merit - experience

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MERIT 2013

1. Financial Dividend: How much dividend should be paid?

o Dividend is paid as a % of Equity (Equity = Share value x Number ofshares). Paying a good dividend pleases the share holders and improvesthe share value. It is not necessary to pay dividend. The share value is also

influenced by other factors like future profitability, gearing ratio etc.

Capitalbase: How much should the capital base be changed?o Increase of capital base allows us to support more workload. This is

basically like improving infrastructure facilities of the company.

o If we are short of liquid cash, capital base can be liquefied to get somemoney in cash.

Investments: Decisions regarding the investments in other companies.o Bank gives poor returns compared to what we can potentially gain fromother companies and firms.o A good investment improves our relation with that firm and helps us to

get preferential rates.

Savings in build cost because of the preferential rates usuallyoutshines the % return for investment.

Terminology:o (Assets) Companyvalue = Cash A/C + Capital base + Investments

Cash in bank can be in credit or in overdraft (then it is a liability) There is an overdraft limit. If the operating profit of a period is

more than the overdraft, it is noted that going to overdraft doesnot have anyve impact. However, if operating profit is less than

overdraft, cash a/c will be ve at the end of period and we will

have to pay high interest for that amount. In addition, it also

affects the share values.

Paying dividend temporarily reduces the company value as it goesfrom cash a/c

FinancialManager: Makes effective use of companys assetso Turnover (measured value): is the actual value adjusted by the

measurement effort of the company for the period.

Expected value = effective labour planned value per man period Actual value = Expected value adjusted for factors affecting

productivity

Project manager performance Level of site cost allocated Labour relations policy of the company

Measurement Effort depends upon how well measurement staff isable to cope with the turnover.

o Retention = a small % of the measured value is held by client each period.(Say 1.5%). This value is released in two stages i) when the work is

finished and ii) 2 periods after the completion of work.


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o Early completion Bonus and penalty: If the project is completed at least 1period before the schedule, the client pays a small bonus (about 0.5%)

and if we exceed the contract duration, we will have to pay a significant

penalty per period.

o Money received = Turnover + Early completion bonus + retention repaidretention held

o Overheads costs = Overhead dept costs (Marketing + Estimation + Headoffice + QHSE + Measurement) + Cost of bidding + Idle labour + Idle

project manager + Ext. Performance review cost

o Corporation Tax: almost23% of (Gross profit Over head costs) We do not need to pay tax if we are on loss and capital allowances

are carried forward to future periods

Capital Allowances are acquired by investing in the companyscapital base. Almost 25% per annum

o Profit Grossprofit = Total money received costs Operating profit = Gross profit overheads tax + credit interest

(from bank) overdraft interest (to bank)

Operating profit directly goes into the cash a/c2. Overheads

Overheads are the non-contract based support services required to enable thecompany to win and progress work. Consists of 5 departments + non-

departmental overheads

Overhead Manager is responsible for decisions related to the departments(staffing and directing the marketing efforts into sectors). Non-departmentaloverheads are the responsibility of other managers.

Marketingo They forecast the market trends and opportunitieso Helps the company pre-qualify for projects.

Estimatingo Estimates the projects that were prequalified for.

Headofficeo Head office staff deal with buying, accounting and IT issueso Based on turnover

QHSEo QHSE staff deal with quality, health & Safety and environmental issueso Based on turnover

Measuremento Measurement staff (quantity surveyors)o Based on turnover

Non-departmentalo Idle labouro Idle project managers


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3. Estimating Estimating Managerdecide how much effort (man weeks) to put into pricing the

job which involves estimating costs and associated risks.

Sufficient resources produce accurate estimates high confidence in theestimate and

o This enable more informed competitive bidding.o Enhance client satisfaction

4. Bidding Each period the company can bid for projects which were estimated in the

previous period.

There are 2 types of projects (i) Build only and (ii) Design and build Bid value = Estimated build and design costs + Oncost (= site support costs +

contingency for risk + PM costs - savings) + mark-up (margin)

A bid also includes the allocation of a consultant if it is a design and build project.

Other factorso Sequential tendering : where we change mark-ups based on other

bidding results

o Work load limitso Limit of maximum number of ongoing projects at any stageo Client relation

Bidding resultso High bid: our bid value is way higher than rival bids we lose the projecto Low bid: our bid value is way lower than the rival bids client is

suspicious about the quality of work we will be delivering we loseo Competitive bid: If our bid is competitive enough, we will win the project

on cost alone.

o Bids are close: if our bid values are close to the rival bids, the clientawards the project to the one having better client relation. This can make

bid differences.

5. Personnel Personnel Manager needs to make decisions about who the company should

employ, which idle project managers to payoff etc.

o

Right person can noticeably improve the progress of job and wrongperson can affect the progress.

o Involves assigning project managers for all ongoing projects to takeoversee the work.

Also involves taking decisions about bonus to be paid and Goldenhello to be given to ensure services of newly recruited project

managers.

Project managers Resign: if the bonus paid is not sufficient

o They may bear a grudge and may not be availablefor some time future.


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The top performing project managers can be poached byrival companies regardless of the level of bonus they are

paid.

6. Construction Construction Manageris responsible for ensuring the progress of jobs that have

been awarded to the company by

o Providing sufficient labouro Providing sufficient site support

Over-manning limit the permitted level ofeffective labourthat can be allocatedwithout any detrimental effect on performance.

o Effective labour = labour allocated ineffective labour (due to thetraining of companys new recruits)

Trying to complete job early - the benefits includeo Early completion bonuso Labour gets freed and becomes available for other projectso Companys capital assets (plant, buildings etc.) can be diverted elsewhereo Cash flows are improved.

Avoid Overruno Overrun has the following effects

A penalty for late completion Resources are held -ve impacts on company reputation and client satisfaction

Own v/s Subcontract Labouro Subcontractors cost more than own labouro Reliance on subcontractors can affect the morale of the companys own

labour

o Factors to be considered The time it takes to train new recruits, and cost involved The site costs that need to be paid whilst people are being trained The additional cost of employing subcontractors The anticipated duration of a contract How many periods subcontractors need to be employed for The affect of using subcontractors on the morale of companys

own labour.

o Also controlled by the maximum number of new recruits possible in eachperiod.

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