project management turner construction company project management control systems

8/10/2019 Project Management Turner Construction Company Project Management Control Systems

1/12

G r o u p 7 A r n a b | R u d r a | A t u l | A n k u r


2/12

Kent Square Office Tower - construction project at Philadelphia

Owner wants Turner to release $500,000 in projects savings

Wants to reinvest in additional project upgrades

Job is now 80% complete5 months to completion

Unspent contingency reserve not likely to be needed, therefore returned.

Savings Participation Contract

Once a contingency is released as savings it is shared- 75% to the owner + 25% for Turner asadditional project earning

Managers have to protect the gross earning

Once money is released unforeseen problems and developments can cut into the feeearnings of Turner.

Tendency to hold contingencies till the last minute.

Waiting too long can to release the savings can threated relationship with the client.

Pressure from Top Management to release contingency to earnings.

Need to meet Turners quarterly corporate earnings projections

Because of loss of sale of a development building, division has to come up with additional

$200,000 earnings in the quarter.

Case Facts


3/12

Decision Problem

Determine how much savings can be safely released to the owner at this point

Once the earnings are booked, it will look bad if the division falls short of projection in the subsequentquarter.

Estimated bill of the project $29 million

Remaining Construction Contingency $511,000 = 1.8% of total job cost

C holds = $328,000, E holds =$471,000

The scope changes are still taking place

$215,000 has already been released from contingency account

Releasing $500,000 will solve two problems

Owner would get the spending money

Turner would be able to book $100,000 in quarters earnings


4/12

To make the owner as partner in managing the project: A way of getting repeat

business

Turners Business strategy

How does it differ from competitor?

1. Ability to shareaccurate informationwith the ownerduring the progressof the project

2. Projecting itself asquality work (notcompeting on price

3. Use of GMP whichleads to sharing ofsavings

CompetitiveAdvantage

1. Used to identifythe timing of thesavings in the project

2. Identify theproblems and

options in the project

Utilization of IOR

1. Competition is notbased solely on price

2. Turner shows thatthey are expertmanagers and canspend moneyefficiently

3. Selectedknowledgeableclients to work with

4. Decentralizedorganization

structure

Success Reasons


5/12

Contingencies that could threaten Turners strategy viability

Conting

enciespertainingto

time

Pressuretono

tprematurelyrelea

sesavingsandlate

r

dipintocompanysrevenues

Ownersexpe

rienceandknowled

gein

makingdecisionsiscritical.

Contingenciespertainingtocost

High running costsin making IOR,decision makingand negotiationwith owners

Cost over runs thatmight occur after adecision takenunder pressure ofowner

after releasing the

savings somesituation likestrike, overtimedemand etc mightoccur

Cost overrunsthat occurbecause of

improper costestimates whichhappen becauseof difficulty inestimating

Results inholding thefunds for a longtime and notinforming thesituation toowner

Lot of time beinginvested inupdating IORand decision

making later on.This time iswaste if IOR isnot estimatedproperly. But,

Not all costengineers areequally adeptat making IOR

Needexecutives whohave beenexposed to allparts ofbusiness

Demands ofowner to release

savingsprematurely -thinking theycould invest thesavings andpressurizing thecompany

Un natural and

frequentchanges in scope


6/12

Evaluate the IOR system and related reports and

meetings. Does the IOR system force managers and

the project team to address the contingencies youidentified in Question 2.


7/12

Indicated Outcome Report

Need regularupdates

Cost reportbreaks down

the fullhistory of thejob in detail

Can be used as areference to finetune the strategyfurther

Critical lineitems, whichinfluence major

riskmanagement

decisions

Contingency holds(C-holds)

Exposure holds (E-holds)

Backbone of formalreporting systems

Heart of managementsystem at Turner

Forward looking projectmanagement tool

total expected cost of completedproject

earnings contribution of completedproject

Itemizes the dollar flow from ownersto subcontractors and suppliers

Best efforts prediction atany point of time


8/12

IOR Review Meetings

Cooperatingtogether to

identify issuesor/and

alternatives

Realizing overallsavings on the

project

Monitoring the

overallperformance of

the staff andsubcontractors,

from theperspective of aproject manager

Overall, IOR system asa tool, combined with

related reports andmeetings definitely

force the managersand the whole project

team to discuss andaddress all thecontingencies

Avoid any glitches or

surprises during theproject

Project team

anticipates financialand operationalproblems


9/12

Advantages of IOR

Training

All the cost engineers are cross trained vigorously

The quality of data is very high

Appraisals

Appraisals of managers not tied to performance in the IOR

Honest reporting without fear of hiding any bad news

Warning

Early warnings about the critical tasks

Helps in deciding where risk management is most critical

Reporting

Cost engineers do not report to any line management

They can make rounds in various projects to get information

The above advantages would help in solving the contingencies more effectively


10/12

Funds in E-hold: $471000

Construction contingency:

$511000

Funds in C-hold: $328000

E-hold funds usually get spent on

trade activities. Thus releasing E-

hold is not wise

Still 20% of the project is yet to be

completed, there is still a good

chance of problems occurring Overtime charges due to possible

local strikes will be charged out of

construction contingency

A portion of C hold can be

released

With 20% of work remaining,

releasing all C-hold is not

wise Overtime expenses @10000 per

month for 7.2 months of work left

Amount needed= $72000

Keeping a buffer of 50%, total

amount needed in Construction

contingency fund $108000 Amount remaining in Construction

contingency= $403000

Releasing $97000 from C-hold,

amount left in C-hold= $231000

Fund release prospects Allocating $500000


11/12

To owner

Releasing fundsaccording toproportionate estimatefrom the Constructioncontingency fund

Not a very accuratemethod, hencedeviations may occur

These deviations willhave to shared betweenthe company and theowner

Senior management

Conservative approachundertaken in estimatingholding funds

Entire Constructioncontingency was notgiven off due to thepossibility of strikes anda fair amount of workbeing left

A buffer quantity of 50%was kept to support anydeviations

C- holds usually do notget spent, hence we arebalancing the amountfrom C-holds

Project team

Due to limited availabilityof contingency funds,situations need to bemonitored more closely

All precautions should betaken to keepovershooting of costs tothe minimum

The smooth running ofthe project should becontinued at any cost

Gary Thomsons views


12/12

THANK YOU

project management turner construction company project management control systems

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