meets all quality requirements.
In the context of construction, quality assurance includes all those planned and systematic
administrative and surveillance functions initiated by the project owner to enforce and certify,
with adequate confidence, compliance with established project quality standards to ensure that
the completed structure and/or its components will fulfill the desired purposes efficiently,
effectively and economically.
Quality assurance programmes include the following:
1) Establish the procedure for defining, developing quality standards in design, construction
of the structure (or) its components at various stages.
2) Establish the procedure to be used to monitor, test, inspect, measure and perform the
current and reviewed activities to check for the conformance of quality standards w.r.t
construction materials, methods and personnel.
3) Define the administrative procedure and the requirements, organizational relationships
and responsibilities, communication and information pattern and other management
system/activities required to execute, document and assure attainment of established
quality standards.
Generally, it is commonly observed that the engineers/contractors use the term QA and QC
interchangeably, which is not correct. While QA is the construction management process, QC is a
sampling (or) inspection process. The focus is QA is on defect prevention, while the focus in QC is
on defect detection once the components are constructed. Therefore, it can be said that quality
control is an element of quality assurance programme.
COST OF QUALITY
According to Juran, the cost of quality can be considered in terms of economics of the conformance
quality. The cost breakdown is given below:
Quality costs
Quality control costs Failure costs
Prevention costs Appraisal cost External failure Internal failure
cost
cost
Department of Civil Engineering Page 58
Construction Management and Entrepreneurship (15CV61)
From the figure above, it is clear that
Quality costs = Quality control costs + Failure costs
Where, Quality control costs = Prevention costs + Appraisal costs
Failure costs = Internal failure costs + External failure costs
The prevention costs used in the above equation refer to the cost of quality control activities
undertaken before and during production. In other words, prevention cost is the cost of efforts
undertaken to prevent failures. The appraisal cost is given by the costs incurred for quality control
assurance after production – for example, the costs of inspection, testing and examination to
assess that the specified quality is being maintained.
The internal failure cost is the cost resulting from a product or a service failing to meet the quality
requirements – for example, warranties and return, liability costs, product recall cost, and direct
cost or allowances.
The external assurance costs include:
Costs relating to the demonstration and proof/objective evidence to customers.
Cost of testing by recognized, independent testing bodies for quality assurance provisions,
demonstration and assessments.
Cost of independent assessment/third-party agency performing a detailed and in-depth
study of company’s QA activities.
Department of Civil Engineering Page 59
From the figure above, it is clear that
Quality costs = Quality control costs + Failure costs
Where, Quality control costs = Prevention costs + Appraisal costs
Failure costs = Internal failure costs + External failure costs
The prevention costs used in the above equation refer to the cost of quality control activities
undertaken before and during production. In other words, prevention cost is the cost of efforts
undertaken to prevent failures. The appraisal cost is given by the costs incurred for quality control
assurance after production – for example, the costs of inspection, testing and examination to
assess that the specified quality is being maintained.
The internal failure cost is the cost resulting from a product or a service failing to meet the quality
requirements – for example, warranties and return, liability costs, product recall cost, and direct
cost or allowances.
The external assurance costs include:
Costs relating to the demonstration and proof/objective evidence to customers.
Cost of testing by recognized, independent testing bodies for quality assurance provisions,
demonstration and assessments.
Cost of independent assessment/third-party agency performing a detailed and in-depth
study of company’s QA activities.
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Construction Management and Entrepreneurship (15CV61)
ISO STANDARDS
The growing need for common quality standards throughout the world in manufacturing,
inspection and test specification, and the need for standardization led to the formation of an
international committee with the objective of producing an international quality standard. These
standards were called ISO:9000. ISO:9000 series of standards were formed after considering
various standards adopted by various countries. There are system standards and not product
standards. International Organization for Standardization (ISO) located at Geneva, Switzerland, is
the approved body for issue and guidance of international standards today.
Benefits of ISO:9000
Internal Audit – An organization can audit its existing system with reference to standards
to provide feedback to the management.
Vendor Assessment – To access and ensure vendors capability to consistently monitor and
meet quality standards for product development.
Supplier Capability – To provide confidence to its customers regarding its capabilities to
consistently meet the quality standards as desired by the customers.
Contents of ISO:9000
ISO:9000 is a series of five standards. Each one is given to highlight the importance and identify
the difference in each of them.
1) ISO:9000 – It contains basic guidelines on the selection and use of series along with the
definitions, key parameters and explanation of basic quality concepts.
2) ISO:9001 – It is the comprehensive standard in the series. It specifies system requirements
in terms of purchase, design, development, production, installation and servicing. This is
not necessary for all the organizations having in-house design or development department.
3) ISO:9002 – 90% of the organizations in Britain conforms to this series. The standard
specifies system requirements only for production and purchasing and associates with
inspection, installation and service. It does not give concern for design, otherwise it is
identical to ISO:9001.
4) ISO:9003 – This is the least used standard in the series since it specifies system
requirements only for inspection and testing. It is applicable only to warehouse stockists,
distributors, etc.,
5) ISO:9004 – This is not a standard in real sense. However, it contains excellent guidelines
on implementation and highlights importance of designing a system.
Certification
Certification is not mandatory for all the organizations that conform to standards. For example, if
an organization decides that the vendors of a particular product should conform to ISO:9000, it
Department of Civil Engineering Page 60
ISO STANDARDS
The growing need for common quality standards throughout the world in manufacturing,
inspection and test specification, and the need for standardization led to the formation of an
international committee with the objective of producing an international quality standard. These
standards were called ISO:9000. ISO:9000 series of standards were formed after considering
various standards adopted by various countries. There are system standards and not product
standards. International Organization for Standardization (ISO) located at Geneva, Switzerland, is
the approved body for issue and guidance of international standards today.
Benefits of ISO:9000
Internal Audit – An organization can audit its existing system with reference to standards
to provide feedback to the management.
Vendor Assessment – To access and ensure vendors capability to consistently monitor and
meet quality standards for product development.
Supplier Capability – To provide confidence to its customers regarding its capabilities to
consistently meet the quality standards as desired by the customers.
Contents of ISO:9000
ISO:9000 is a series of five standards. Each one is given to highlight the importance and identify
the difference in each of them.
1) ISO:9000 – It contains basic guidelines on the selection and use of series along with the
definitions, key parameters and explanation of basic quality concepts.
2) ISO:9001 – It is the comprehensive standard in the series. It specifies system requirements
in terms of purchase, design, development, production, installation and servicing. This is
not necessary for all the organizations having in-house design or development department.
3) ISO:9002 – 90% of the organizations in Britain conforms to this series. The standard
specifies system requirements only for production and purchasing and associates with
inspection, installation and service. It does not give concern for design, otherwise it is
identical to ISO:9001.
4) ISO:9003 – This is the least used standard in the series since it specifies system
requirements only for inspection and testing. It is applicable only to warehouse stockists,
distributors, etc.,
5) ISO:9004 – This is not a standard in real sense. However, it contains excellent guidelines
on implementation and highlights importance of designing a system.
Certification
Certification is not mandatory for all the organizations that conform to standards. For example, if
an organization decides that the vendors of a particular product should conform to ISO:9000, it
Department of Civil Engineering Page 60
Construction Management and Entrepreneurship (15CV61)
sends a team to visit the vendors organization. However, an ISO:9000 certificate is a proof of
conformance.
TOTAL QUALITY MANAGEMENT (TQM)
Total Quality Management (TQM) is a theory of management the purpose of which is to improve
an organization’s ability to deliver quality to its customers on a continuously improving basis.
TQM is a process-oriented as opposed to result-oriented approach, and gives importance to
quality, flexibility and services rather than cost and technical efficiency. TQM presumes that profit
follow quality and not vice versa. As a philosophy, TQM is more associated with manufacturing
and service industries. It has also been applies to construction as clients increasingly demand a
high standard of delivery for large and complex buildings.
Although in construction, delays and defects can arise that are unavoidable, the application of
TQM requires that the employee’s mindset be shifted from one of jus monitoring to continually
looking for opportunities to make improvements. TQM can be applied in construction as a way of
approaching the conception, visualization and achievement of goals to ensure quality and
productivity, with an emphasis on innovation and new technology.
Elements of TQM
The customer is the ultimate user, and wants a quality product at a reasonable price.
Feedback from customers should be analyzed and implemented where necessary.
Top management should lead well with vision and commitment.
Employees should be encouraged and rewarded for good performance.
Training should be provided regularly to upgrade the skills of employees.
Conflicts should be avoided, and teams should work in union towards a common goal.
Steps in implementation of TQM
The client should give a commitment regarding quality.
A project quality assurance plan should be prepared for all work levels.
A process approach should be developed towards TQM.
Employees should be made aware of, and educated about TQM.
Employee involvement should be promoted and encouraged.
Steps should be taken to ensure continuous improvement.
Quality plans and performance should be measured and reviewed.
Benefits of TQM – Reduction in quality costs, higher levels of employee and client satisfaction,
less remedial work, fewer delays, and closer relationships with subcontractors and suppliers.
Limitations – Time and resources required to establish the correct environment and
organizational culture.
Department of Civil Engineering Page 61
sends a team to visit the vendors organization. However, an ISO:9000 certificate is a proof of
conformance.
TOTAL QUALITY MANAGEMENT (TQM)
Total Quality Management (TQM) is a theory of management the purpose of which is to improve
an organization’s ability to deliver quality to its customers on a continuously improving basis.
TQM is a process-oriented as opposed to result-oriented approach, and gives importance to
quality, flexibility and services rather than cost and technical efficiency. TQM presumes that profit
follow quality and not vice versa. As a philosophy, TQM is more associated with manufacturing
and service industries. It has also been applies to construction as clients increasingly demand a
high standard of delivery for large and complex buildings.
Although in construction, delays and defects can arise that are unavoidable, the application of
TQM requires that the employee’s mindset be shifted from one of jus monitoring to continually
looking for opportunities to make improvements. TQM can be applied in construction as a way of
approaching the conception, visualization and achievement of goals to ensure quality and
productivity, with an emphasis on innovation and new technology.
Elements of TQM
The customer is the ultimate user, and wants a quality product at a reasonable price.
Feedback from customers should be analyzed and implemented where necessary.
Top management should lead well with vision and commitment.
Employees should be encouraged and rewarded for good performance.
Training should be provided regularly to upgrade the skills of employees.
Conflicts should be avoided, and teams should work in union towards a common goal.
Steps in implementation of TQM
The client should give a commitment regarding quality.
A project quality assurance plan should be prepared for all work levels.
A process approach should be developed towards TQM.
Employees should be made aware of, and educated about TQM.
Employee involvement should be promoted and encouraged.
Steps should be taken to ensure continuous improvement.
Quality plans and performance should be measured and reviewed.
Benefits of TQM – Reduction in quality costs, higher levels of employee and client satisfaction,
less remedial work, fewer delays, and closer relationships with subcontractors and suppliers.
Limitations – Time and resources required to establish the correct environment and
organizational culture.
Department of Civil Engineering Page 61
Construction Management and Entrepreneurship (15CV61)
MODULE – 3
B) HSE
(Health, Safety and Environment)
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MODULE – 3
B) HSE
(Health, Safety and Environment)
Department of Civil Engineering Page 62
Construction Management and Entrepreneurship (15CV61)
MODULE – 3
C) ETHICS
MORALS, VALUES AND ETHICS
Morals are foundational concepts defined on both an individual and societal level. They are the
guiding principles that every citizen should hold. At the most basic level, morals are the
knowledge of the difference between right and wrong.
Values are individual in nature. They are comprised of personal concepts of responsibility,
entitlement, respect and shaped by personal experience, may change over a span of a lifetime and
may be influenced by lessons learned. Values may vary according to an individual’s cultural, ethnic
and/or faith-based background.
Ethics commonly refers only to professional behavior. It consists of the application of fundamental
moral principles and reflects our dedication to fair treatment of each other, and of society as a
whole.
INTEGRITY AND TRUSTWORTHINESS
Integrity is one of the core values that employers seek in the employees that they hire. It is the
symbol of a person who demonstrates sound moral and ethical principles at work. Integrity is the
foundation on which co-workers build relationships, trust, and effective interpersonal
relationships. A person who has integrity lives his or her values in relationships with co-workers,
customers, and stakeholders.
Honesty is the foundation of trust and trustworthiness. Honesty and trust are central to integrity.
Acting with honour and truthfulness are also basic qualities in a person with integrity. People who
demonstrate integrity draw others to them because they are trustworthy and dependable. They
are principled and you can count on them to behave in honourable ways even when no one is
watching or even knows about their performance. Without honesty there in no trust. For a
trustworthy person, the little things do matter. He or she doesn’t exaggerate or twist the truth.
When everyone else is aiming to please, the trustworthy person tells it as it is.
WORK ETHICS
Work ethics are a set of moral principles an employee uses and adopts in their job. Every
employee, from CEO to entry-level workers, must have a good work ethics to keep the company
functioning at its peak. Work ethics include not only how one feels about their job, career or
vocation, but also how one does his/her job or responsibilities. This involves attitude, behavior,
respect, communication, and interaction, how one gets along with others.
To create a strong work ethic, the following factors are responsible:
Department of Civil Engineering Page 63
MODULE – 3
C) ETHICS
MORALS, VALUES AND ETHICS
Morals are foundational concepts defined on both an individual and societal level. They are the
guiding principles that every citizen should hold. At the most basic level, morals are the
knowledge of the difference between right and wrong.
Values are individual in nature. They are comprised of personal concepts of responsibility,
entitlement, respect and shaped by personal experience, may change over a span of a lifetime and
may be influenced by lessons learned. Values may vary according to an individual’s cultural, ethnic
and/or faith-based background.
Ethics commonly refers only to professional behavior. It consists of the application of fundamental
moral principles and reflects our dedication to fair treatment of each other, and of society as a
whole.
INTEGRITY AND TRUSTWORTHINESS
Integrity is one of the core values that employers seek in the employees that they hire. It is the
symbol of a person who demonstrates sound moral and ethical principles at work. Integrity is the
foundation on which co-workers build relationships, trust, and effective interpersonal
relationships. A person who has integrity lives his or her values in relationships with co-workers,
customers, and stakeholders.
Honesty is the foundation of trust and trustworthiness. Honesty and trust are central to integrity.
Acting with honour and truthfulness are also basic qualities in a person with integrity. People who
demonstrate integrity draw others to them because they are trustworthy and dependable. They
are principled and you can count on them to behave in honourable ways even when no one is
watching or even knows about their performance. Without honesty there in no trust. For a
trustworthy person, the little things do matter. He or she doesn’t exaggerate or twist the truth.
When everyone else is aiming to please, the trustworthy person tells it as it is.
WORK ETHICS
Work ethics are a set of moral principles an employee uses and adopts in their job. Every
employee, from CEO to entry-level workers, must have a good work ethics to keep the company
functioning at its peak. Work ethics include not only how one feels about their job, career or
vocation, but also how one does his/her job or responsibilities. This involves attitude, behavior,
respect, communication, and interaction, how one gets along with others.
To create a strong work ethic, the following factors are responsible:
Department of Civil Engineering Page 63
Construction Management and Entrepreneurship (15CV61)
1) Integrity – Integrity stretches to all aspects of an employee’s job. An employee with
integrity fosters trusting relationships with clients, co-workers and supervisors. Co-
workers value the employee’s ability to give honest feedback. Clients trust employee’s
advice. Supervisors rely on the employee’s high moral standards, trusting him.
2) Sense of Responsibility – A strong sense of responsibility affects how an employee works
and the amount of work he/she does. When the employee feels personally responsible for
his/her job performance, she shows up on time, puts in his/her best effort and completes
projects to the best of his/her ability.
3) Emphasis on Quality – Some employees do only the bare minimum, just enough to keep
their job intact. Employees with a strong work ethic care about the quality of their work.
They do their best to produce great work, not merely churn out what is needed. The
employee’s commitment to quality improves the company’s overall quality.
4) Discipline – It takes a certain level of commitment to finish your tasks every day. An
employee with good discipline stays focused on his goals and is determined to complete his
assignments. These employees show a high level of dedication to the company, always
ensuring they do their part.
5) Sense of Teamwork – Most employees have to work together to meet a company’s
objectives. An employee with a high sense of teamwork helps a team meet its goals and
deliver quality work. These employees respect their peers and help where they can, making
collaborations go smoother.
NEED OF ENGINEERING ETHICS
To avoid tragedies, disasters and scandals in which engineers have been major players.
To increase our sensitivity to ethical issues simply by making us aware that we, as
engineers, will have to resolve certain ethical problems.
To increase our knowledge of relevant standards.
To improve our ethical judgement.
To increase our ethical will-power.
To know the characteristics of morals.
To analyze moral choices made by us in our relationships with other people.
To know the rules and standards which govern the conduct of engineers in their role as
professionals
Since its importance to all engineers, ABET (Accreditation Board for Engineering and
Technology) now mandates that ethics be included in the engineering curriculum.
Increased awareness of importance due to publicity surrounding high profile engineering
failures.
Engineering decisions can impact public health, safety, business practices and politics.
Engineers should beware of moral implications as they make decisions in the workplace.
