Prepared By- Maheshkumar B Thombare.
(QUALITY AUDITOR, SIX SIGMA BLACK BELT)
In order to smooth project execution with ultimate profit with optimum resources there is a need for specific method of management.
Construction industries in India have a long history. Now we will consider a bit of a period. Beyond 1960. Now we will peep through Circumstances, Improvements, and Changes in technology challenges faced & to be faced by the Construction industries.
Industry was on its correct path till 1980’s till there was a big boom of construction in Gulf countries which results in Participation of Indian companies, Skilled labors Qualified Engineers etc results in loss of top cream of Indian Industry shifted out creating a vacuum in the system. Subsequently formation of Builders lobby and control on Industry by them has given a Temporary boom in the rates up to 1995. Then after due to attack of Builders by some class of social elements Industry trembled due to lack of money in flow, Vacuum created by 1980 Gulf construction activities, Retardation in development activities by Governments, etc. This results in surveillance of fittest.
In order to improve profitability, there is a need to control the bellow mentioned parameters
A) Middle men elimination 8% to 12%
In the present situation the persons who are heavy profits are mediators. Even in our day to day life , Coconut which is costing Rs 6.00 to 8.00 for consumer where former getting not more then Rs 3.00 , this is applicable for maximum items . The same thing is in our construction industries also. We study some cases where middleman can be eliminated.
In case of course and fine aggregates where the sand collecting labour and the stonecutter are cheated and 40% of the rate will be shared by mediators. In case of cement & steel also in between agencies will grab up to 15%, this is maximum and minimum limits, with 5 and 2 mediators respectively. Profit margin for these agencies at every level is varying from 13% to 17%. As far as this margin is concerned if it is between 2% & 3% it will be a healthy atmosphere. From 3% to 5% is tolerable; any thing above 5% ,company should go for direct dealing with the basic source. As a whole it will reduce the cost of project by 8% to 12%.
B) Stable finance 5% to 8%
Good finance will contribute a lot in this direction. In the market, for any material, the selling rate will differ by the money transactions. Cash/DD will reduce the rate up to 5%. Whereas cheque rises up to 1% and dated cheque will be charged for 5% more. In summary, finance will reduce the project cost by up to 8%.
C) Timeframe for completing the project. (-5% to +3%)
For any project completed in the stipulated time is profitable. If we are able to achieve 7.5% to 12.5% of the contract value per month. The nature of the project also plays a role in this. Any period longer than the specified range results in loss. The table shows the increase overhead with time factor. Up to 7.5% of the overall overhead of the project is considered affordable, but the ideal is up to 5%. Anything in excess of 5% will be the overall losses in percentage i.e. in Group-2 losses due to time factor for 10 months project, will increase up to 2.5% if it is completed in 20 months and 5% in case of 40 months. Same 5&10% is the extra cost due to an increase in the period of construction. Now it is the responsibility of project management to curtail overhead expenditure with the time period for Group1, Group2 and Group3 which have monthly overheads of 3%,5%,7.5% respectively.
D) Public relation -5% to +5%
Public relation will play vital role for the company, which is non-professional, i.e. 20% of recourses by own and rest depending on others. Proper payment and cordial relationship will attract sub contractors, suppliers and workers, which gives relief up to 50% to the companies. And also if the above qualities are outstanding the project cost will come down by up to 8%.
E) Motivation -10% to +5%
Motivation among the staff, contractor and workers is nerve system of the project. Motivational damages given geometrical impact in both directions. In that situation top management and project managers will share equal responsibility. Management must not loose confidence in any situation. And motivational damages must not penetrate to the bottom level of the organization. When the staff will going to work to his full capacity mistakes are bound to happen which are to be resolved by the next superior in a sportive manner. Individuals must not lose confidence.
Now we will summarize the above savings:
If we consider the above points there are possibilities to reduce the working cost up to 33% even with some slippage, we can reduce the cost at least up to 25%. But any “U” turn in points c, d and e will further escalate the cost. The company has to bear additional losses of 20%. To avoid these it is necessary to select the best team, and team leader for low quoted projects.
The term which has been a wide range of limitations, in general the project which has quoted bellow workable rate can be defined as low quotation. Again one more contradictory word has been raised i.e. Workable rate, which requires further detailed study. For a professional company which is fully equipped with all men and machinery, stable finance stability (where company is ready to afford 25 % of the work order amount at peak period) Team of class management can quote lower up to 25 % of a good estimated job. In the case of partially equipped, low profile of management, Ordinary finance status (where company is ready to afford 12 % of the work order amount at peak period) can quote lower up to 12 %, where as the company which is having Parasitic Qualities which always expects others to share their load must not dream for low.
The circumstances for low bids also have their own story. Mainly because of competition, desperation, proud of having more works, to make an entry, necessity of engaging men and machinery etc. Main cause is also none of the companies did not maintain their standard rates , not goes through full in detail , sometimes reading Sq m as Sq f etc. If 50% of the bidders are quoted within a range of 10% lower side. We can think of accuracy of estimate. The difference between 1st and 2nd lowest is more then 10% then the lowest has done above said mistakes. Then company has to go through all the exercises to overcome the expected losses.
Selection of the team.
We must select a team leader (hence forth we will call him as Project Manager PM) must have all leadership Qualities, cordial, patience, most respected persons (who will give respect to others), Calculative, free from ego. He must be accountable for everything i.e. losses or profit. It is always preferable, tender should be quoted under his guidance then only we can make him full responsible.
Second post of the project will be shared by Resident Engineer, Planning Engineer and Sr. site Engineer Who were the left and right hands of PM. They must have experienced of eight years in relevant field. Third row filled with Engineers, Storekeeper, Accounts and Administrative officer, purchase officer and forth line filled with Supervisor and other supporting staff. It is always better to avoid the persons who are not accountable i.e. Advisers or consultants who will work on temporary basis and give a chance for PM to skip from the responsibilities.
The team which is overcoming the Low quoted projects with profits should rewarded to boost the morale. In case of failure the person who has quoted will be 60 % responsible, the team leader who has not guided in quotation is also 25 % accountable. As a company executive, top management is also responsible for selecting incapable persons for quoting the tenders.
Procedures to be followed in the system needs detailed study
1. Company handbook
2. Organization Chart
3. Authority and responsibility
4. Process flow chart
5. Case study of a company in trouble