group2 turner 1
Post on 09-Oct-2015
64 Views
Preview:
DESCRIPTION
TRANSCRIPT
-
5/19/2018 Group2 Turner 1
1/14
Group2
Rupa Murudkar 092
Ankit Verma 185
Ankur Zutshi 186
Manoj Kumar 210
Chandan Bharambe 078
-
5/19/2018 Group2 Turner 1
2/14
Introduction: Turner Construction Company
28 territories, eachheaded by a TGM
Autonomy to TGM, improle: prospecting for new
work
Project managers---3-6project executives(eachheaded 5-6 projects at atime)---TOM-- TGM
1/5 VP3 divisionexecutive vice-presidents
Only 10% own workforce
Communication withowner, architect, largeno. of suppliers and
subcontractors
Cost estimation by: ownestimating staff,
subcontractor inputs,database of past
experience
GMP, turners earnings-fixed
Gain and decrease in costmethods
-
5/19/2018 Group2 Turner 1
3/14
Case facts
Pressure from Top Management to release contingency to earnings.
Need to meet Turners quarterly corporateearnings projections
Because of loss of sale of a developmentbuilding, division has to come up withadditional$200 000 earnin s in the uarter
Savings Participation Contract
Once a contingency is released as savings it is
shared- 75% to the owner + 25% for Turner asadditional project earning
Once money is released unforeseen problems and
developments can cut into the feeearnings ofTurner
Project
Wants to reinvest in additional project upgradesUnspent contingency reserve not likely to be
needed, therefore returned.
Kent Square Office Tower
One of the biggest construction project atPhiladelphia
Owner wants Turner to release $500,000 inprojects savings
-
5/19/2018 Group2 Turner 1
4/14
The $500,000 Dilemma
To decide whatportion of $500,000 to
be released to KentSquare
Once the earnings arebooked, it will lookbad if the division
falls short ofprojection in thesubsequent quarter
Estimated bill of theproject $29 million
RemainingConstructionContingency
$511,000 = 1.8% oftotal job cost
C holds = $328,000,
E holds =$471,000
The scope changes arestill taking place
$215,000 havealready been released
from contingencyaccount
Possible local strike in oneof the trades, legitimateneed for extra clean up,
several contractors workingon the same floor which can
get messy- needs E holdsfor that
New client- so cantgo back to him askingfor new money once
they return thecontingency
Its 80% complete andnot 95%
Turners reputation onstake
-
5/19/2018 Group2 Turner 1
5/14
Releasing $500,000 will solve two problems
Owner would getthe spending
money
Turner would be
able to book$100,000 in
quartersearnings
-
5/19/2018 Group2 Turner 1
6/14
1. What is Turnersbusiness strategy? How does its strategy differ
from competitors?
Turners Business Strategy: To makethe owner as partnerin managing the project
thus a way of getting repetitive business opportunity from the same client
Prediction at anypoint of time thetotal expected costand earningscontribution of acompleted project
Identify theproblems andoptions in theproject
IOR
Ability to shareaccurate informationwith the owner duringthe progress of theproject
Projecting itself asquality work and notcompeting on price
Use of GMP whichleads to sharingof savings
Communication with
client
Turner shows thatthey are expertmanagers and canspend moneyefficiently
Selected
knowledgeableclients to workwith
Decentralizedorganizationstructure
Organization
-
5/19/2018 Group2 Turner 1
7/14
2. What contingencies could threaten or invalidate the viability of
Turners strategy?
Cost
After releasing thesavings somesituation like strike,
overtime demand,etc might occur
Cost overruns thatoccur becauseof improper costestimates whichhappen because ofdifficulty inestimating
Time
Lot of time beinginvested inupdating IOR and
decision makinglater on. This timeis waste if IOR isnot estimatedproperly
Not all costengineers areequally adept atmaking IOR
Needs executiveswho have beenexposed to all partsof business
Owners experienceand knowledge in
making criticaldecisions
Demands of ownerto release savingsprematurely -
thinking they couldinvest the savingselsewhere and thuspressurizing thecompany leads tounexpectedchanges in scope
Pressure not torelease savings and
later reducing projectfee earnings
This leads toholding the fundsfor a long time and
not informing thesituation to owner
-
5/19/2018 Group2 Turner 1
8/14
3. Evaluate the IOR system and related reports and meetings.
Does the IOR system force managers and project team to address
the contingencies you have identifies in previous question?
Heart of management system at Turner
Backbone of formal reporting systems
Project executive, Jim Verzellasview: Real business is riskmanagement and IOR do that effectively
Project manager, Bill Rantanensview: Forward looking projectmanagement tool
Senior manager, Division executive Vice President, DonKerstettersview: IOR system drives projection of quarterly
earnings and reported income to shareholders
IOR System
-
5/19/2018 Group2 Turner 1
9/14
Ctd..