Study of ethics helps engineers develop a moral autonomy:
Ability to think critically and independently about moral issues
Department of Civil Engineering Page 64
1) Integrity – Integrity stretches to all aspects of an employee’s job. An employee with
integrity fosters trusting relationships with clients, co-workers and supervisors. Co-
workers value the employee’s ability to give honest feedback. Clients trust employee’s
advice. Supervisors rely on the employee’s high moral standards, trusting him.
2) Sense of Responsibility – A strong sense of responsibility affects how an employee works
and the amount of work he/she does. When the employee feels personally responsible for
his/her job performance, she shows up on time, puts in his/her best effort and completes
projects to the best of his/her ability.
3) Emphasis on Quality – Some employees do only the bare minimum, just enough to keep
their job intact. Employees with a strong work ethic care about the quality of their work.
They do their best to produce great work, not merely churn out what is needed. The
employee’s commitment to quality improves the company’s overall quality.
4) Discipline – It takes a certain level of commitment to finish your tasks every day. An
employee with good discipline stays focused on his goals and is determined to complete his
assignments. These employees show a high level of dedication to the company, always
ensuring they do their part.
5) Sense of Teamwork – Most employees have to work together to meet a company’s
objectives. An employee with a high sense of teamwork helps a team meet its goals and
deliver quality work. These employees respect their peers and help where they can, making
collaborations go smoother.
NEED OF ENGINEERING ETHICS
To avoid tragedies, disasters and scandals in which engineers have been major players.
To increase our sensitivity to ethical issues simply by making us aware that we, as
engineers, will have to resolve certain ethical problems.
To increase our knowledge of relevant standards.
To improve our ethical judgement.
To increase our ethical will-power.
To know the characteristics of morals.
To analyze moral choices made by us in our relationships with other people.
To know the rules and standards which govern the conduct of engineers in their role as
professionals
Since its importance to all engineers, ABET (Accreditation Board for Engineering and
Technology) now mandates that ethics be included in the engineering curriculum.
Increased awareness of importance due to publicity surrounding high profile engineering
failures.
Engineering decisions can impact public health, safety, business practices and politics.
Engineers should beware of moral implications as they make decisions in the workplace.
Study of ethics helps engineers develop a moral autonomy:
Ability to think critically and independently about moral issues
Department of Civil Engineering Page 64
Construction Management and Entrepreneurship (15CV61)
Ability to apply this moral thinking to situations that arise in the course of
professional engineering practice.
Ethical problems in engineering are often complex and involve conflicting ethical
principles. Engineers must be able to intelligently resolve these conflicts and reach a
defensible decision.
As construction project management professional we should have following ethics:
1. Ensure integrity
2. Contribute to knowledge base
3. Apply professional knowledge / Enhance individual competence
4. Balance stakeholders interests
5. Respect diversity
6. Uphold and support the integrity and ethics of the profession
OUR ACTIONS must always be in line with legal requirements and ethical standards. We must
always uphold the needs of the Project Stakeholders and the part of the Society impacted by our
projects.
1. Ensure integrity of:
(a) The Project’s Product:
A product that has integrity is the one that is complete and sound, or fit for use. The
correct application of project management processes will ensure it.
(b) Your own Personal Conduct:
Do not put personal gain over the needs of the project.
Tell the truth in reports, conversations and other communications
Follow copyright and other laws
Do not divulge company data to unauthorized parties
Value and protect intellectual property
Prevent conflicts of interest or appearance of conflicts of interest and deal with them
as they happen:
Do not give or take inappropriate gifts, favors or bribes
Report violations of regulations, laws, ethics, politics, etc.
Do the right thing and follow the right process
2. Contribute to knowledge base:
Share lessons learned from the project with others
Write articles about project management
Support education of other project managers and stakeholders about project management.
Coach / mentor other project managers
Department of Civil Engineering Page 65
Ability to apply this moral thinking to situations that arise in the course of
professional engineering practice.
Ethical problems in engineering are often complex and involve conflicting ethical
principles. Engineers must be able to intelligently resolve these conflicts and reach a
defensible decision.
As construction project management professional we should have following ethics:
1. Ensure integrity
2. Contribute to knowledge base
3. Apply professional knowledge / Enhance individual competence
4. Balance stakeholders interests
5. Respect diversity
6. Uphold and support the integrity and ethics of the profession
OUR ACTIONS must always be in line with legal requirements and ethical standards. We must
always uphold the needs of the Project Stakeholders and the part of the Society impacted by our
projects.
1. Ensure integrity of:
(a) The Project’s Product:
A product that has integrity is the one that is complete and sound, or fit for use. The
correct application of project management processes will ensure it.
(b) Your own Personal Conduct:
Do not put personal gain over the needs of the project.
Tell the truth in reports, conversations and other communications
Follow copyright and other laws
Do not divulge company data to unauthorized parties
Value and protect intellectual property
Prevent conflicts of interest or appearance of conflicts of interest and deal with them
as they happen:
Do not give or take inappropriate gifts, favors or bribes
Report violations of regulations, laws, ethics, politics, etc.
Do the right thing and follow the right process
2. Contribute to knowledge base:
Share lessons learned from the project with others
Write articles about project management
Support education of other project managers and stakeholders about project management.
Coach / mentor other project managers
Department of Civil Engineering Page 65
Construction Management and Entrepreneurship (15CV61)
Perform research on projects done within your organization for the purpose of calculating
performance metrics.
Perform research to discover best practices for use of project management and share the
findings with other.
3. Apply professional knowledge/enhance individual competence:
Professional knowledge means knowledge of project management practices and the
technical knowledge needed to complete project (specific to the application area).
Train others to use correct techniques.
Inform stakeholders of correct processes.
Constantly look for new information and practices that will help the organization or its projects:
Continue to learn about the industry where you work
Stick to the right processes throughout the project.
Enhance individual competence by increasing and applying professional knowledge to
improve services.
Work to understand your personal strengths and weakness:
Continue to learn
Plan your own professional development.
4. Balance stakeholder interests:
Determine and understand the needs and objectives of all stakeholders.
Actively look for competing or conflicting needs and interests.
Get the team and stakeholders
Involved as appropriate and get management involved when team cannot resolve
conflicting objectives.
Determine options for fair resolution of conflict.
5. Respect diversity:
Understand cultural difference
Uncover communication preferences when identifying stakeholders
Prevent cultural shock by training and advance research
Uncover and respect different work ethics and practices of the team members
Provide training to team members from different cultural backgrounds to help them
understand each other.
Follow the practices in other countries as long as they do not violate laws.
PROFESSIONAL DUTIES
A professional duty means the role/function of a member of particular profession. Engineers
must perform their duties under a standard professional behavior that requires adherence to the
Department of Civil Engineering Page 66
Perform research on projects done within your organization for the purpose of calculating
performance metrics.
Perform research to discover best practices for use of project management and share the
findings with other.
3. Apply professional knowledge/enhance individual competence:
Professional knowledge means knowledge of project management practices and the
technical knowledge needed to complete project (specific to the application area).
Train others to use correct techniques.
Inform stakeholders of correct processes.
Constantly look for new information and practices that will help the organization or its projects:
Continue to learn about the industry where you work
Stick to the right processes throughout the project.
Enhance individual competence by increasing and applying professional knowledge to
improve services.
Work to understand your personal strengths and weakness:
Continue to learn
Plan your own professional development.
4. Balance stakeholder interests:
Determine and understand the needs and objectives of all stakeholders.
Actively look for competing or conflicting needs and interests.
Get the team and stakeholders
Involved as appropriate and get management involved when team cannot resolve
conflicting objectives.
Determine options for fair resolution of conflict.
5. Respect diversity:
Understand cultural difference
Uncover communication preferences when identifying stakeholders
Prevent cultural shock by training and advance research
Uncover and respect different work ethics and practices of the team members
Provide training to team members from different cultural backgrounds to help them
understand each other.
Follow the practices in other countries as long as they do not violate laws.
PROFESSIONAL DUTIES
A professional duty means the role/function of a member of particular profession. Engineers
must perform their duties under a standard professional behavior that requires adherence to the
Department of Civil Engineering Page 66
Construction Management and Entrepreneurship (15CV61)
highest principles of ethical conduct. Engineers, in the fulfillment of their professional duties,
shall: Hold paramount the safety, health and welfare of the public. Perform services only in areas
of their competence.
Employees are expected to:
Arrive at work on time
Dress suitably for the job (wear safety equipment if required)
Work to the best of their ability throughout their work day
Respect their employers, colleagues and customers
Take care of employer’s property
Follow the employer’s reasonable and lawful instructions
Obey safety rules
Ask for help if they need it
Know what the employer expects the employee to do if the employee can’t be at work for
any reason.
Not discriminate or harass others in the workplace; and
Not act in a way that puts the employee – or others – at risk of injury in the workplace.
PROFESSIONAL AND INDIVIDUAL RIGHTS
Rights are justified claim on others, it pair with responsibility and it is not a privilege.
Rights of Engineers encompass:
Individual/Human rights
Employee rights
Professional rights
INDIVIDUAL HUMAN RIGHTS
Fundamental Freedoms
a) Freedom of conscience and religion:
b) Freedom of thought, belief, opinion and expression, including freedom of the press and
other media of communication:
c) Freedom of peaceful assembly: and
d) Freedom of association
Democratic Rights (vote….)
Mobility Rights (leave, stay)
Legal Rights
Life, liberty, security
Not be arbitrarily detained, tortured
Equality Rights
Department of Civil Engineering Page 67
highest principles of ethical conduct. Engineers, in the fulfillment of their professional duties,
shall: Hold paramount the safety, health and welfare of the public. Perform services only in areas
of their competence.
Employees are expected to:
Arrive at work on time
Dress suitably for the job (wear safety equipment if required)
Work to the best of their ability throughout their work day
Respect their employers, colleagues and customers
Take care of employer’s property
Follow the employer’s reasonable and lawful instructions
Obey safety rules
Ask for help if they need it
Know what the employer expects the employee to do if the employee can’t be at work for
any reason.
Not discriminate or harass others in the workplace; and
Not act in a way that puts the employee – or others – at risk of injury in the workplace.
PROFESSIONAL AND INDIVIDUAL RIGHTS
Rights are justified claim on others, it pair with responsibility and it is not a privilege.
Rights of Engineers encompass:
Individual/Human rights
Employee rights
Professional rights
INDIVIDUAL HUMAN RIGHTS
Fundamental Freedoms
a) Freedom of conscience and religion:
b) Freedom of thought, belief, opinion and expression, including freedom of the press and
other media of communication:
c) Freedom of peaceful assembly: and
d) Freedom of association
Democratic Rights (vote….)
Mobility Rights (leave, stay)
Legal Rights
Life, liberty, security
Not be arbitrarily detained, tortured
Equality Rights
Department of Civil Engineering Page 67
Construction Management and Entrepreneurship (15CV61)
No discrimination based on race, ethnicity, colour, religion, sex, age, mental or
physical disability
Language (2 official languages) – English or Hindi education
Employee Rights
Employee rights are any rights which refer to the status of being an employee. These rights
may be moral or legal.
Privacy
Equal opportunity
No (sexual) harassment
a) No physical, psychological attacks, coercion, abuse, provocation
b) Often related to female as employee, but applicable to any relationship of unequal power
c) Many small, or even one flagrant incident
Pursue outside activities
Includes political or special interest groups
Other employment pursuits
No right to harm or sabotage employer, on or off the job
Privacy
Unwarranted search, drug testing
Due Process (fair treatment, process, appeal)
No-discrimination
Extension of human right to employment environment
PROFESSIONAL RIGHTS
The following are the professional rights:
Right of professional conscience (moral autonomy): The right to exercise professional
judgement in carrying out one’s duties, and to exercise this judgement in moral and ethical
manner. “Professional conscience requires that the engineer can make their own decisions
(autonomous moral judgement) and hence freely pose questions”.
Right of conscientious refusal (can refuse to be unethical just because you view it to be that
way)
The right to act in accordance with one’s conscience and to refuse to work on projects that
violate their personal or professional codes: Refusal to participate in or condone unethical
behavior/activities: Based on their belief that it is so; Generally two categories: Those
generally considered to be so within the profession (e.g. forging, lying, bribes etc.) and
Differing yet reasonable opinions (e.g. weapons); Also includes right to protect public
interests, safety; Again, must not be abused
The right to become a better engineer
The right to express personal opinions, and participate in political activities
Department of Civil Engineering Page 68
No discrimination based on race, ethnicity, colour, religion, sex, age, mental or
physical disability
Language (2 official languages) – English or Hindi education
Employee Rights
Employee rights are any rights which refer to the status of being an employee. These rights
may be moral or legal.
Privacy
Equal opportunity
No (sexual) harassment
a) No physical, psychological attacks, coercion, abuse, provocation
b) Often related to female as employee, but applicable to any relationship of unequal power
c) Many small, or even one flagrant incident
Pursue outside activities
Includes political or special interest groups
Other employment pursuits
No right to harm or sabotage employer, on or off the job
Privacy
Unwarranted search, drug testing
Due Process (fair treatment, process, appeal)
No-discrimination
Extension of human right to employment environment
PROFESSIONAL RIGHTS
The following are the professional rights:
Right of professional conscience (moral autonomy): The right to exercise professional
judgement in carrying out one’s duties, and to exercise this judgement in moral and ethical
manner. “Professional conscience requires that the engineer can make their own decisions
(autonomous moral judgement) and hence freely pose questions”.
Right of conscientious refusal (can refuse to be unethical just because you view it to be that
way)
The right to act in accordance with one’s conscience and to refuse to work on projects that
violate their personal or professional codes: Refusal to participate in or condone unethical
behavior/activities: Based on their belief that it is so; Generally two categories: Those
generally considered to be so within the profession (e.g. forging, lying, bribes etc.) and
Differing yet reasonable opinions (e.g. weapons); Also includes right to protect public
interests, safety; Again, must not be abused
The right to become a better engineer
The right to express personal opinions, and participate in political activities
Department of Civil Engineering Page 68
Construction Management and Entrepreneurship (15CV61)
The right not to suffer retaliation for ethical actions
The right to personal privacy
The right to recognition and fair remuneration: Right to professional recognition for their
work and accomplishments; Right to speak about work (remember confidentiality) and
receive external recognition; Also internal recognition (e.g. patents, promotion, raises);
Incudes “fair remuneration”.
Not participate or condone unethical activity
Protect public interests
Talk publicity about work, involved in professional organization (respecting
confidentiality)
CONFIDENTIAL AND PROPRIETARY INFORMATION
In general, for information to be considered proprietary, companies must treat it as
confidential. We will not treat information readily available in public sources as proprietary. In
addition, proprietary information must give the firm some sort of competitive advantage and
should generally be unknown outside of the firm. A company must be able to demonstrate that it
has taken even reasonable step to keep the information private if it hopes to obtain court
assistance in protecting the rights.
Proprietary information, also known as a trade secret, is information a company wishes to
keep confidential. Proprietary information can include secret formulas, processes and methods
used in production. It can also include a company’s business and marketing plans, salary structure,
customer lists, contracts and details of its computer systems. In some cases, the special knowledge
and skills that an employee has learned on the job are considered to be a company’s proprietary
information.
Confidential and proprietary information is secret, valuable, expensive and/or easily
replicated. The following are some examples of confidential information:
Unpublished financial information
Data of customers/partners/vendors
Patents, formulas or new technologies
Customer lists (existing and prospective)
Data entrusted to our company by external parties
Pricing/marketing and other undisclosed strategies
Documents and processes explicitly marked as confidential
Unpublished goals, forecasts and initiatives marked as confidential.
CONFLICT OF INTEREST CONFIDENTIALITY
A Conflict of Interest is a conflict between a person’s duties and responsibilities with regard to the
assigned job, and that person’s private, professional, business or public interests.
Department of Civil Engineering Page 69
The right not to suffer retaliation for ethical actions
The right to personal privacy
The right to recognition and fair remuneration: Right to professional recognition for their
work and accomplishments; Right to speak about work (remember confidentiality) and
receive external recognition; Also internal recognition (e.g. patents, promotion, raises);
Incudes “fair remuneration”.
Not participate or condone unethical activity
Protect public interests
Talk publicity about work, involved in professional organization (respecting
confidentiality)
CONFIDENTIAL AND PROPRIETARY INFORMATION
In general, for information to be considered proprietary, companies must treat it as
confidential. We will not treat information readily available in public sources as proprietary. In
addition, proprietary information must give the firm some sort of competitive advantage and
should generally be unknown outside of the firm. A company must be able to demonstrate that it
has taken even reasonable step to keep the information private if it hopes to obtain court
assistance in protecting the rights.
Proprietary information, also known as a trade secret, is information a company wishes to
keep confidential. Proprietary information can include secret formulas, processes and methods
used in production. It can also include a company’s business and marketing plans, salary structure,
customer lists, contracts and details of its computer systems. In some cases, the special knowledge
and skills that an employee has learned on the job are considered to be a company’s proprietary
information.
Confidential and proprietary information is secret, valuable, expensive and/or easily
replicated. The following are some examples of confidential information:
Unpublished financial information
Data of customers/partners/vendors
Patents, formulas or new technologies
Customer lists (existing and prospective)
Data entrusted to our company by external parties
Pricing/marketing and other undisclosed strategies
Documents and processes explicitly marked as confidential
Unpublished goals, forecasts and initiatives marked as confidential.
CONFLICT OF INTEREST CONFIDENTIALITY
A Conflict of Interest is a conflict between a person’s duties and responsibilities with regard to the
assigned job, and that person’s private, professional, business or public interests.
Department of Civil Engineering Page 69
Construction Management and Entrepreneurship (15CV61)
The Conflict of Interest Confidentiality is an agreement or policy is designed by the organizations
to ensure that all material personal interests are disclosed; so that conflicts of interest can be
identified and managed by the organization in a rigorous and transparent way. In cases where an
individual declares a material personal interest(s), the organizations will evaluate whether that
interest amounts to a conflict of interest and, if so, determine the extent to which that individual
may be involved in discussion or decisions concerning that matter.
A sample of Conflict of Interest agreement is given below:
CONFLICT OF INTEREST CONFIDENTIALITY DECLARATION
NAME: __________________________________________________________________________________________
POSITION / TITLE: ____________________________________________________________________________
DATE OF EMPLOYEMENT: ___________________________________________________________________
I, hereby, declare that, as of this date, I or any members of my family have no financial or other
interests or any known relationships or activities in any company which is in direct competition
with RAJA Energy INDIA for Industrial Projects Ltd (the “Company”). or any way (including but
not limited to suppliers, customers, business associates, service providers and subcontractors)
that may cause a real or perceived business conflict of interest.
In the event that any of the above circumstances should arise in the future, I will timely notify the
Company’s CEO in writing.
SIGNATURE:______________________________________ DATE: ___________________________
GIFTS AND BRIBES
A gift is something of value given without the expectation of return; a bribe is the same thing given
in the hope of influence or benefit. Because it is often impossible to determine the expectation of
the giver, all federal, state and local officials, both elected and appointed, are governed by rules
Department of Civil Engineering Page 70
The Conflict of Interest Confidentiality is an agreement or policy is designed by the organizations
to ensure that all material personal interests are disclosed; so that conflicts of interest can be
identified and managed by the organization in a rigorous and transparent way. In cases where an
individual declares a material personal interest(s), the organizations will evaluate whether that
interest amounts to a conflict of interest and, if so, determine the extent to which that individual
may be involved in discussion or decisions concerning that matter.
A sample of Conflict of Interest agreement is given below:
CONFLICT OF INTEREST CONFIDENTIALITY DECLARATION
NAME: __________________________________________________________________________________________
POSITION / TITLE: ____________________________________________________________________________
DATE OF EMPLOYEMENT: ___________________________________________________________________
I, hereby, declare that, as of this date, I or any members of my family have no financial or other
interests or any known relationships or activities in any company which is in direct competition
with RAJA Energy INDIA for Industrial Projects Ltd (the “Company”). or any way (including but
not limited to suppliers, customers, business associates, service providers and subcontractors)
that may cause a real or perceived business conflict of interest.
In the event that any of the above circumstances should arise in the future, I will timely notify the
Company’s CEO in writing.
SIGNATURE:______________________________________ DATE: ___________________________
GIFTS AND BRIBES
A gift is something of value given without the expectation of return; a bribe is the same thing given
in the hope of influence or benefit. Because it is often impossible to determine the expectation of
the giver, all federal, state and local officials, both elected and appointed, are governed by rules
Department of Civil Engineering Page 70
Construction Management and Entrepreneurship (15CV61)
restricting gifts. In some cases, gifts over a certain amount are disallowed; in others, they must
simply be reported.
Bribes is something offered or given to someone in a position of trust in order to induce him / her
to act dishonestly.
Gifts and bribes can be monetary, actual items or they can be tickets to a sporting event,
entertainment, travel, rounds of golf or restaurant meals.
A gift becomes a bribe when:
The line which separates appropriate and inappropriate gifts
Look for answers in written company policy and ethical codes.
PRICE FIXING
Price fixing is setting the price of a product or service, rather than allowing it to be determined
naturally through free-market forces. Although, antitrust legislation makes it illegal for businesses
to fix their prices under specific circumstances, there is no legal protection against government
price fixing.
A plain agreement among competitors to fix price is almost always illegal, whether prices are fixed
at a minimum, maximum, or within some range. Illegal price fixing occurs whenever two or more
competitors agree to take actions that have the effect of raising, lowering or stabilizing the price of
any product or service without any legitimate justification. Price-fixing schemes are often worked
out in secret and can be hard to uncover, but an agreement can be discovered from
“circumstantial” evidence.
Price fixing relates not only prices, but also to other terms that affect prices to consumers, such as
shipping fees, warranties, discount programs, or financing rates. Antitrust scrutiny may occur
when competitors discuss the following topics:
Present or future prices
Pricing policies
Promotions
Bids
Costs
Capacity
Terms or conditions of sale, including credit terms
Discounts
Identify of customers
Allocation of customers or sales areas
Production quotas
Department of Civil Engineering Page 71
restricting gifts. In some cases, gifts over a certain amount are disallowed; in others, they must
simply be reported.
Bribes is something offered or given to someone in a position of trust in order to induce him / her
to act dishonestly.
Gifts and bribes can be monetary, actual items or they can be tickets to a sporting event,
entertainment, travel, rounds of golf or restaurant meals.
A gift becomes a bribe when:
The line which separates appropriate and inappropriate gifts
Look for answers in written company policy and ethical codes.
PRICE FIXING
Price fixing is setting the price of a product or service, rather than allowing it to be determined
naturally through free-market forces. Although, antitrust legislation makes it illegal for businesses
to fix their prices under specific circumstances, there is no legal protection against government
price fixing.
A plain agreement among competitors to fix price is almost always illegal, whether prices are fixed
at a minimum, maximum, or within some range. Illegal price fixing occurs whenever two or more
competitors agree to take actions that have the effect of raising, lowering or stabilizing the price of
any product or service without any legitimate justification. Price-fixing schemes are often worked
out in secret and can be hard to uncover, but an agreement can be discovered from
“circumstantial” evidence.
Price fixing relates not only prices, but also to other terms that affect prices to consumers, such as
shipping fees, warranties, discount programs, or financing rates. Antitrust scrutiny may occur
when competitors discuss the following topics:
Present or future prices
Pricing policies
Promotions
Bids
Costs
Capacity
Terms or conditions of sale, including credit terms
Discounts
Identify of customers
Allocation of customers or sales areas
Production quotas
Department of Civil Engineering Page 71
Construction Management and Entrepreneurship (15CV61)
R&D plans
WHISTLE BLOWING
The act by an employee which informs the public or higher management of unethical or illegal
behavior by an employer or supervisor. A whistleblower is a person working within an
organization who reports that organization’s misconduct. The person can be current or past
employee. Also, note that the misconduct can be a past act, can be ongoing, or can be in the
planning stages.
Persons who act as whistleblowers are often the subject of retaliation by their employers.
Typically the employer will discharge the whistleblower, who is often an at-will employee. An at-
will employee is a person without a specific term of employment. The employee may quit at any
time and the employer has the right to fire the employee without having to cite a reason. However,
courts and legislatures have created exceptions for whistleblowers who are at-will employees.
Whistleblowing statutes protect from discharge or discrimination an employee who has initiated
an investigation of an employer’s activities or who has otherwise cooperated with a regulatory
agency in carrying out an inquiry or the enforcement of regulations.
We should attempt whistle blowing when there is:
Need
Proximity
Capability
Last resort
We can morally obligated to blow the whistle when:
If all of the previous conditions have been met
Feel that there is great imminent danger of harm if the activity continues unchecked and if
all of the previous conditions have been met
Types of whistleblowing:
Internal: This means that the whistleblower reports misconduct to another person within
the organization.
External: This means that the whistleblower reports misconduct to a person outside the
organization, such as law enforcement or the media.
Anonymous: This means that the whistleblower reports misconduct to a person outside the
organization, such as law enforcement or the media without identifying himself.
Department of Civil Engineering Page 72
R&D plans
WHISTLE BLOWING
The act by an employee which informs the public or higher management of unethical or illegal
behavior by an employer or supervisor. A whistleblower is a person working within an
organization who reports that organization’s misconduct. The person can be current or past
employee. Also, note that the misconduct can be a past act, can be ongoing, or can be in the
planning stages.
Persons who act as whistleblowers are often the subject of retaliation by their employers.
Typically the employer will discharge the whistleblower, who is often an at-will employee. An at-
will employee is a person without a specific term of employment. The employee may quit at any
time and the employer has the right to fire the employee without having to cite a reason. However,
courts and legislatures have created exceptions for whistleblowers who are at-will employees.
Whistleblowing statutes protect from discharge or discrimination an employee who has initiated
an investigation of an employer’s activities or who has otherwise cooperated with a regulatory
agency in carrying out an inquiry or the enforcement of regulations.
We should attempt whistle blowing when there is:
Need
Proximity
Capability
Last resort
We can morally obligated to blow the whistle when:
If all of the previous conditions have been met
Feel that there is great imminent danger of harm if the activity continues unchecked and if
all of the previous conditions have been met
Types of whistleblowing:
Internal: This means that the whistleblower reports misconduct to another person within
the organization.
External: This means that the whistleblower reports misconduct to a person outside the
organization, such as law enforcement or the media.
Anonymous: This means that the whistleblower reports misconduct to a person outside the
organization, such as law enforcement or the media without identifying himself.
Department of Civil Engineering Page 72
Construction Management and Entrepreneurship (15CV61)
MODULE – 5
A) ENTREPRENEURSHIP
EVOLUTION OF THE CONCEPT OF ENTREPRENEUR
The concept of entrepreneur is derived from the French concept “entreprendre” meaning to
undertake: a process in which the entrepreneur recognizes and seizes opportunities, undertakes
to organize, manage and assume the risks of business and realizes the rewards. The French
economist Richard Cantillon was the first to introduce the concept “entrepreneur” in his work in
1755. He viewed the entrepreneur as a risk taker. Cantillon saw the entrepreneur as responsible
for all exchange and circulation in the economy. As opposed to wage workers and land owner who
both receive a certain or fixed income/rent, the entrepreneur earns an uncertain profit. Cantillon’s
entrepreneur us an individual that equilibrates supply and demand in the economy and in this
function bears risk or uncertainty.
Since the beginnings of history, entrepreneur has always been ruled by the market forces known
as supply and demand.
Early entrepreneurs in the Agricultural Revolution met the needs of farmers by providing
them with tools and shelter. In exchange, they received food that could feel their families.
As years went by, the means of entrepreneurship changed dramatically but the core
reasons for entrepreneurship remained the same. Everywhere in the world, entrepreneurs
arose to address demand by providing supply. They innovated and invented new
technologies to solve problems that nobody had even solved before.
At the same time, completion has ensured that the entrepreneur’s self-interest doesn’t
cause an overall negative impact on society. Competition prevents entrepreneurs from
overcharging for goods or underpaying employees, for example.
In the early 16th century the French men who organized and led military expeditions were
referred to as ‘entrepreneur’. After 1700, the term was applied to other types of
adventures, mainly civil engineering like constructions of roads etc.
The Industrial Revolution marked yet another profound shift in the history of
entrepreneurship. Starting in the 18th century, entrepreneurship moved from small-scale
production in small towns to large-scale production in big cities.
After World War II, entrepreneurship began to change for a few different reasons. First and
most importantly, the economy was increasingly global and becoming more global every
decade. Better means of shipping and communication made it easy for entrepreneurs to sell
products and services to a global audience.
Today, entrepreneurs are the lifeblood of economics all over the world. The global
economy – combined with modern infrastructure and communications – has introduced a
new age of competition to the world of entrepreneurship. No longer are you competing
Department of Civil Engineering Page 73
MODULE – 5
A) ENTREPRENEURSHIP
EVOLUTION OF THE CONCEPT OF ENTREPRENEUR
The concept of entrepreneur is derived from the French concept “entreprendre” meaning to
undertake: a process in which the entrepreneur recognizes and seizes opportunities, undertakes
to organize, manage and assume the risks of business and realizes the rewards. The French
economist Richard Cantillon was the first to introduce the concept “entrepreneur” in his work in
1755. He viewed the entrepreneur as a risk taker. Cantillon saw the entrepreneur as responsible
for all exchange and circulation in the economy. As opposed to wage workers and land owner who
both receive a certain or fixed income/rent, the entrepreneur earns an uncertain profit. Cantillon’s
entrepreneur us an individual that equilibrates supply and demand in the economy and in this
function bears risk or uncertainty.
Since the beginnings of history, entrepreneur has always been ruled by the market forces known
as supply and demand.
Early entrepreneurs in the Agricultural Revolution met the needs of farmers by providing
them with tools and shelter. In exchange, they received food that could feel their families.
As years went by, the means of entrepreneurship changed dramatically but the core
reasons for entrepreneurship remained the same. Everywhere in the world, entrepreneurs
arose to address demand by providing supply. They innovated and invented new
technologies to solve problems that nobody had even solved before.
At the same time, completion has ensured that the entrepreneur’s self-interest doesn’t
cause an overall negative impact on society. Competition prevents entrepreneurs from
overcharging for goods or underpaying employees, for example.
In the early 16th century the French men who organized and led military expeditions were
referred to as ‘entrepreneur’. After 1700, the term was applied to other types of
adventures, mainly civil engineering like constructions of roads etc.
The Industrial Revolution marked yet another profound shift in the history of
entrepreneurship. Starting in the 18th century, entrepreneurship moved from small-scale
production in small towns to large-scale production in big cities.
After World War II, entrepreneurship began to change for a few different reasons. First and
most importantly, the economy was increasingly global and becoming more global every
decade. Better means of shipping and communication made it easy for entrepreneurs to sell
products and services to a global audience.
Today, entrepreneurs are the lifeblood of economics all over the world. The global
economy – combined with modern infrastructure and communications – has introduced a
new age of competition to the world of entrepreneurship. No longer are you competing
Department of Civil Engineering Page 73
Construction Management and Entrepreneurship (15CV61)
with entrepreneurs in your tribe, town, village, or city: you’re competing with
entrepreneurs all over the world.
Recent research has defined corporate entrepreneurship as a process whereby an
individual or a group of individuals, in association with an existing organization, creates a
new organization or instigates renewal or innovation within the organization.
FUNCTIONS OF AN ENTREPRENEUR
The function of entrepreneur is to create products and services that fulfill a need or solve a
problem and to create jobs and wealth. Some functions of an entrepreneur are:
1) Decision Making: The primary task of an entrepreneur is to decide the policy of
production. An entrepreneur is to determine what to produce, how much to produce, how
to produce and the proportion in which he combines the different factors he employs. In
brief, he is to make vital business decisions relating to the purchase of productive factors
and to sale of the finished goods or services. Entrepreneur as a decision maker describes
the following functions of an entrepreneur.
a) The determination of objectives of an enterprise and the change of those objectives as
conditions required or made advantageous.
b) The development of an organization including efficient relations with subordinates and
all employees.
c) Securing adequate financial resources, the relations with existing and potential
Investors.
d) The acquisition of efficient technological equipment and the revision of it as new
machinery appears.
e) The development of a market for the products and the devising of new products to
meet or anticipate consumer’s demand.
f) The maintenance of good relations with public authorities and with society at large.
2) Management Control: Management and control of the business are conducted by the
entrepreneur himself. So, the latter must possess a high degree of management ability to
select the right type of persons to work with him. But, the importance of this function has
declined, as business nowadays is managed more and more by paid managers.
When the organization grows bigger, the entrepreneur effectively delegates authority and
finds responsibility at various levels of management. The network of decision making
becomes more complex. The functions of organization and management include:
a) Planning of an enterprise
b) Co-ordination, administration and control
c) Routine type of supervision
Department of Civil Engineering Page 74
with entrepreneurs in your tribe, town, village, or city: you’re competing with
entrepreneurs all over the world.
Recent research has defined corporate entrepreneurship as a process whereby an
individual or a group of individuals, in association with an existing organization, creates a
new organization or instigates renewal or innovation within the organization.
FUNCTIONS OF AN ENTREPRENEUR
The function of entrepreneur is to create products and services that fulfill a need or solve a
problem and to create jobs and wealth. Some functions of an entrepreneur are:
1) Decision Making: The primary task of an entrepreneur is to decide the policy of
production. An entrepreneur is to determine what to produce, how much to produce, how
to produce and the proportion in which he combines the different factors he employs. In
brief, he is to make vital business decisions relating to the purchase of productive factors
and to sale of the finished goods or services. Entrepreneur as a decision maker describes
the following functions of an entrepreneur.
a) The determination of objectives of an enterprise and the change of those objectives as
conditions required or made advantageous.
b) The development of an organization including efficient relations with subordinates and
all employees.
c) Securing adequate financial resources, the relations with existing and potential
Investors.
d) The acquisition of efficient technological equipment and the revision of it as new
machinery appears.
e) The development of a market for the products and the devising of new products to
meet or anticipate consumer’s demand.
f) The maintenance of good relations with public authorities and with society at large.