Each quarterly update,extensive series of
discussions andmeetings happen with
all members of a projectteam included
Updating of exposureinvolves intuition and
gut feeling
1 or 2 months consumedto do detailed work by
estimators and costengineers to develop
new IOR for a new job
After that, quarterlyupdating process takes
3-4 weeks by cost engg(3 projects at a time)
C.E. dintreport to P.E.,or TOM, independent,quasi- staff capacity
Philadelphia Senior Cost Engineer, Jayne Murphysview of IOR:
-
5/19/2018 Group2 Turner 1
10/14
IOR updating process:
C.E. carefully reviewsvariety of document
logs with newtransactions ( new
work orders by sub-contractors)
For specific answers,the CE made therounds among
project tem memberswho worked on site
CE- industry logisticsand project specificconsiderations:costof uncompleted work
and interpret team
members assumptionsand explanations
After this updation,available toeveryone
for a formal IORreview meeting- Ledby PE- included the
project
superitendent,project engg, CE,
accountant
Assistant engineersattended to review
their particular
trade(eg. Masonry)
Team membersexplained PE/managerall significant changes
in project conditionsand Indicated Costsand causes of those
changes
CE documented all
the revised partiallyupdated draft
Discussion focusedon major variances(
versus previous IOR)and on E-holds which
tended to be morecontroversial than
committed subcontractworks and activities in
progress
CE prepared finalupdated version
from IOR Reviewmeeting
Reviewed withterritorys senior
CE, teammanagement signs
Send new IOR to
TGM for finalapproval
TGM- substantialri sk to cost, earn ingsor cli ent r elations.Additional i terationsbefor e approving
IOR
Then published byterritory cost dept
Copies- group VP, hiscost staff, the division
executive VP andcorporate cost dept
Problems withproject, unusual forAl McNeil, Chairmanof Turner, to discussdetails contained in
IOR
Automated TFS:summary of numbers
from every IOR inmonthly territoryearnings report
Eventually in thecorporate income
statement andcorporate earnings
projections
-
5/19/2018 Group2 Turner 1
11/14
Advantages of IOR to help solving the contingencies more effectively
Training
All the costengineers arecross trained
vigorously The quality of
data is very high
Appraisals
Appraisals ofmanagers not tiedto performance in
the IOR Appraisals based
on performanceof individualemployee andirrespective of theproject
Hence, honestreporting withoutfear of hiding anybad news
Reporting
Cost engineers donot report to anyline management
They can makerounds in variousprojects to getinformation
Precaution
Early warningsabout the criticaltasks
Helps in decidingwhere riskmanagement ismost critical
-
5/19/2018 Group2 Turner 1
12/14
Amount to be released
Kent square project estimated cost= $29,000,000, CC = 511,000
(CC= 1.8%), C-hold= 328,000 and E- hold= 471,000, 5 months remaining,
Total= CC+CH= 839,000 = 2.9% of $29,000,000( this represents we are in a good position)
Going smooth so asked $500,000 Already released $215,000 OCC to owners saving pool
We are in a great shape with good buffer
Gary tends to be conservative in his projections
Need to understand owner
Total project cost (adjusted estimate) = $29,000,000
20% remaining = 29,000,000*.20= $5,800,000 Total E hold= $471,218
Total C hold= $328,000
Total CC = $511,000
2.5% of 5,800,000= $145,000
Thus we can easily release amount= $366,000
Earning for the company= 366,000*.25*.8= $73,200
Thus contributing 73200/200= 36.6% from one territory
Amount Given to owner= 366,000 (73.2% of what he demanded)
Assumptions:
Proportion method is valid for cost estimates
Any fluctuation due to labor strike, would be addressed by $145,000+C-hold
-
5/19/2018 Group2 Turner 1
13/14
4. If you were Gary Thompson, what would you say about the $50,000
contingency to:
Senior management,(Les, Don)
The client is new and so cantgoback to him asking for new moneyonce they return the contingency
We have maintained Constructioncontingency- 2.5% which will
serve as a bottom line reserve forlater on changes
C hold has not been compromisedto take care of uncertainty due tolabor strike, scope developmentetc. along with CC
Earning for the company=366,000*.25*.8= $73,200
Thus contributing 36.6% fromone territory
These measures are taken in orderto maintain good clientrelationship and Turnersreputation, which are our primeobjectives
The owners of Kent square
Amount Given to owner=366,000 (73.2% of what hedemanded)
Further exceeding the
amount given will not be infavor of owner as we willloose all buffer which hasbeen kept for any uncertainty
Hence for timely completionof the project, we haveestimated the releasedamount very conservatively
Project team (i.e. Jim, Bill)
Due to limited availability ofcontingency funds, situations needto be monitored more closely
All precautions should betaken tokeep overshooting of costs to theminimum
The smooth running of the projectshould be continued at any cost
-
5/19/2018 Group2 Turner 1
14/14
top related