2) Management Control: Management and control of the business are conducted by the
entrepreneur himself. So, the latter must possess a high degree of management ability to
select the right type of persons to work with him. But, the importance of this function has
declined, as business nowadays is managed more and more by paid managers.
When the organization grows bigger, the entrepreneur effectively delegates authority and
finds responsibility at various levels of management. The network of decision making
becomes more complex. The functions of organization and management include:
a) Planning of an enterprise
b) Co-ordination, administration and control
c) Routine type of supervision
Department of Civil Engineering Page 74
Construction Management and Entrepreneurship (15CV61)
3) Division of Income: The next major function of the entrepreneur is to make necessary
arrangement for the division of total income among the different factors of production
employed by him. Even if there is a loss in the business, he is to pay rent, interest, wages
and other contractual incomes out of the realized sale proceeds.
4) Risk-Taking and Uncertainty-Bearing: Risk-taking is perhaps the most important
function of an entrepreneur. Modern production is very risky as an entrepreneur is
required to produce goods or services in anticipation of their future demand.
Broadly, there are two kinds of risk which he has to face. Firstly, there are some risks, such
as risk of fire, loss of goods in transit, theft, etc., which can be insured against. These are
known as their probability cannot be calculated accurately. These constitute what is called
uncertainty (e.g., competitive risk, technical risk, etc.). The entrepreneur undertakes both
these risks in production.
5) Innovation: Another distinguishing function of the entrepreneur, as emphasized by
Schumpeter, is to make frequent inventions – invention of new products, new techniques
and discovering new markets – to improve his competitive position and to increase
earnings. The process of innovations may be in the form of:
a) Introduction of a new product
b) Use of new methods of production
c) Opening of a new market
d) The conquest of new source of supply of raw material
e) A new form of organization
6) Fostering Autonomy: Entrepreneurs Fosters autonomy so as to advent something new of
value by the application of devoted efforts and time.
7) Social Responsibility: Entrepreneurs provides new products or ideas that give a
momentum and diversity into the society. Therefore, they should perform social
responsibility that protects welfare, benefit and economic gain of the society. They also
promote the community standard by providing jobs and amenities.
8) Public Relations: Entrepreneurship is a new venture that requires social acceptance by
the regulatory bodies and public at large. Government as well as the persons’ who will be
subject of entrepreneurship would be convinced through public relations to accept and to
allow the entrepreneur to execute entrepreneurial venture.
9) Experience Sharing: Entrepreneurs must hold workshops, industrial visits through which
they can share their experience in different countries in order to wide spread adaption of
Department of Civil Engineering Page 75
3) Division of Income: The next major function of the entrepreneur is to make necessary
arrangement for the division of total income among the different factors of production
employed by him. Even if there is a loss in the business, he is to pay rent, interest, wages
and other contractual incomes out of the realized sale proceeds.
4) Risk-Taking and Uncertainty-Bearing: Risk-taking is perhaps the most important
function of an entrepreneur. Modern production is very risky as an entrepreneur is
required to produce goods or services in anticipation of their future demand.
Broadly, there are two kinds of risk which he has to face. Firstly, there are some risks, such
as risk of fire, loss of goods in transit, theft, etc., which can be insured against. These are
known as their probability cannot be calculated accurately. These constitute what is called
uncertainty (e.g., competitive risk, technical risk, etc.). The entrepreneur undertakes both
these risks in production.
5) Innovation: Another distinguishing function of the entrepreneur, as emphasized by
Schumpeter, is to make frequent inventions – invention of new products, new techniques
and discovering new markets – to improve his competitive position and to increase
earnings. The process of innovations may be in the form of:
a) Introduction of a new product
b) Use of new methods of production
c) Opening of a new market
d) The conquest of new source of supply of raw material
e) A new form of organization
6) Fostering Autonomy: Entrepreneurs Fosters autonomy so as to advent something new of
value by the application of devoted efforts and time.
7) Social Responsibility: Entrepreneurs provides new products or ideas that give a
momentum and diversity into the society. Therefore, they should perform social
responsibility that protects welfare, benefit and economic gain of the society. They also
promote the community standard by providing jobs and amenities.
8) Public Relations: Entrepreneurship is a new venture that requires social acceptance by
the regulatory bodies and public at large. Government as well as the persons’ who will be
subject of entrepreneurship would be convinced through public relations to accept and to
allow the entrepreneur to execute entrepreneurial venture.
9) Experience Sharing: Entrepreneurs must hold workshops, industrial visits through which
they can share their experience in different countries in order to wide spread adaption of
Department of Civil Engineering Page 75
Construction Management and Entrepreneurship (15CV61)
success. This function will benefit the economics of the countries as well as the world
bodies.
CONCEPTS OF ENTREPRENEURSHIP
The concept of entrepreneurship has been around as long as man existed. Entrepreneurship has
been and continues to be the main catalyst for business and economic development.
Entrepreneurship is the heart of the modern business, a force behind innovative businesses that
characterize the modern economy and a dynamic process of creating incremental wealth by
individuals who assume the major risks in terms of equity, time and/or career commitment of
providing value for some product or service. The concept of entrepreneurship cannot be complete
without talking of entrepreneurs – individuals who give entrepreneurship sense and version.
Entrepreneurship is an activity that is action-oriented. It is a world of immense creativity and
innovation inhabited by entrepreneurs, the individuals who innovate, take risk and create value in
form of new products and services. Further, an entrepreneur is an innovator who recognizes and
seizes opportunities, coverts those opportunities into workable ideas, adds value through money,
time, effort and skills, assumes the risk of the competitive market place to implement these ideas
and realizes the rewards from these efforts.
Entrepreneurship is of two types: opportunity-based entrepreneurship and necessity-based
entrepreneurship. In Opportunity-based entrepreneurship, an entrepreneur perceives a business
opportunity and chooses to pursue this as an active career whereas in necessity-based
entrepreneurship, an entrepreneur is left with no other viable option to earn a living. It is not the
choice but a compulsion, which makes him/her choose entrepreneurship as career. Two points
are worth noting in the two types of entrepreneurship: one is the motivation to entrepreneurship,
which can be opportunity or necessity-led. Secondly, entrepreneurship, whether opportunity or
necessity-led is pursued as a viable career option.
Entrepreneurship flourishes in communities where i) resources are mobile; ii) when
successful members of the community reinvest excess capital in projects of their community
members; iii) in communities in which success of members is celebrated rather than derided and
iv) in communities that see change as positive rather than negative.
STAGES IN ENTREPRENEURIAL PROCESS
The entrepreneurial process is a major barrier for every new and existing entrepreneur to
overcome. From getting the right idea to eventually building a successful business or not, all steps,
actions, and decision made by every entrepreneur would have to be highly calculated in the
smartest possible way. The five stages of the entrepreneurial process are:
1) Innovation/Discovery, which includes generating the idea, innovation, identifying a
market opportunity, information search, conception, screening ideas for feasibility,
identifying where to extract value and the development of the product or service.
Department of Civil Engineering Page 76
success. This function will benefit the economics of the countries as well as the world
bodies.
CONCEPTS OF ENTREPRENEURSHIP
The concept of entrepreneurship has been around as long as man existed. Entrepreneurship has
been and continues to be the main catalyst for business and economic development.
Entrepreneurship is the heart of the modern business, a force behind innovative businesses that
characterize the modern economy and a dynamic process of creating incremental wealth by
individuals who assume the major risks in terms of equity, time and/or career commitment of
providing value for some product or service. The concept of entrepreneurship cannot be complete
without talking of entrepreneurs – individuals who give entrepreneurship sense and version.
Entrepreneurship is an activity that is action-oriented. It is a world of immense creativity and
innovation inhabited by entrepreneurs, the individuals who innovate, take risk and create value in
form of new products and services. Further, an entrepreneur is an innovator who recognizes and
seizes opportunities, coverts those opportunities into workable ideas, adds value through money,
time, effort and skills, assumes the risk of the competitive market place to implement these ideas
and realizes the rewards from these efforts.
Entrepreneurship is of two types: opportunity-based entrepreneurship and necessity-based
entrepreneurship. In Opportunity-based entrepreneurship, an entrepreneur perceives a business
opportunity and chooses to pursue this as an active career whereas in necessity-based
entrepreneurship, an entrepreneur is left with no other viable option to earn a living. It is not the
choice but a compulsion, which makes him/her choose entrepreneurship as career. Two points
are worth noting in the two types of entrepreneurship: one is the motivation to entrepreneurship,
which can be opportunity or necessity-led. Secondly, entrepreneurship, whether opportunity or
necessity-led is pursued as a viable career option.
Entrepreneurship flourishes in communities where i) resources are mobile; ii) when
successful members of the community reinvest excess capital in projects of their community
members; iii) in communities in which success of members is celebrated rather than derided and
iv) in communities that see change as positive rather than negative.
STAGES IN ENTREPRENEURIAL PROCESS
The entrepreneurial process is a major barrier for every new and existing entrepreneur to
overcome. From getting the right idea to eventually building a successful business or not, all steps,
actions, and decision made by every entrepreneur would have to be highly calculated in the
smartest possible way. The five stages of the entrepreneurial process are:
1) Innovation/Discovery, which includes generating the idea, innovation, identifying a
market opportunity, information search, conception, screening ideas for feasibility,
identifying where to extract value and the development of the product or service.
Department of Civil Engineering Page 76
Construction Management and Entrepreneurship (15CV61)
2) Startup/Developing the business plan and triggering event, which includes gestation,
the motivation to start a business, the decision to proceed, the business planning,
identifying the different resources required, risk assessment, resource acquisition and
assembling.
3) Resourcing: The third step is the entrepreneurial process is resourcing, wherein the
entrepreneur identifies the sources from where the finance and the human resource can be
arranged. Here, the entrepreneur finds the investors for its new venture and the personnel
to carry out the business activities.
4) Implementation and managing the company: Implementation, which includes infancy,
incorporation, setting up and launching the new venture, business strategy, implementing
the business plan, running the business, deploying the resources, building success and
managing the venture.
5) Growth and Harvesting and Expansion: The final step in the entrepreneurial process is
growth and harvesting wherein, an entrepreneur decides on the future prospects of the
business, i.e. its growth and development. Here, the actual growth is compared against the
planned growth and then the decision regarding the stability or the expansion of business
operations is undertaken accordingly, by an entrepreneur.
DIFFERENT SOURCES OF FINANCE FOR ENTREPRENEUR
1) Personal investment: When starting a business, our first investor should be ourselves –
either with our own cash or with collateral on our assets. This proves to investors and
bankers that we have a long-term commitment to our project and that we are ready to take
risks.
Advantages: No time going hat-in-hand to investors and we don’t have to relinquish any
control in our company.
2) Love money: This is money loaned by a spouse, parents, family or friends. Investors and
bankers consider this as “patient capital”, which is money that will be repaid later as your
business profits increase.
When borrowing love money, we should be aware that:
Family and friends rarely have much capital
They may want to have equity in your business
A business relationship with family or friends should never be taken lightly.
3) Venture Capital: The first thing to keep in mind is that venture capital is not necessarily
for all entrepreneurs. Ring from the start, we should be aware that venture capitalists are
looking for technology-driven businesses and companies with high-growth potential in
sectors such as information technology, communications and biotechnology.
Department of Civil Engineering Page 77
2) Startup/Developing the business plan and triggering event, which includes gestation,
the motivation to start a business, the decision to proceed, the business planning,
identifying the different resources required, risk assessment, resource acquisition and
assembling.
3) Resourcing: The third step is the entrepreneurial process is resourcing, wherein the
entrepreneur identifies the sources from where the finance and the human resource can be
arranged. Here, the entrepreneur finds the investors for its new venture and the personnel
to carry out the business activities.
4) Implementation and managing the company: Implementation, which includes infancy,
incorporation, setting up and launching the new venture, business strategy, implementing
the business plan, running the business, deploying the resources, building success and
managing the venture.
5) Growth and Harvesting and Expansion: The final step in the entrepreneurial process is
growth and harvesting wherein, an entrepreneur decides on the future prospects of the
business, i.e. its growth and development. Here, the actual growth is compared against the
planned growth and then the decision regarding the stability or the expansion of business
operations is undertaken accordingly, by an entrepreneur.
DIFFERENT SOURCES OF FINANCE FOR ENTREPRENEUR
1) Personal investment: When starting a business, our first investor should be ourselves –
either with our own cash or with collateral on our assets. This proves to investors and
bankers that we have a long-term commitment to our project and that we are ready to take
risks.
Advantages: No time going hat-in-hand to investors and we don’t have to relinquish any
control in our company.
2) Love money: This is money loaned by a spouse, parents, family or friends. Investors and
bankers consider this as “patient capital”, which is money that will be repaid later as your
business profits increase.
When borrowing love money, we should be aware that:
Family and friends rarely have much capital
They may want to have equity in your business
A business relationship with family or friends should never be taken lightly.
3) Venture Capital: The first thing to keep in mind is that venture capital is not necessarily
for all entrepreneurs. Ring from the start, we should be aware that venture capitalists are
looking for technology-driven businesses and companies with high-growth potential in
sectors such as information technology, communications and biotechnology.
Department of Civil Engineering Page 77
Construction Management and Entrepreneurship (15CV61)
4) Angels: Angels are generally wealthy individuals or retired company executives who invest
directly in small firms owned by others. They are often leaders in their own field who not
only contribute their experience and network of contacts but also their technical and/or
management knowledge.
In exchange for risking their money, they reserve the right to supervise the company’s
management practices. In concrete terms, this often involves a seat on the board of
directors and an assurance of transparency. Angels tend to keep a low profile. To meet
them, we have to contact specialized associations or search websites on angels.
5) Business incubators: Business incubators (or ‘accelerators”) generally focus on the high-
tech sector by providing support for new businesses in various stages of development.
Commonly, incubators will invite future businesses and other fledgling companies to share
their premises, as well as their administrative, logistical and technical resources.
Generally, the incubation phase can last up to two years. Once the product is ready, the
business usually leaves the incubator’s premises to enter its industrial production phase
and is on its own. Businesses that receive this kind of support often operate within state-
of-the art sectors such as biotechnology, information technology, multimedia, or industrial
technology.
6) Government grants and subsides: Government agencies provide financing such as grants
and subsides that may be available to our business. Our government business network
website provides a comprehensive listing of various government programs at the state and
national level.
CENTRAL AND STATE LEVEL FINANCIAL INSTITUTIONS
Financial institutions may be a government-regulated or a private entity that offer financial
services to their customers. These institutions control the flow of cash from an investor to a
company and vice versa within and outside a country. Financial institutions cater to clients
ranging from individuals to big organizations, depending on their size the services offered.
Broadly speaking, financial institutions deal in the sectors pertaining to mortgage, automobile,
homeowner, personal business and corporate finance.
The financial institutions in India mainly comprises of the Central Bank which is better known as
the Reserve Bank of India (RBI), the Commercial Banks, the Credit Rating agencies, the Securities
and Exchange Board of India (SEBI), Insurance companies and the specialized financial
institutions in India.
1) Reserve Bank of India (RBI): The RBI was founded the year 1935 with a view to organize
the financial frame work and facilitate fiscal stability in India. The bank acts as the
regulatory authority with regard to the functioning of the various commercial bank and the
Department of Civil Engineering Page 78
4) Angels: Angels are generally wealthy individuals or retired company executives who invest
directly in small firms owned by others. They are often leaders in their own field who not
only contribute their experience and network of contacts but also their technical and/or
management knowledge.
In exchange for risking their money, they reserve the right to supervise the company’s
management practices. In concrete terms, this often involves a seat on the board of
directors and an assurance of transparency. Angels tend to keep a low profile. To meet
them, we have to contact specialized associations or search websites on angels.
5) Business incubators: Business incubators (or ‘accelerators”) generally focus on the high-
tech sector by providing support for new businesses in various stages of development.
Commonly, incubators will invite future businesses and other fledgling companies to share
their premises, as well as their administrative, logistical and technical resources.
Generally, the incubation phase can last up to two years. Once the product is ready, the
business usually leaves the incubator’s premises to enter its industrial production phase
and is on its own. Businesses that receive this kind of support often operate within state-
of-the art sectors such as biotechnology, information technology, multimedia, or industrial
technology.
6) Government grants and subsides: Government agencies provide financing such as grants
and subsides that may be available to our business. Our government business network
website provides a comprehensive listing of various government programs at the state and
national level.
CENTRAL AND STATE LEVEL FINANCIAL INSTITUTIONS
Financial institutions may be a government-regulated or a private entity that offer financial
services to their customers. These institutions control the flow of cash from an investor to a
company and vice versa within and outside a country. Financial institutions cater to clients
ranging from individuals to big organizations, depending on their size the services offered.
Broadly speaking, financial institutions deal in the sectors pertaining to mortgage, automobile,
homeowner, personal business and corporate finance.
The financial institutions in India mainly comprises of the Central Bank which is better known as
the Reserve Bank of India (RBI), the Commercial Banks, the Credit Rating agencies, the Securities
and Exchange Board of India (SEBI), Insurance companies and the specialized financial
institutions in India.
1) Reserve Bank of India (RBI): The RBI was founded the year 1935 with a view to organize
the financial frame work and facilitate fiscal stability in India. The bank acts as the
regulatory authority with regard to the functioning of the various commercial bank and the
Department of Civil Engineering Page 78
Construction Management and Entrepreneurship (15CV61)
other financial institutions in India. The bank formulates different rates and policies for the
overall improvement of the banking sector. It issue currency notes and offers aids to the
central and institutions governments.
2) Commercial Banks in India: The commercial banks in India are categorized into foreign
banks, private bank and the public sector banks. The commercial banks indulge in varied
activities such as acceptance of deposits, acting as trustees, offering loan for the different
purposes and are even allowed to collect taxes on behalf of the institutions and central
government.
Credit Rating Agencies in India: The credit rating agencies in India were mainly formed to
assess the condition of the financial sector and to find our avenues for more improvement.
The credit rating agencies offer various services as:
Operation Up gradation
Training to Employees
Scrutinize New Projects and find out the weak sections in it
Rate different sectors
The two most important credit rating agencies in India are:
CRISIL
ICRA
3) Securities and Exchange Board of India (SEBI): The SEBI was established in the year
1992 in order to protect the interests of the investors and to facilitate the functioning of the
market intermediaries. They supervise market conditions, register institutions and indulge
in risk management.
4) Specialized Financial Institutions in India: The specialized financial institutions in India
are government undertakings that were set up to provide assistance to the different sectors
and thereby cause overall development of the Indian economy. The significant institutions
falling under this category includes:
Board for Industrial & Financial Reconstruction
Export-Import Bank of India
Small Industries Development Bank of India
National Housing Bank
Department of Civil Engineering Page 79
other financial institutions in India. The bank formulates different rates and policies for the
overall improvement of the banking sector. It issue currency notes and offers aids to the
central and institutions governments.
2) Commercial Banks in India: The commercial banks in India are categorized into foreign
banks, private bank and the public sector banks. The commercial banks indulge in varied
activities such as acceptance of deposits, acting as trustees, offering loan for the different
purposes and are even allowed to collect taxes on behalf of the institutions and central
government.
Credit Rating Agencies in India: The credit rating agencies in India were mainly formed to
assess the condition of the financial sector and to find our avenues for more improvement.
The credit rating agencies offer various services as:
Operation Up gradation
Training to Employees
Scrutinize New Projects and find out the weak sections in it
Rate different sectors
The two most important credit rating agencies in India are:
CRISIL
ICRA
3) Securities and Exchange Board of India (SEBI): The SEBI was established in the year
1992 in order to protect the interests of the investors and to facilitate the functioning of the
market intermediaries. They supervise market conditions, register institutions and indulge
in risk management.
4) Specialized Financial Institutions in India: The specialized financial institutions in India
are government undertakings that were set up to provide assistance to the different sectors
and thereby cause overall development of the Indian economy. The significant institutions
falling under this category includes:
Board for Industrial & Financial Reconstruction
Export-Import Bank of India
Small Industries Development Bank of India
National Housing Bank
Department of Civil Engineering Page 79
Construction Management and Entrepreneurship (15CV61)
MODULE – 5
B) MICRO, SMALL AND MEDIUM ENTERPRISES (MSME)
DEFINITION
Ministry of Micro, Small and Medium Enterprises (MSMEs) has made an act in 2006 called Micro,
Small and Medium Enterprises Development (MSMED) Act, 2006. As per this act, the Micro, Small
and Medium Enterprises (MSME) are classified in two classes:
1. Manufacturing Enterprises: The enterprises engaged in the manufacture or production of
goods pertaining to any industry specified in the first schedule to the industries (Development and
regulation) Act, 1951) or employing plant and machinery in the process of value addition to the
final product having a distinct name or character or use.
2. Service Enterprises: The enterprises engaged in providing or rendering services and are
defined in terms of investment in equipment.
A micro enterprise is an enterprise where the investment in equipment does not exceed
Rs.10 lakh.
A small enterprise is an enterprise where the investment in equipment is more than Rs.10
lakh but does not exceed Rs.2 crore.
A medium enterprise is an enterprise where the investment in equipment is more than Rs.2
crore but does not exceed Rs.5 crore.
CHARACTERISTICS
The following are the common characteristics of MSMEs:
Individual Initiatives and skill: SME start-ups tend to evolve along a single entrepreneur
or a small group of entrepreneurs in many cases leveraging on a skill set. There are other
SMEs being set up purely as a means of earning livelihood. These include many trading and
retail establishments while continuing SMEs as to manufacturing services, other adopt a
broader definition and include retailing as well.
Scaling manufacturing capabilities and Operational Flexibility: The direct involvement
of owner(s), coupled with flat hierarchical structures and less number of people ensure
that there is greater operational flexibility. Decision making such as changes in price mix or
product mix in response to market conditions impossible to the MSMEs in a speedy
manner.
Balancing the distribution of wealth and lowering cost of Production: SMEs have
power overheads. This translates to lower cost of production, least up to limited volumes
and distributes wealth among various levels.
Department of Civil Engineering Page 80
MODULE – 5
B) MICRO, SMALL AND MEDIUM ENTERPRISES (MSME)
DEFINITION
Ministry of Micro, Small and Medium Enterprises (MSMEs) has made an act in 2006 called Micro,
Small and Medium Enterprises Development (MSMED) Act, 2006. As per this act, the Micro, Small
and Medium Enterprises (MSME) are classified in two classes:
1. Manufacturing Enterprises: The enterprises engaged in the manufacture or production of
goods pertaining to any industry specified in the first schedule to the industries (Development and
regulation) Act, 1951) or employing plant and machinery in the process of value addition to the
final product having a distinct name or character or use.
2. Service Enterprises: The enterprises engaged in providing or rendering services and are
defined in terms of investment in equipment.
A micro enterprise is an enterprise where the investment in equipment does not exceed
Rs.10 lakh.
A small enterprise is an enterprise where the investment in equipment is more than Rs.10
lakh but does not exceed Rs.2 crore.
A medium enterprise is an enterprise where the investment in equipment is more than Rs.2
crore but does not exceed Rs.5 crore.
CHARACTERISTICS
The following are the common characteristics of MSMEs:
Individual Initiatives and skill: SME start-ups tend to evolve along a single entrepreneur
or a small group of entrepreneurs in many cases leveraging on a skill set. There are other
SMEs being set up purely as a means of earning livelihood. These include many trading and
retail establishments while continuing SMEs as to manufacturing services, other adopt a
broader definition and include retailing as well.
Scaling manufacturing capabilities and Operational Flexibility: The direct involvement
of owner(s), coupled with flat hierarchical structures and less number of people ensure
that there is greater operational flexibility. Decision making such as changes in price mix or
product mix in response to market conditions impossible to the MSMEs in a speedy
manner.
Balancing the distribution of wealth and lowering cost of Production: SMEs have
power overheads. This translates to lower cost of production, least up to limited volumes
and distributes wealth among various levels.
Department of Civil Engineering Page 80
Construction Management and Entrepreneurship (15CV61)
High Propensity to Adopt Technology: Traditionally MSMEs have shown a propensity of
being able to adopt and internalize the technology being used by them.
High Capacity to Innovate Export: MSMEs skill in innovation, improvisation and reverse
engineering are legendary. By being able to meet niche requirements, they are also able to
capture export markets where volumes are not huge.
High Employment Orientation: MSMEs are usually the prime drives of jobs, in some cases
creating up to 80 percent jobs. MSMEs tend to be labour intensive and are able to generate
more jobs for every unit of investment, compared to their bigger counterparts.
Curtailing regional disparities: Due to divisibility of operations is easier, and enjoys the
flexibility of location, Thus, MSMEs can be found spread virtually right across, even though
some specific location emerges as ‘clusters’.
OBJECTIVES
Imparting greater vitality and growth impetus to the small, tiny and village enterprises in terms of
output, employment and exports and instilling a competitive culture based on heightened
technology awareness is the main objective of MSME. The twelfth plan has listed the following
objectives for the MSME sector.
Promoting competitiveness and productivity in the MSME space
Making the MSME sector innovative, improving technology and depth
Enabling environment for promotion and development of MSMEs
Strong presence in exports
Improved managerial processes in MSMEs
SCOPE
MSME sector in India plays a leading role in attaining the balanced and sustainable industrial and
economic development, employment generation and development of entrepreneurial skills among
the people of the country and increasing the export earning of the country.
The following are the scope of MSMEs:
Employment generation
Increased Export earnings
Increased production
Assisting in satisfying the requirement of medium and large scale industries
Development of entrepreneurial skills among the people
Decentralization of ownership
Elimination of monopoly power in the market
Avoidance of concentration of wealth and power
Ensure the balanced economic and social development of the country
Department of Civil Engineering Page 81
High Propensity to Adopt Technology: Traditionally MSMEs have shown a propensity of
being able to adopt and internalize the technology being used by them.
High Capacity to Innovate Export: MSMEs skill in innovation, improvisation and reverse
engineering are legendary. By being able to meet niche requirements, they are also able to
capture export markets where volumes are not huge.
High Employment Orientation: MSMEs are usually the prime drives of jobs, in some cases
creating up to 80 percent jobs. MSMEs tend to be labour intensive and are able to generate
more jobs for every unit of investment, compared to their bigger counterparts.
Curtailing regional disparities: Due to divisibility of operations is easier, and enjoys the
flexibility of location, Thus, MSMEs can be found spread virtually right across, even though
some specific location emerges as ‘clusters’.
OBJECTIVES
Imparting greater vitality and growth impetus to the small, tiny and village enterprises in terms of
output, employment and exports and instilling a competitive culture based on heightened
technology awareness is the main objective of MSME. The twelfth plan has listed the following
objectives for the MSME sector.
Promoting competitiveness and productivity in the MSME space
Making the MSME sector innovative, improving technology and depth
Enabling environment for promotion and development of MSMEs
Strong presence in exports
Improved managerial processes in MSMEs
SCOPE
MSME sector in India plays a leading role in attaining the balanced and sustainable industrial and
economic development, employment generation and development of entrepreneurial skills among
the people of the country and increasing the export earning of the country.
The following are the scope of MSMEs:
Employment generation
Increased Export earnings
Increased production
Assisting in satisfying the requirement of medium and large scale industries
Development of entrepreneurial skills among the people
Decentralization of ownership
Elimination of monopoly power in the market
Avoidance of concentration of wealth and power
Ensure the balanced economic and social development of the country
Department of Civil Engineering Page 81
Construction Management and Entrepreneurship (15CV61)
ROLE OF MSME IN ECONOMIC DEVELOPMENT
MSMEs are vital for economic growth and development because they encourage
entrepreneurship, generate employment, and reduce poverty. MSMEs have contributed to
economic development by creating employment for rural and urban growing labour force,
providing desirable sustainability and innovation in the economy as a whole. MSMEs in India have
employed more labour-intensive production processes than large enterprises. The other features
that make MSMEs role very important to the economy are:
1) Providing a platform for low capital cost of establishment
2) Leading to addition of output of goods and services to economy
3) Facilitates fast decision making due to less staff and more control of an entrepreneur
4) Availability of raw material at door step
5) Providing various items of daily use at affordable cost
6) Providing innovative products catering to the needs of the entire and even especially of a
particular region
7) Providing reduction of income disparities and an admirable propagation ground for
entrepreneurial talent
8) Promotes entrepreneurship
ADVANTAGES OF MSME
To be successful in today’s rapidly changing economy with its constantly emerging new
technology / market opportunities, market shifts and competition threats, a company must stay
close to its customers and be flexible, entrepreneurial, innovative and fast. MSMEs possess all
these strengths as well as some other advantages are:
Low cost of production
Greater flexibility
High capacity to innovate exports
Reduction of regional imbalance
Development of entrepreneurial skills among the people
Decentralization of ownership
Elimination of monopoly power in the market
DIFFERENT SCHEMES
Technical Consultancy Services Organisation of Karnataka: TECSOK
It is a multidisciplinary technical, industrial and management consultancy organization set up for product
design and development. TECSOK has been excelling its expertise in a wide range of services.
OBJECTIVES:
The main objective of TECSOK is to provide package of services includes feasibility studies, market
research, valuation of assets, environment impact studies, energy management and audit, management
Department of Civil Engineering Page 82
ROLE OF MSME IN ECONOMIC DEVELOPMENT
MSMEs are vital for economic growth and development because they encourage
entrepreneurship, generate employment, and reduce poverty. MSMEs have contributed to
economic development by creating employment for rural and urban growing labour force,
providing desirable sustainability and innovation in the economy as a whole. MSMEs in India have
employed more labour-intensive production processes than large enterprises. The other features
that make MSMEs role very important to the economy are:
1) Providing a platform for low capital cost of establishment
2) Leading to addition of output of goods and services to economy
3) Facilitates fast decision making due to less staff and more control of an entrepreneur
4) Availability of raw material at door step
5) Providing various items of daily use at affordable cost
6) Providing innovative products catering to the needs of the entire and even especially of a
particular region
7) Providing reduction of income disparities and an admirable propagation ground for
entrepreneurial talent
8) Promotes entrepreneurship
ADVANTAGES OF MSME
To be successful in today’s rapidly changing economy with its constantly emerging new
technology / market opportunities, market shifts and competition threats, a company must stay
close to its customers and be flexible, entrepreneurial, innovative and fast. MSMEs possess all
these strengths as well as some other advantages are:
Low cost of production
Greater flexibility
High capacity to innovate exports
Reduction of regional imbalance
Development of entrepreneurial skills among the people
Decentralization of ownership
Elimination of monopoly power in the market
DIFFERENT SCHEMES
Technical Consultancy Services Organisation of Karnataka: TECSOK
It is a multidisciplinary technical, industrial and management consultancy organization set up for product
design and development. TECSOK has been excelling its expertise in a wide range of services.
OBJECTIVES:
The main objective of TECSOK is to provide package of services includes feasibility studies, market
research, valuation of assets, environment impact studies, energy management and audit, management
Department of Civil Engineering Page 82
Construction Management and Entrepreneurship (15CV61)
studies like corporate plan, reorganization and restructuring of enterprises, man power planning,
budgetary control systems, mergers and acquisitions, investment opportunities, technology transfers,
diagnostic studies and also designing and organizing training programmes in all related areas. Of late.
TECSOK is also concentrating on studies relating to Cleaner Production Technologies and methods. TECSOK
has been considered by the Government of Karnataka, Government of India, State and Central Financial
Institutions, Commercial Banks, Asian Development Bank and A host of other institutions of the
Government and Private as the recognised consultancy agency.
Karnataka Industrial Areas Development Board: KIADB
It is statutory body, constituted under Sec.5 of Karnataka Industrial Areas Development, which provides for
expeditious acquisition of lands for industrial and infrastructure purposes. KIADB, besides forming layouts
with all infrastructure facilities for promotion of industries, also acquires lands in favour of various State
and Central Govt. Departments/Organizations and Single Unit Complexes, for setting up their projects on
standalone basis.
A typical industrial area developed by the Board will have following infrastructure facilities:
Approach roads and internal roads with storm water drains
Power supply and street lighting, Water supply, Power sub-stations
CETP/STP
Technical training centres and R&D centres
Common facilities centers to accommodate Banks, Post Offices, Telephone Exchanges, Dispensaries
and Canteens, HOTELS and Hospitals
Housing tenements to provide housing facility to the labour force working in the industrial units.
Karnataka State Small Industries Development Corporation Ltd: KSSIDC
It is a Government of Karnataka Undertaking. It is established for providing basic infrastructure facilities
for the uplifting of small-scale industries in the State of Karnataka. Initially corporation started with the
following main objectives:
To establish and manage the industrial estates
To procure and distribute raw material
To disseminate information by participating in the internal and international exhibitions
To assist towards marketing
To supply machinery under hire-purchase scheme
To promote exports
District Industries Center: DIC
In each district one agency to deal with all requirements of small and village industries. The DICs were
established with a view to provide integrated administrative framework at the district level with
professionally qualified personnel in technology, marketing, credit, economic investigation, raw materials,
so that DICs would be the ‘single window’ raw materials, through which all type of assistance would be
channelled to the small-scale sector.
Single Window Agencies:
Department of Civil Engineering Page 83
studies like corporate plan, reorganization and restructuring of enterprises, man power planning,
budgetary control systems, mergers and acquisitions, investment opportunities, technology transfers,
diagnostic studies and also designing and organizing training programmes in all related areas. Of late.
TECSOK is also concentrating on studies relating to Cleaner Production Technologies and methods. TECSOK
has been considered by the Government of Karnataka, Government of India, State and Central Financial
Institutions, Commercial Banks, Asian Development Bank and A host of other institutions of the
Government and Private as the recognised consultancy agency.
Karnataka Industrial Areas Development Board: KIADB
It is statutory body, constituted under Sec.5 of Karnataka Industrial Areas Development, which provides for
expeditious acquisition of lands for industrial and infrastructure purposes. KIADB, besides forming layouts
with all infrastructure facilities for promotion of industries, also acquires lands in favour of various State
and Central Govt. Departments/Organizations and Single Unit Complexes, for setting up their projects on
standalone basis.
A typical industrial area developed by the Board will have following infrastructure facilities:
Approach roads and internal roads with storm water drains
Power supply and street lighting, Water supply, Power sub-stations
CETP/STP
Technical training centres and R&D centres
Common facilities centers to accommodate Banks, Post Offices, Telephone Exchanges, Dispensaries
and Canteens, HOTELS and Hospitals
Housing tenements to provide housing facility to the labour force working in the industrial units.
Karnataka State Small Industries Development Corporation Ltd: KSSIDC
It is a Government of Karnataka Undertaking. It is established for providing basic infrastructure facilities
for the uplifting of small-scale industries in the State of Karnataka. Initially corporation started with the
following main objectives:
To establish and manage the industrial estates
To procure and distribute raw material
To disseminate information by participating in the internal and international exhibitions
To assist towards marketing
To supply machinery under hire-purchase scheme
To promote exports
District Industries Center: DIC
In each district one agency to deal with all requirements of small and village industries. The DICs were
established with a view to provide integrated administrative framework at the district level with
professionally qualified personnel in technology, marketing, credit, economic investigation, raw materials,
so that DICs would be the ‘single window’ raw materials, through which all type of assistance would be
channelled to the small-scale sector.
Single Window Agencies:
Department of Civil Engineering Page 83
Construction Management and Entrepreneurship (15CV61)
SISI: Small Industries Service Institute
The small industries service institutes have been set up in state capitals and other places all over the
country to provide consultancy and training to small entrepreneurs both existing and prospective.
The main functions of SISI include:
To serve as interface between central and state government
To render technical support services
To conduct entrepreneurship development programmes
To initiate promotional programmes
The SISIs also render assistance in the following areas:
Economic consultancy/information/EDP consultancy
Trade and market information
Project profiles
State industrial potential surveys
District industrial potential surveys
Modernization and in plant studies
Workshop facilities
Training in various trade/activities
National Small Industries Corporation: NSIC
It was established in 1955
Objectives: Supplying machine / equipments on hire purchase basis and assisting them in processing
Government orders for various items of stores.
Functions:
Develop SSI units as ancillary units
Providing SSI units with m/c on HP
Stores purchase programme to assist entrepreneurs
Assist small industries with marketing facilities
Distribute basic raw materials
Import and distribute components and parts to small scale units
Small Industries Development Bank of India:
SIDBI It was set up as subsidiary of IDBI in 1989.
Purpose: Financing small scale sector and coordinating the functions of institutions engages in similar
activities.
Functions:
Refinancing loans and by primary lending institutions
Discounting and rediscounting of bills
Seed capital assistance and soft loan assistance
Department of Civil Engineering Page 84
SISI: Small Industries Service Institute
The small industries service institutes have been set up in state capitals and other places all over the
country to provide consultancy and training to small entrepreneurs both existing and prospective.
The main functions of SISI include:
To serve as interface between central and state government
To render technical support services
To conduct entrepreneurship development programmes
To initiate promotional programmes
The SISIs also render assistance in the following areas:
Economic consultancy/information/EDP consultancy
Trade and market information
Project profiles
State industrial potential surveys
District industrial potential surveys
Modernization and in plant studies
Workshop facilities
Training in various trade/activities
National Small Industries Corporation: NSIC
It was established in 1955
Objectives: Supplying machine / equipments on hire purchase basis and assisting them in processing
Government orders for various items of stores.
Functions:
Develop SSI units as ancillary units
Providing SSI units with m/c on HP
Stores purchase programme to assist entrepreneurs
Assist small industries with marketing facilities
Distribute basic raw materials
Import and distribute components and parts to small scale units
Small Industries Development Bank of India:
SIDBI It was set up as subsidiary of IDBI in 1989.
Purpose: Financing small scale sector and coordinating the functions of institutions engages in similar
activities.
Functions:
Refinancing loans and by primary lending institutions
Discounting and rediscounting of bills
Seed capital assistance and soft loan assistance
Department of Civil Engineering Page 84
Construction Management and Entrepreneurship (15CV61)
Direct assistance of SBI sector
Factoring and leasing services
Financial support to SSIDC
Financial support to NSIC
Assistance in marketing entrepreneurship
1. National Equity Fund Scheme: which provides equity support to small entrepreneurs setting up projects
in tiny sector.
2. Technology Development and Modernisation Fund Scheme: for providing finance to existing SSI units for
technology upgradation / modernization.
3. Single Window Scheme: to provide both term loan for fixed assets and loan for working capital through
the same agency.
4. Composite Loan Scheme: for equipment and/or working capital and also for worksheds to artisans,
village and cottage industries in Tiny Sector.
5. Mahila Udyam Nidhi (MUN) Scheme: provides equity support to women entrepreneurs for setting up
projects in Tiny Sector.
6. Scheme for financing activities relating to marketing of SSI products: which provides assistance for
undertaking various marketing related activities such as marketing research, R&D, product upgradation,
participation in trade fairs and exhibitions, advertising branding, establishing distribution networks
including show room, retail outlet, wears-housing facility, etc.
7. Equipment Finance Scheme: for acquisition of machinery / equipment including Diesel Generator sets
which are not related to any specific project.
8. Venture Capital Scheme: to encourage SSI ventures/sub-contracting units to acquire capital equipment,
as also requisite technology for building up of export capabilities/import substitution including cost of total
quality management and acquisition of ISO-9000 certification and for expansion of capacity.
9. ISO 9000 Scheme: to meet the expenses on consultancy, documentation, audit, certification fee,
equipment and calibrating instruments required for obtaining ISO 9000 certification.
10. Micro Credit Scheme: to meet the requirement of well managed Voluntary Agencies that are in
existence for at least 5 years; have a good track record and have established network and experience in
small savings-cum-credit programmes with Self Help Groups (SHGs) individuals.
Karnataka State Finance Corporation: KSFC
KSFC is one of the robust and professionally managed State Corporations. The department will have to
focus and identify valuable vacant landed assets in the prime localities, to start with Bangalore City, owned
by various government department / governmental agencies, PSUs, Registered Societies, Trust and private
parties with whom joint development of the property can be explored. Initially, it is proposed to explore
joint development in the properties owned by the government departments/ agencies/socieites etc., and
later on, depending upon the situation, joint development with the private will be explored. Once the land
is finalized, for joint development.
Department of Civil Engineering Page 85
Direct assistance of SBI sector
Factoring and leasing services
Financial support to SSIDC
Financial support to NSIC
Assistance in marketing entrepreneurship
1. National Equity Fund Scheme: which provides equity support to small entrepreneurs setting up projects
in tiny sector.
2. Technology Development and Modernisation Fund Scheme: for providing finance to existing SSI units for
technology upgradation / modernization.
3. Single Window Scheme: to provide both term loan for fixed assets and loan for working capital through
the same agency.
4. Composite Loan Scheme: for equipment and/or working capital and also for worksheds to artisans,
village and cottage industries in Tiny Sector.
5. Mahila Udyam Nidhi (MUN) Scheme: provides equity support to women entrepreneurs for setting up
projects in Tiny Sector.
6. Scheme for financing activities relating to marketing of SSI products: which provides assistance for
undertaking various marketing related activities such as marketing research, R&D, product upgradation,
participation in trade fairs and exhibitions, advertising branding, establishing distribution networks
including show room, retail outlet, wears-housing facility, etc.
7. Equipment Finance Scheme: for acquisition of machinery / equipment including Diesel Generator sets
which are not related to any specific project.
8. Venture Capital Scheme: to encourage SSI ventures/sub-contracting units to acquire capital equipment,
as also requisite technology for building up of export capabilities/import substitution including cost of total
quality management and acquisition of ISO-9000 certification and for expansion of capacity.
9. ISO 9000 Scheme: to meet the expenses on consultancy, documentation, audit, certification fee,
equipment and calibrating instruments required for obtaining ISO 9000 certification.
10. Micro Credit Scheme: to meet the requirement of well managed Voluntary Agencies that are in
existence for at least 5 years; have a good track record and have established network and experience in
small savings-cum-credit programmes with Self Help Groups (SHGs) individuals.
Karnataka State Finance Corporation: KSFC
KSFC is one of the robust and professionally managed State Corporations. The department will have to
focus and identify valuable vacant landed assets in the prime localities, to start with Bangalore City, owned
by various government department / governmental agencies, PSUs, Registered Societies, Trust and private
parties with whom joint development of the property can be explored. Initially, it is proposed to explore
joint development in the properties owned by the government departments/ agencies/socieites etc., and
later on, depending upon the situation, joint development with the private will be explored. Once the land
is finalized, for joint development.
Department of Civil Engineering Page 85
Construction Management and Entrepreneurship (15CV61)
Resources:
1. Issue of shares
2. Issue of bonds and debentures guaranteed by state govt.
3. Medium / long term deposits
4. Borrowing from other financial institutions
5. Refinance from IDBI
Forms of Assistance:
1. Granting loans
2. Subscribing to debentures
3. Guaranteeing loans
4. Guaranteeing deferred payments
5. Subscribing to stocks
The objectives of KSFC are as follows:
1. To provide financial assistance in the form of term loans to tiny and ancillary units, small and medium
scale industries in Karnataka.
2. To encourage dispersal of industries to the backward areas to achieve balanced growth of the industries
3. To provide equipment leasing, hire etc.
Department of Civil Engineering Page 86
Resources:
1. Issue of shares
2. Issue of bonds and debentures guaranteed by state govt.
3. Medium / long term deposits
4. Borrowing from other financial institutions
5. Refinance from IDBI
Forms of Assistance:
1. Granting loans
2. Subscribing to debentures
3. Guaranteeing loans
4. Guaranteeing deferred payments
5. Subscribing to stocks
The objectives of KSFC are as follows:
1. To provide financial assistance in the form of term loans to tiny and ancillary units, small and medium
scale industries in Karnataka.
2. To encourage dispersal of industries to the backward areas to achieve balanced growth of the industries
3. To provide equipment leasing, hire etc.
Department of Civil Engineering Page 86
Construction Management and Entrepreneurship (15CV61)
MODULE – 5C
B) BUSINESS PLANNING PROCESS
BUSINESS PLANNING PROCESS
Business Planning is an ongoing process that must be done with great diligence whether the
company is looking for capital or not. The company’s plan shows the steps that must be completed
in order to reach its revenue and profit goals. The end product of this planning process is the
business plan document. Adequate business planning, the process of raising critical questions and
researching answers, helps entrepreneurs avoid those pit falls and bolster their original ideas into
better opportunities.
The following are some of the important steps used to develop a good successful business plan:
1. Summarize Our Vision: Answering questions about what we hope to accomplish how we plan to
reach our goals will guide us in making subsequent decisions.
2. Define Customer Need: Before starting a venture, we must be certain that our target customer
groups have a strong, even urgent need for the product or services that we will be offering. Show
that we are providing well-defined, quantifiable benefits, such as saving them 30% versus the
product that they have been using.
3. Research the Market: Investors seek out companies in markets that are just now emerging or
are about to enter a rapid growth phase. This is often called having a first-to-market advantage,
being the first company to take advantage of a new opportunity.
4. Analyze market and Study the Competition: Entrepreneurs often under estimate the strength of
their competitors and how entrenched they are within the market.
5. Design Our Company: Choose our company’s name, location and business model. Determine
how we will sell our product or service to our customer and how we will protect our competitive
advantage.
6. Develop a Business Model: Where will our revenues come from? That’s the central idea of a
business model. Present how many different ways we will generate revenues. If we can earn more
than one revenue stream from a customer, that is a positive factor in our model. The business
model also explains the factors and conditions that will cause our company to be profitable.
7. Devise Marketing Strategies: Show how we are going to convince customer to purchase our
products and services, and the marketing cost involved.
8. Describe How the Team Fits Together: Companies succeed because the right management team
has been assembled, not simply because they have a superior technology to offer the marketplace.
Department of Civil Engineering Page 87
MODULE – 5C
B) BUSINESS PLANNING PROCESS
BUSINESS PLANNING PROCESS
Business Planning is an ongoing process that must be done with great diligence whether the
company is looking for capital or not. The company’s plan shows the steps that must be completed
in order to reach its revenue and profit goals. The end product of this planning process is the
business plan document. Adequate business planning, the process of raising critical questions and
researching answers, helps entrepreneurs avoid those pit falls and bolster their original ideas into
better opportunities.
The following are some of the important steps used to develop a good successful business plan:
1. Summarize Our Vision: Answering questions about what we hope to accomplish how we plan to
reach our goals will guide us in making subsequent decisions.
2. Define Customer Need: Before starting a venture, we must be certain that our target customer
groups have a strong, even urgent need for the product or services that we will be offering. Show
that we are providing well-defined, quantifiable benefits, such as saving them 30% versus the
product that they have been using.
3. Research the Market: Investors seek out companies in markets that are just now emerging or
are about to enter a rapid growth phase. This is often called having a first-to-market advantage,
being the first company to take advantage of a new opportunity.
4. Analyze market and Study the Competition: Entrepreneurs often under estimate the strength of
their competitors and how entrenched they are within the market.
5. Design Our Company: Choose our company’s name, location and business model. Determine
how we will sell our product or service to our customer and how we will protect our competitive
advantage.
6. Develop a Business Model: Where will our revenues come from? That’s the central idea of a
business model. Present how many different ways we will generate revenues. If we can earn more
than one revenue stream from a customer, that is a positive factor in our model. The business
model also explains the factors and conditions that will cause our company to be profitable.
7. Devise Marketing Strategies: Show how we are going to convince customer to purchase our
products and services, and the marketing cost involved.
8. Describe How the Team Fits Together: Companies succeed because the right management team
has been assembled, not simply because they have a superior technology to offer the marketplace.
Department of Civil Engineering Page 87
Construction Management and Entrepreneurship (15CV61)
9. Prepare Financial Projections: Financial projections must be realistic and based on concrete
assumptions. How the company derived the number is just as important to investors as how
attractive the forecast profit appears.
MARKETING PLAN
A marketing plan is a comprehensive document or blueprint that summaries as business
advertising and marketing efforts for the coming year. It describes business activities involved in
accomplishing specific marketing objectives within a set time frame. To grow the business, we
need a marketing plan. The right marketing plan identifies everything from 1)Who is our target
customers 2)how we will reach them 3)how we will identify our competitors, 4)how we will
retain our customers so they repeatedly buy from us.
The marketing plan, will include the following steps:
1. Know our business
2. Products and /or Services
3. Pricing Strategy
4. Sales/Distribution Plan
5. Advertising and Promotions Plan
Step 1: Know our Business
We needed to do this exact same thing when working on our business plan, so this first step
shouldn’t be too difficult. Think of this step as our opportunity to provide a general overview of
our current business operations, as well as our internal and external environment.
Step 2: Know our Products and/or Services
Focus on the uniqueness of our product or service and how the customer will benefit from using
the products or services we’re offering.
Step 3: Determine the target market prince and Pricing Strategy
The pricing strategy portion of the marketing plan involves determining how we will price our
product or service; the price we charge has to be competitive but still allow us to make a
reasonable profit. Being “reasonable” is key; we can charge any price we want to, but for every
product or service there’s a limit to how much the customer is willing to pay. Our pricing strategy
needs to take this consumer threshold into account.
Step 4: Sales and Distribution Plan
The primary goal of the marketing plan is to get people to buy our products or services.
Traditionally there are three parts to the Sales and Distribution Section, although all three parts
may not apply to our business.
1) Outline the distribution methods to be used
Department of Civil Engineering Page 88
9. Prepare Financial Projections: Financial projections must be realistic and based on concrete
assumptions. How the company derived the number is just as important to investors as how
attractive the forecast profit appears.
MARKETING PLAN
A marketing plan is a comprehensive document or blueprint that summaries as business
advertising and marketing efforts for the coming year. It describes business activities involved in
accomplishing specific marketing objectives within a set time frame. To grow the business, we
need a marketing plan. The right marketing plan identifies everything from 1)Who is our target
customers 2)how we will reach them 3)how we will identify our competitors, 4)how we will
retain our customers so they repeatedly buy from us.
The marketing plan, will include the following steps:
1. Know our business
2. Products and /or Services
3. Pricing Strategy
4. Sales/Distribution Plan
5. Advertising and Promotions Plan
Step 1: Know our Business
We needed to do this exact same thing when working on our business plan, so this first step
shouldn’t be too difficult. Think of this step as our opportunity to provide a general overview of
our current business operations, as well as our internal and external environment.
Step 2: Know our Products and/or Services
Focus on the uniqueness of our product or service and how the customer will benefit from using
the products or services we’re offering.
Step 3: Determine the target market prince and Pricing Strategy
The pricing strategy portion of the marketing plan involves determining how we will price our
product or service; the price we charge has to be competitive but still allow us to make a
reasonable profit. Being “reasonable” is key; we can charge any price we want to, but for every
product or service there’s a limit to how much the customer is willing to pay. Our pricing strategy
needs to take this consumer threshold into account.
Step 4: Sales and Distribution Plan
The primary goal of the marketing plan is to get people to buy our products or services.
Traditionally there are three parts to the Sales and Distribution Section, although all three parts
may not apply to our business.
1) Outline the distribution methods to be used
Department of Civil Engineering Page 88
Construction Management and Entrepreneurship (15CV61)
2) Outline the transaction process between our business and our customers
3) If it’s applicable to our business, outline our sales strategy
Step 5: Advertising and Promotion Plan
Essentially the Advertising and Promotion Plan of the marketing plan describes how we’re going
to deliver our Unique Selling Proposition to our prospective customers.
FINANCIAL PLAN
The financial plan of a business plan includes various financial statements that show where our
company currently stands and where it expects to be in the near future. This information helps us
to determine how much financing our business needs and helps outsiders determine whether
lending us money or investing in our business is a wise use of their funds.
Basically, the financial plan consists of three financial statements, the income statement, the cash
flow projection and the balance sheet and a brief explanation / analysis of these three statements.
Our financial plan should include three key financial statements: the income statement, the
balance sheet and the cash flow statement.
1. Income Statement/Profit and Loss Statement
The Income Statement shows our revenues, expenses, and profit for a particular period. It’s
a snapshot of our business that shows whether or not our business is profitable at that point in
time; Revenue-Expenses = Profit/Loss.
2. Cash Flow Statement/Cash Budget
The Cash Flow Statement shows the sums expect to be coming into and going out of business in a
given time frame.
Cash flow statements not only show potential investors that we know what we’re doing, they also
help us to make sure our business model is financially viable and to establish goals that we want
to achieve.
3. Balance Sheet
The Balance Sheet shows company’s assets and liabilities. It’s called a balance sheet because the
assets must perfectly balance the liabilities. Within each category are numerous subcategories. For
example, assets will include cash, accounts receivable, inventory and equipment. Liabilities will
include accounts payable, wages and salaries, taxes, rent and utilities, and loan balances. The
Balance Sheet is important because it shows the company’s financial position at a specific point in
time and it compares what we own to what we owe.
Department of Civil Engineering Page 89
2) Outline the transaction process between our business and our customers
3) If it’s applicable to our business, outline our sales strategy
Step 5: Advertising and Promotion Plan
Essentially the Advertising and Promotion Plan of the marketing plan describes how we’re going
to deliver our Unique Selling Proposition to our prospective customers.
FINANCIAL PLAN
The financial plan of a business plan includes various financial statements that show where our
company currently stands and where it expects to be in the near future. This information helps us
to determine how much financing our business needs and helps outsiders determine whether
lending us money or investing in our business is a wise use of their funds.
Basically, the financial plan consists of three financial statements, the income statement, the cash
flow projection and the balance sheet and a brief explanation / analysis of these three statements.
Our financial plan should include three key financial statements: the income statement, the
balance sheet and the cash flow statement.
1. Income Statement/Profit and Loss Statement
The Income Statement shows our revenues, expenses, and profit for a particular period. It’s
a snapshot of our business that shows whether or not our business is profitable at that point in
time; Revenue-Expenses = Profit/Loss.
2. Cash Flow Statement/Cash Budget
The Cash Flow Statement shows the sums expect to be coming into and going out of business in a
given time frame.
Cash flow statements not only show potential investors that we know what we’re doing, they also
help us to make sure our business model is financially viable and to establish goals that we want
to achieve.
3. Balance Sheet
The Balance Sheet shows company’s assets and liabilities. It’s called a balance sheet because the
assets must perfectly balance the liabilities. Within each category are numerous subcategories. For
example, assets will include cash, accounts receivable, inventory and equipment. Liabilities will
include accounts payable, wages and salaries, taxes, rent and utilities, and loan balances. The
Balance Sheet is important because it shows the company’s financial position at a specific point in
time and it compares what we own to what we owe.
Department of Civil Engineering Page 89
Construction Management and Entrepreneurship (15CV61)
PROJECT REPORT AND FEASIBILITY STUDY
A Project Report is an important document which provides details on the overall picture of the
proposed business on investment decision-making, approval and planning, It gives an account of
the project proposal to ascertain the prospects of the proposed plan/activity. Whereas feasibility
study report is a base document for investment decision-making.
Project Report contains data on the basis of which the project has been appraised and found
feasible. It consists of information on economic, technical, financial, managerial and production
aspects. It enables the entrepreneur to know the inputs and helps him to obtain loans from banks
or financial institutions.
Detailed Project Report:
Detailed Project Report (DPR) is the principal report for the formulation of the investment
proposal. Investment decisions are taken based on the details incorporated in the study.
Preparation of Detailed Project Report is further step in firming up the proposal. When a
investment proposal has been approved on the basis of functional report and the proposal is a
major proposal, it would be necessary to detailed project report to firm up the proposal, it would
be necessary to detailed project report to firm up the proposal for the capital cost as well as the
various facilities. Detailed Project Reports are the base documents for further planning and
implementation of the project. It includes…
Examination of technological parameters
Description of the technology to be used
Broad technical specification
Evaluation of the existing resources.
Schedule plan
General layout
Volume of work
Detailed project report is prepared only for the investment decision-making approval, but also
execution of the project and also preparation of the plan. Detailed project report additionally
includes that is contents in addition to feasibility study report are:
Project description
Planning and implementation of the project
Specification
Layouts and flow diagrams
Feasibility study:
Before embarking on a new business or an expansion project, a project feasibility study is
quintessential to ascertain the viability of the project on various feasibility parameters like
Department of Civil Engineering Page 90
PROJECT REPORT AND FEASIBILITY STUDY
A Project Report is an important document which provides details on the overall picture of the
proposed business on investment decision-making, approval and planning, It gives an account of
the project proposal to ascertain the prospects of the proposed plan/activity. Whereas feasibility
study report is a base document for investment decision-making.
Project Report contains data on the basis of which the project has been appraised and found
feasible. It consists of information on economic, technical, financial, managerial and production
aspects. It enables the entrepreneur to know the inputs and helps him to obtain loans from banks
or financial institutions.
Detailed Project Report:
Detailed Project Report (DPR) is the principal report for the formulation of the investment
proposal. Investment decisions are taken based on the details incorporated in the study.
Preparation of Detailed Project Report is further step in firming up the proposal. When a
investment proposal has been approved on the basis of functional report and the proposal is a
major proposal, it would be necessary to detailed project report to firm up the proposal, it would
be necessary to detailed project report to firm up the proposal for the capital cost as well as the
various facilities. Detailed Project Reports are the base documents for further planning and
implementation of the project. It includes…
Examination of technological parameters
Description of the technology to be used
Broad technical specification
Evaluation of the existing resources.
Schedule plan
General layout
Volume of work
Detailed project report is prepared only for the investment decision-making approval, but also
execution of the project and also preparation of the plan. Detailed project report additionally
includes that is contents in addition to feasibility study report are:
Project description
Planning and implementation of the project
Specification
Layouts and flow diagrams
Feasibility study:
Before embarking on a new business or an expansion project, a project feasibility study is
quintessential to ascertain the viability of the project on various feasibility parameters like
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Construction Management and Entrepreneurship (15CV61)
technical, financial, operational etc. In other words, a project feasibility study or report provides a
window to envision the future of turning a business project into reality.
Feasibility study report is prepared to support the investment proposal. Feasibilities for the
various aspects related to technical, commercial and financial are examined in detail by the
experts and consultants brought in feasibility study report. Feasibility study report is termed as a
techno economic feasibility study.
Technical Feasibility: Technical feasibility study assesses the requirement and availability of
technical resources, expertise, infrastructure and technologies involved in the execution of a
project.
Financial or Economic Feasibility: There’s no point in carrying out a business project which is
financially unsustainable or would turn out to be a loss-making one.
Operational Feasibility: Operational feasibility study assesses the operability and problem-
solving abilities of a new project.
Legal Feasibility: Business or industry in any part of the world is regulated by the law of the land
in which it operates. Various permissions and licenses from the concerned authorities are
required to conduct business operations.
Schedule Feasibility: Project delays may also lead to cost escalation. Failing to make a project
operational as per its schedule may render it ineffective and uneconomical. Schedule feasibility
study analyses whether a project could be make operational within a reasonable and objective
time-frame.
Market Feasibility: The targeted size of the market must justify the degree of efforts and
investments involved in undertaking a new business project. Market feasibility study involves an
extensive research and analysis of the general economic conditions and the concerned industry,
market segmentation and total size of the market for the concerned product, completion and
targeted market share and customer demographics.
After the preparation of feasibility study report, it should be submitted to the experts of the
concerned departments of operation such as finance, commercial, project etc., to examine this.
PREPARING A MODEL PROJECT REPORT FOR STARTING A NEW VENTURE
The project report of a startup/new business venture is the road map for the business enterprise
to be successful. It does discusses whether the business requires finance or not, it’s challenging
risk, numerous problems en route. Hence, it becomes vital for all new ventures to prepare a
project report to acquaint themselves regarding the forewarning issues.
Department of Civil Engineering Page 91
technical, financial, operational etc. In other words, a project feasibility study or report provides a
window to envision the future of turning a business project into reality.
Feasibility study report is prepared to support the investment proposal. Feasibilities for the
various aspects related to technical, commercial and financial are examined in detail by the
experts and consultants brought in feasibility study report. Feasibility study report is termed as a
techno economic feasibility study.
Technical Feasibility: Technical feasibility study assesses the requirement and availability of
technical resources, expertise, infrastructure and technologies involved in the execution of a
project.
Financial or Economic Feasibility: There’s no point in carrying out a business project which is
financially unsustainable or would turn out to be a loss-making one.
Operational Feasibility: Operational feasibility study assesses the operability and problem-
solving abilities of a new project.
Legal Feasibility: Business or industry in any part of the world is regulated by the law of the land
in which it operates. Various permissions and licenses from the concerned authorities are
required to conduct business operations.
Schedule Feasibility: Project delays may also lead to cost escalation. Failing to make a project
operational as per its schedule may render it ineffective and uneconomical. Schedule feasibility
study analyses whether a project could be make operational within a reasonable and objective
time-frame.
Market Feasibility: The targeted size of the market must justify the degree of efforts and
investments involved in undertaking a new business project. Market feasibility study involves an
extensive research and analysis of the general economic conditions and the concerned industry,
market segmentation and total size of the market for the concerned product, completion and
targeted market share and customer demographics.
After the preparation of feasibility study report, it should be submitted to the experts of the
concerned departments of operation such as finance, commercial, project etc., to examine this.
PREPARING A MODEL PROJECT REPORT FOR STARTING A NEW VENTURE
The project report of a startup/new business venture is the road map for the business enterprise
to be successful. It does discusses whether the business requires finance or not, it’s challenging
risk, numerous problems en route. Hence, it becomes vital for all new ventures to prepare a
project report to acquaint themselves regarding the forewarning issues.
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Construction Management and Entrepreneurship (15CV61)
Following are the contents of a project report.
1. General Information: A project report must provide information about the details of the
industry to which the project belongs to. It must give information about
The past experience, present status, problems and future prospects of the industry.
The product to be manufactured and the reasons for selecting the product if the proposed
business is a manufacturing unit.
The demand for the product in the local, national and the global market.
The alternatives of business and should clarify the reasons for starting the business.
2. Executive Summary: A project report must state:
The objectives of the business and the methods through which the business can attain
success. The overall picture of the business must be stated in the project report: Capital,
operation, methods of functioning.
Execution of the business
Assumptions and the risks.
3. Organisation Summary: The project report should indicate the organization structure and
pattern proposed for the unit. It must state whether the ownership is based on sole
proprietorship, partnership or Joint Stock Company. It must provide information about:
The bio data of the promoters including financial soundness.
The name, address, age qualification and experience of the proprietors or promoters of the
proposed business.
4. Project Description: A brief description of the project must be stated and must give details about
the following:
Location of the site
Raw material requirements
Target of production
Area required for the work shed
Power requirements
Fuel requirement
Water requirements
Employment requirements of skilled and unskilled labour
Technology selected for the project
Production process
Projected production volumes, unit prices
Pollution treatment plants required.
If the business is service oriented, then it must state the type of services rendered to customers. It
should state the method of providing service to customer in detail.
5. Marketing Plan: The project report must clearly state:
The total expected demand for the product.
The price at which the product can be sold in the market
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Following are the contents of a project report.
1. General Information: A project report must provide information about the details of the
industry to which the project belongs to. It must give information about
The past experience, present status, problems and future prospects of the industry.
The product to be manufactured and the reasons for selecting the product if the proposed
business is a manufacturing unit.
The demand for the product in the local, national and the global market.
The alternatives of business and should clarify the reasons for starting the business.
2. Executive Summary: A project report must state:
The objectives of the business and the methods through which the business can attain
success. The overall picture of the business must be stated in the project report: Capital,
operation, methods of functioning.
Execution of the business
Assumptions and the risks.
3. Organisation Summary: The project report should indicate the organization structure and
pattern proposed for the unit. It must state whether the ownership is based on sole
proprietorship, partnership or Joint Stock Company. It must provide information about:
The bio data of the promoters including financial soundness.
The name, address, age qualification and experience of the proprietors or promoters of the
proposed business.
4. Project Description: A brief description of the project must be stated and must give details about
the following:
Location of the site
Raw material requirements
Target of production
Area required for the work shed
Power requirements
Fuel requirement
Water requirements
Employment requirements of skilled and unskilled labour
Technology selected for the project
Production process
Projected production volumes, unit prices
Pollution treatment plants required.
If the business is service oriented, then it must state the type of services rendered to customers. It
should state the method of providing service to customer in detail.
5. Marketing Plan: The project report must clearly state:
The total expected demand for the product.
The price at which the product can be sold in the market
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Construction Management and Entrepreneurship (15CV61)
The strategies to be employed to capture the market
If any, after sale service is provided that must also be stated in the project.
The mode of distribution of the product from the production unit to the market.
Project reports also include the following:
Type of customers
Target markets
Nature of market
Market segmentation
Future prospects of the market
Sales objectives
Marketing cost of the project
Market share of proposed venture
Demand for the product in the local, national and the global market
It must indicate potential users of products and distribution channels to be used for
distributing the product.
6. Capital Structure and Operating Cost: The project report must describe the total capital
requirements of the project. It must state:
The source of finance
The extent of owners funds and borrowed funds
Working capital requirements
The source of supply
Estimate of total project cost, must be broken down into land, construction of buildings and civil
works, plant and machinery, miscellaneous fixed assets, preliminary and preoperative expenses
and working capital.
Proposed financial structure of venture must indicate the expected source and terms of equity and
debt financing. This section must also spell out the operating cost.
7. Management plan: The project report should state the following.
Business experience of the promoters of the business
Details about the management team
Duties and responsibilities of team members
Current personnel needs of the organization
Methods of managing the business
Plans for hiring and training personnel
Programmes and policies of the management
8. Financial Aspects: In order to judge the profitability of the business a projected profit and loss
account and balance sheet must be presented in the project report. It must show the estimated
sales revenue, cost of production, gross profit and net profit likely to be earned by the proposed
unit. The project report must state whether the business is financially and economically viable.
Department of Civil Engineering Page 93
The strategies to be employed to capture the market
If any, after sale service is provided that must also be stated in the project.
The mode of distribution of the product from the production unit to the market.
Project reports also include the following:
Type of customers
Target markets
Nature of market
Market segmentation
Future prospects of the market
Sales objectives
Marketing cost of the project
Market share of proposed venture
Demand for the product in the local, national and the global market
It must indicate potential users of products and distribution channels to be used for
distributing the product.
6. Capital Structure and Operating Cost: The project report must describe the total capital
requirements of the project. It must state:
The source of finance
The extent of owners funds and borrowed funds
Working capital requirements
The source of supply
Estimate of total project cost, must be broken down into land, construction of buildings and civil
works, plant and machinery, miscellaneous fixed assets, preliminary and preoperative expenses
and working capital.
Proposed financial structure of venture must indicate the expected source and terms of equity and
debt financing. This section must also spell out the operating cost.
7. Management plan: The project report should state the following.
Business experience of the promoters of the business
Details about the management team
Duties and responsibilities of team members
Current personnel needs of the organization
Methods of managing the business
Plans for hiring and training personnel
Programmes and policies of the management
8. Financial Aspects: In order to judge the profitability of the business a projected profit and loss
account and balance sheet must be presented in the project report. It must show the estimated
sales revenue, cost of production, gross profit and net profit likely to be earned by the proposed
unit. The project report must state whether the business is financially and economically viable.
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Construction Management and Entrepreneurship (15CV61)
9. Technical Aspects: Project report provides information about the technology and technical
aspects of a project. It covers information on Technology selected for the project. Production
process, capacity of machinery, pollution control plants etc.
10. Project Implementation: Every proposed business unit draw a time table for the project. It
must indicate the time within the activities involved in establishing the enterprise can be
completed. Implementation schemes show the time table envisaged for project preparation and
completion.
11. Social Responsibility: The proposed unit draws inputs from the society. Hence its contribution
to the society in the form of employment, income, exports and infrastructure. The output of the
business must be indicated in the project report.
INTERNATIONAL ENTREPRENEURSHIP OPPORTUNITIES
The term international entrepreneurship was introduced around 1988 to describe the
many untapped foreign markets that were open to new ventures reflecting a new technological
and cultural environment. International Entrepreneurship is a cross-disciplinary field that
combines international business and entrepreneurship. In 1997, McDougall and Oviatt introduced
a broader definition of International Entrepreneurship as “the discovery, enactment, evaluation
and exploitation of opportunities – across national borders – to create future goods and services”.
International Entrepreneurship opportunities are the process of an entrepreneur conducting
business activities across national boundaries. It is exporting, licensing, or opening a sales office in
another country. The activities necessary for ascertaining and satisfying the needs and wants of
target consumers often take place in more than one country. When an entrepreneur executes his
or her business in more than one country, international entrepreneurship occurs.
As more countries become market oriented and economically developed, the distinction between
foreign and domestic markets is becoming less pronounced. What was once only produced
domestically is now produced internationally. For example, Suzuki Cars are now made all over the
world. Raybon Glasses, once produced only in United States, are now made in India and China.
This blurring of national identities will continue to accelerate as more products are introduced
outside domestic boundaries earlier in life of entrepreneurial firms.
The globalization of entrepreneurship creates wealth and employment that the benefit individuals
and nations throughout the world. Although both international and domestic entrepreneurs are
concerned with sales, costs and profits, what differentiates domestic from international
entrepreneurship is the variation in the relative importance of the factors affecting each decision.
International entrepreneurial decisions are more complex due to such uncontrollable factors:
Economics
Language stage of economic development
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9. Technical Aspects: Project report provides information about the technology and technical
aspects of a project. It covers information on Technology selected for the project. Production
process, capacity of machinery, pollution control plants etc.
10. Project Implementation: Every proposed business unit draw a time table for the project. It
must indicate the time within the activities involved in establishing the enterprise can be
completed. Implementation schemes show the time table envisaged for project preparation and
completion.
11. Social Responsibility: The proposed unit draws inputs from the society. Hence its contribution
to the society in the form of employment, income, exports and infrastructure. The output of the
business must be indicated in the project report.
INTERNATIONAL ENTREPRENEURSHIP OPPORTUNITIES
The term international entrepreneurship was introduced around 1988 to describe the
many untapped foreign markets that were open to new ventures reflecting a new technological
and cultural environment. International Entrepreneurship is a cross-disciplinary field that
combines international business and entrepreneurship. In 1997, McDougall and Oviatt introduced
a broader definition of International Entrepreneurship as “the discovery, enactment, evaluation
and exploitation of opportunities – across national borders – to create future goods and services”.
International Entrepreneurship opportunities are the process of an entrepreneur conducting
business activities across national boundaries. It is exporting, licensing, or opening a sales office in
another country. The activities necessary for ascertaining and satisfying the needs and wants of
target consumers often take place in more than one country. When an entrepreneur executes his
or her business in more than one country, international entrepreneurship occurs.
As more countries become market oriented and economically developed, the distinction between
foreign and domestic markets is becoming less pronounced. What was once only produced
domestically is now produced internationally. For example, Suzuki Cars are now made all over the
world. Raybon Glasses, once produced only in United States, are now made in India and China.
This blurring of national identities will continue to accelerate as more products are introduced
outside domestic boundaries earlier in life of entrepreneurial firms.
The globalization of entrepreneurship creates wealth and employment that the benefit individuals
and nations throughout the world. Although both international and domestic entrepreneurs are
concerned with sales, costs and profits, what differentiates domestic from international
entrepreneurship is the variation in the relative importance of the factors affecting each decision.
International entrepreneurial decisions are more complex due to such uncontrollable factors:
Economics
Language stage of economic development
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Construction Management and Entrepreneurship (15CV61)
Type of economic system
Political – legal environment
Language
Entry in to international business
There are a variety of ways in which a company can enter a foreign market. No one market entry
strategy works for all international markets. The following are the modes of entry into
international business markets
The Internet
Exporting
Licensing
International Agents
International Distributors
Strategic Alliance
Joint Ventures, Overseas Manufacture
International Sales Subsidiaries
Buying a Company
The Internet
The internet is a new channel for some organizations and the sole channel for a large number of
innovative new organizations. The eMarketing space consists of new internet companies that have
emerged as the Internet has developed, as well as those pre-existing companies that now employ
eMarketing approaches as part of their overall marketing plan.
Exporting
Direct exporting is selling directly into the market you have chosen using in the first instance we
own resources. Many companies, once they have established a sales program turn to agents
and/or distributors to represent them further in that market. Agents and Distributors work
closely with us in representing our interests. They become the face of our company and this it is
important that our choice of agents and distributors is handled much the same was we would hire
a key staff person.
Licensing
Licensing includes franchising, Turnkey contracts and contract manufacturing.
Licensing is where your own organization charges a fee and/or royalty for the use of its
technology, brand and/or expertise.
Franchising involves the organization (franchiser providing branding, concepts, expertise,
and in fact most facets that are needed to operate in an overseas market, to the franchisee.
Management tends to be controlled by the franchiser. Examples include Dominos Pizza and
McDonald’s Restaurant.
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Type of economic system
Political – legal environment
Language
Entry in to international business
There are a variety of ways in which a company can enter a foreign market. No one market entry
strategy works for all international markets. The following are the modes of entry into
international business markets
The Internet
Exporting
Licensing
International Agents
International Distributors
Strategic Alliance
Joint Ventures, Overseas Manufacture
International Sales Subsidiaries
Buying a Company
The Internet
The internet is a new channel for some organizations and the sole channel for a large number of
innovative new organizations. The eMarketing space consists of new internet companies that have
emerged as the Internet has developed, as well as those pre-existing companies that now employ
eMarketing approaches as part of their overall marketing plan.
Exporting
Direct exporting is selling directly into the market you have chosen using in the first instance we
own resources. Many companies, once they have established a sales program turn to agents
and/or distributors to represent them further in that market. Agents and Distributors work
closely with us in representing our interests. They become the face of our company and this it is
important that our choice of agents and distributors is handled much the same was we would hire
a key staff person.
Licensing
Licensing includes franchising, Turnkey contracts and contract manufacturing.
Licensing is where your own organization charges a fee and/or royalty for the use of its
technology, brand and/or expertise.
Franchising involves the organization (franchiser providing branding, concepts, expertise,
and in fact most facets that are needed to operate in an overseas market, to the franchisee.
Management tends to be controlled by the franchiser. Examples include Dominos Pizza and
McDonald’s Restaurant.
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Construction Management and Entrepreneurship (15CV61)
Turnkey contracts are major strategies to build large plants. They often include the training
and development of key employees where skills are sparse – for example, Toyota’s car
plant in Bangalore, India.
INTERNATIONAL AGENTS AND INTERNATION DISTRIBUTORS
Agents are often an early step into international marketing. Put simply, agents are
individuals or organisations that are contracted to our business, and market on our behalf in a
particular county. They rarely take ownership of products, and more commonly take a
commission on goods sold. Agents usually represent more than one organization. Agents are a
low-cost, but low-control option. Distributors are similar to agents, with the main difference that
distributors take ownership of the goods. Therefore they have an incentive to market products
and to make a profit from them.
Strategic Alliances:
Strategic alliances is a term that describes a whole series of different relationships between
companies that market internationally. Sometimes the relationships are between competitors.
There are many examples including:
Shared manufacturing e.g. Toyota Ayogo is also marked as a Citroen and a Peugeot
Research and Development (R&D) arrangements.
Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom.
Marketing agreements.
JOINT VENTURES
Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a
proportion of the new business. There are many reasons why companies set up joint ventures to
assist them to enter a new international market.
Access to technology, core competences or management skills. For example, Honda’s
relationship with Hero Company in India.
To gain entry to a foreign market. For example, any business wishing to enter China needs
to source local Chinese partners.
Access to distribution channels, manufacturing and R&D are most common forms of Joint
Venture.
Buying a Company
In some markets buying an existing local company may be the most appropriate entry strategy.
This may be because the company has substantial market share, are a direct competitor to us or
due to government regulations this is the only option for our firm to enter the market. It is
certainly the most costly and determining the true value of a firm in a foreign market will require
Department of Civil Engineering Page 96
Turnkey contracts are major strategies to build large plants. They often include the training
and development of key employees where skills are sparse – for example, Toyota’s car
plant in Bangalore, India.
INTERNATIONAL AGENTS AND INTERNATION DISTRIBUTORS
Agents are often an early step into international marketing. Put simply, agents are
individuals or organisations that are contracted to our business, and market on our behalf in a
particular county. They rarely take ownership of products, and more commonly take a
commission on goods sold. Agents usually represent more than one organization. Agents are a
low-cost, but low-control option. Distributors are similar to agents, with the main difference that
distributors take ownership of the goods. Therefore they have an incentive to market products
and to make a profit from them.
Strategic Alliances:
Strategic alliances is a term that describes a whole series of different relationships between
companies that market internationally. Sometimes the relationships are between competitors.
There are many examples including:
Shared manufacturing e.g. Toyota Ayogo is also marked as a Citroen and a Peugeot
Research and Development (R&D) arrangements.
Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom.
Marketing agreements.
JOINT VENTURES
Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a
proportion of the new business. There are many reasons why companies set up joint ventures to
assist them to enter a new international market.
Access to technology, core competences or management skills. For example, Honda’s
relationship with Hero Company in India.
To gain entry to a foreign market. For example, any business wishing to enter China needs
to source local Chinese partners.
Access to distribution channels, manufacturing and R&D are most common forms of Joint
Venture.
Buying a Company
In some markets buying an existing local company may be the most appropriate entry strategy.
This may be because the company has substantial market share, are a direct competitor to us or
due to government regulations this is the only option for our firm to enter the market. It is
certainly the most costly and determining the true value of a firm in a foreign market will require
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Construction Management and Entrepreneurship (15CV61)
substantial due diligence. On the plus side this entry strategy will immediately provide us the
status of being a local company and we will receive the benefits of local market knowledge, an
established customer base and be treated by the local government as a local firm.
Exporting
There are direct and indirect approaches to exporting to other nations. Direct exporting is
straightforward. Essentially the organization makes a commitment to market overseas on its own
behalf. This gives it greater control over its brand and operations overseas, over and above
indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an
exporting company from your country – which handles exporting on your behalf) to get your
product into an overseas market then you would be exporting indirectly. Examples of indirect
exporting include:
Piggy backing whereby your new product uses the existing distribution and logistics of
another business.
Export Management Houses (EMHs) that act as a bolt on export department for your
company. They offer a whole range of bespoke or a la carte services to exporting
organizations.
Consortia are groups of small or medium-sized organizations that group together to market
related, or sometimes unrelated products in international markets.
Trading companies were started when some nations decided that they wished to have
overseas colonies. They date back to an imperialist past that some nations might prefer to
forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist an
mainstream businesses that use traditional business relationships as part of their
competitive advantage.
DIRECT FOREIGN INVESTMENT
Direct Foreign Investment or Foreign direct investment (FDI) is an investment made by a
company or individual in our country in business interests in another country, in the form of
either establishing business operations or acquiring business assets in the other country, such as
ownership or controlling interest in a foreign company. The key feature of foreign direct
investment is that it is an investment made that established either effective control of, or at least
substantial influence over, the decision making of a foreign business.
Foreign direct investments can be made in variety of ways, including the opening of a subsidiary
or associate company in a foreign country, acquiring a controlling interest in a existing foreign
company, or by means of a merger or joint venture with a foreign company.
When a business decided that none of the other options are as viable as actually owning an
overseas manufacturing plant i.e. the organization invests in plant, machinery and labour in the
Department of Civil Engineering Page 97
substantial due diligence. On the plus side this entry strategy will immediately provide us the
status of being a local company and we will receive the benefits of local market knowledge, an
established customer base and be treated by the local government as a local firm.
Exporting
There are direct and indirect approaches to exporting to other nations. Direct exporting is
straightforward. Essentially the organization makes a commitment to market overseas on its own
behalf. This gives it greater control over its brand and operations overseas, over and above
indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an
exporting company from your country – which handles exporting on your behalf) to get your
product into an overseas market then you would be exporting indirectly. Examples of indirect
exporting include:
Piggy backing whereby your new product uses the existing distribution and logistics of
another business.
Export Management Houses (EMHs) that act as a bolt on export department for your
company. They offer a whole range of bespoke or a la carte services to exporting
organizations.
Consortia are groups of small or medium-sized organizations that group together to market
related, or sometimes unrelated products in international markets.
Trading companies were started when some nations decided that they wished to have
overseas colonies. They date back to an imperialist past that some nations might prefer to
forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist an
mainstream businesses that use traditional business relationships as part of their
competitive advantage.
DIRECT FOREIGN INVESTMENT
Direct Foreign Investment or Foreign direct investment (FDI) is an investment made by a
company or individual in our country in business interests in another country, in the form of
either establishing business operations or acquiring business assets in the other country, such as
ownership or controlling interest in a foreign company. The key feature of foreign direct
investment is that it is an investment made that established either effective control of, or at least
substantial influence over, the decision making of a foreign business.
Foreign direct investments can be made in variety of ways, including the opening of a subsidiary
or associate company in a foreign country, acquiring a controlling interest in a existing foreign
company, or by means of a merger or joint venture with a foreign company.
When a business decided that none of the other options are as viable as actually owning an
overseas manufacturing plant i.e. the organization invests in plant, machinery and labour in the
Department of Civil Engineering Page 97
Construction Management and Entrepreneurship (15CV61)
overseas market. This is also known as Foreign Direct Investment (FDI). This can be a new-build,
or the company might acquire a current business that has suitable plant etc. Of course we could
assemble products in the new plant, and simply export components from the home market (or
another country). The key benefit is that our business becomes localized – we manufacture for
customer in the market in which we are trading. We will also gain local market knowledge and be
able to adapt products and services to the needs of local consumers. The downside is that we take
on the risk associated with the local domestic market.
An International Sales Subsidiary would be similar, reducing the element of risk, and have the
same key benefit of course. However, it acts more like a distributor that is owned by your own
company.
VENTURE CAPITAL
Venture Capital is a type of funding for a new or growing business. It usually comes from
venture capital firms that specialize in building high risk financial portfolios. Venture Capital is
attractive for new companies with limited operating history that are too small to raise capital in
the public markets and have not reached the point where they are able to secure a bank loan or
complete a debt offering. With venture capital, the venture capital firm gives funding to the startup
company in exchange for equity in the startup. This is most commonly found in high growth
technology industries like biotech, software etc.
A person who deals in venture capital is a Venture Capitalists (VCs), and usually works for a
venture capital firm. Funds flowing into a company, generally during pre-IPO (Initial Public Offer)
process, in the form of an investment rather that a loan. Controlled by an individual or small group
known as venture capitalists, these investments require a high rate of return and are secured by a
substantial ownership position in the business. VCs make loans to and equity investments in
young companies.
There are several types of Venture Capital:
Private venture capital partnerships: are perhaps the largest source of risk capital and
generally look for businesses that have the capability to generate a 30 percent return on
investment each year. They like to actively participate in the planning and management of the
businesses they finance and have very large capital bases – up to $500 million to invest at all
stages.
Industrial venture capital pools: usually focus on funding firms that have a high likelihood of
success, like high-tech firms or companies using state-to-the-art technology in a unique manner.
Investment banking firms: traditionally provide expansion capital by selling a company’s stock
to public and private equity investors. Some also have formed their own venture capital divisions
to provide risk capital for expansion and early-stage financing.
Department of Civil Engineering Page 98
overseas market. This is also known as Foreign Direct Investment (FDI). This can be a new-build,
or the company might acquire a current business that has suitable plant etc. Of course we could
assemble products in the new plant, and simply export components from the home market (or
another country). The key benefit is that our business becomes localized – we manufacture for
customer in the market in which we are trading. We will also gain local market knowledge and be
able to adapt products and services to the needs of local consumers. The downside is that we take
on the risk associated with the local domestic market.
An International Sales Subsidiary would be similar, reducing the element of risk, and have the
same key benefit of course. However, it acts more like a distributor that is owned by your own
company.
VENTURE CAPITAL
Venture Capital is a type of funding for a new or growing business. It usually comes from
venture capital firms that specialize in building high risk financial portfolios. Venture Capital is
attractive for new companies with limited operating history that are too small to raise capital in
the public markets and have not reached the point where they are able to secure a bank loan or
complete a debt offering. With venture capital, the venture capital firm gives funding to the startup
company in exchange for equity in the startup. This is most commonly found in high growth
technology industries like biotech, software etc.
A person who deals in venture capital is a Venture Capitalists (VCs), and usually works for a
venture capital firm. Funds flowing into a company, generally during pre-IPO (Initial Public Offer)
process, in the form of an investment rather that a loan. Controlled by an individual or small group
known as venture capitalists, these investments require a high rate of return and are secured by a
substantial ownership position in the business. VCs make loans to and equity investments in
young companies.
There are several types of Venture Capital:
Private venture capital partnerships: are perhaps the largest source of risk capital and
generally look for businesses that have the capability to generate a 30 percent return on
investment each year. They like to actively participate in the planning and management of the
businesses they finance and have very large capital bases – up to $500 million to invest at all
stages.
Industrial venture capital pools: usually focus on funding firms that have a high likelihood of
success, like high-tech firms or companies using state-to-the-art technology in a unique manner.
Investment banking firms: traditionally provide expansion capital by selling a company’s stock
to public and private equity investors. Some also have formed their own venture capital divisions
to provide risk capital for expansion and early-stage financing.
Department of Civil Engineering Page 98
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