TECHNICAL UNIVERSITY OF CIVIL ENGINEERING BUCHAREST

THESIS FOR DOCTORAL DEGREE

CONTRIBUTIONS TO CONSTRUCTION MANAGEMENT

IN SEISMIC AREA

Scientific Supervisor Professor Dr. Engineer Nicolae Postavaru

Author Nafees Ahmed Memon

2007

ACKNOWLEDGEMENT

I would like to express my sincere thanks to my respected supervisor Professor Dr. Engineer Nicolae Postavaru for his guidance, encouragement, constant help and valuable advices during the whole process of thesis. He guided and supervised me in a well planned manner. I am very much thankful to him for his precious and unforgettable cooperation. I am highly thankful to the Director of Management Department Professor Dr. Economist Marilena Ghita for her guidance, kind cooperation and encouragement. I am also grateful to respected Professors and faculty members of Management Department: Professor Dr. Engineer Mihail Toma, Professor Dr. Economist Dumitra Stancu, Associate Professor Dr. Engineer Nicolae Ene, Associate Professor Dr. Engineer Augustin Purnus, Associate Professor Dr. Engineer Madalina Stoian, Lecturer Dr. Engineer Raluca Grasu, Assistant Ph.D candidate Engineer Marian Ionescu, Assistant Ph.D candidate Engineer Ana-Maria Ganea and Assistant Ph.D candidate Engineer Marina Stoian for their valuable suggestions, necessary help, guidance and encouragement. I am very much indebted to Professor Dr. Engineer Dan Ghiocel and Professor Dr. Engineer Florin Ermil Dabija for their valuable advices at the beginning of my doctoral studies and provision of useful information and material which helped me in completion of my work. I am also grateful to Associate Professor Dr. Radu Vacareanu (Director National Centre for Seismic Risk Reduction) for providing valuable information, necessary guidance and encouragement. I am highly grateful to Professor Dr. Engineer Dan Stematiu (Rector T.U.C.E.B), Professor Dr. Engineer Mihai Voiculescu (Dean Faculty of Construction, Civil, Industrial and Agriculture), Professor Dr. Engineer Iacint Manoliu (President Council for Cooperation and Relations), Professor Dr. Engineer Nicoleta Radulescu (Director Department of Civil Engineering) and Mr. Laurentiu Sonia (International Relations Officer) for their kind cooperation and encouragement during my studies at the Technical University of Civil Engineering Bucharest. I am highly obliged to honorable Dr. Shoaib Sadiq, honorable Engineer Haji Mohammad Iqbal Rahi and honorable Dr. Allah Bachayo Memon for their continuous guidance, moral support, motivation, sincere help and encouragement. Their guidance and motivation has been very much helpful to me in the achievement of my academic ambitions in Romania. I am very much thankful to them for their precious and unforgettable guidance. I am highly obliged to Embassy of Pakistan in Romania for their kind and continuous help during my studies at Technical University of Civil Engineering, Bucharest. I am highly grateful to Engineer Shakeel Ahmed Memon, Dr. Waryal Memon, Engineer Fareed Ahmed Memon, Ph.D. candidate Engineer Moinuddin Qazi, Engineer Mohammmad Usman Siddiqui, Engineer Ciocarlie Elena, Miss Alina Miron, Miss Alina Dumitrescu, Mrs. Adina Stefanescu, Mrs. Nosheen Iftikhar, Ph.d. candidate Mr. Rashid Saeed, Ph. D candidate Engineer Abdulrzzak, Ph. D candidate Engineer Ali Abebo, Mr. Marian Zamfir, Ph.D candidate Enginner Leblouba Moussa and Ph.D candidate Engineer Sadi Salim for their kind cooperation and necessary help during my studies in Romania. I am also highly thankful to Engineer Mihaela Radu, Engineer Virjan Ciprian, Engineer Radu Nastase, Miss Rodica Zuican, Mr. Cristian Fenichi, Miss Adriana Nedelcu, Miss Adriana Chitez, Mr. Daniel Florin Golescu and Miss Roxana Jianu for their kind cooperation in translating the summary of thesis in Romanian Language and for their indispensable help. In the end I would like to express my sincere gratitude to my all respected teachers, friends, and well wishers who provided me valuable information, material, necessary help and guidance in the completion of this work and throughout my academic career.

Nafees Ahmed Memon

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Page No.

INTRODUCTION 1

CHAPTER 1 LITERATURE REVIEW (SELECTION AND STUDY OF IMPORTANT AREAS OF CONSTRUCTION MANAGEMENT TO LINK WITH SEISMIC RISK REDUCTION) - OBJECTIVE AND STRUCTURE OF THE CHAPTER 4 1.1HISTORY OF CIVIL ENGINEERING 5 1.2 SUB-DISCIPLINES OF CIVIL ENGINEERING 6 1.3 HISTORY OF CONSTRUCTION MANAGEMENT 8 1.4 MANAGEMENT FOR CONSTRUCTION 9 1.5 CONSTRUCTION PROJECT MANAGEMENT 21 1.5.1 The definitions of Project Management 1.5.2 Life cycle of Project Management 1.5.3 Project management knowledge areas 1.5.3.1 Project Integration Management 1.5.3.2 Project Scope Management 1.5.3.3 Project Time Management 1.5.3.4 Project Cost Management 1.5.3.5 Project Quality Management 1.5.3.6 Project Human Resources Management 1.5.3.7 Project Communications Management 1.5.3.8 Project Risk Management 1.5.3.9 Project Procurement Management 1.6 SELECTION OF CONSTRUCTION MANAGEMENT AREAS TO LINK WITH SEISMIC RISK REDUCTION 29 1.7 QUALITY MANAGEMENT IN CONSTRUCTION 30 1.7.1 Defining Quality 1.7.2 Quality management systems 1.7.3 System approach in construction 1.8 ISO 9000 QUALITY MANAGEMENT SYSTEM 32 1.9 TQM IN THE CONSTRUCTION PROCESS 34 1.9.1 TQM and quality characteristics in construction 1.9.2 Quality Assurance (QA) / Quality Control (QC) 1.9.3 Factors that affect quality 1.9.4 Elements of TQM in the construction process 1.9.5 Construction industry-specific factors 1.9.6 Section conclusion 1.10 RISK MANAGEMENT IN CONSTRUCTION 43 1.10.1 What is risk? 1.10.2 Systematic approach to risk management 1.10.3 Measurement of risk 1.10.4 Opportunities, risk and value 1.10.5 Ownership of risk - transfer and spreading of risk 1.10.6 The benefits of systematic risk management 1.10.7 How to apply risk management 1.10.8 Section conclusion 1.11 CONCLUSIONS (CHAPTER 1) 48

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CHAPTER 2 LIKING QUALITY MANAGEMENT IN CONSTRUCTION WITH IMPROVED CONSTRUCTION QUALITY AND BETTER QUALITY PERFORMANCE OF CONTRACTORS - OBJECTIVES AND STRUCTURE OF THE CHAPTER 52 2.1 ADOPTION AND IMPLEMENTATION OF TQM IN CONSTRUCTION COMPANIES 53 2.1.1 Background 2.1.2 Quality evolution 2.1.3 Critical success factors in TQM 2.1.4. Advantages of implementing TQM in construction companies 2.1.5 Barriers to implementing TQM in construction companies 2.1.6 Alignment of culture with TQM 2.1.7 Cultural audit process for TQM implementation 2.1.8 Section conclusion 2.2 IMPLEMENTING TQM AT THE PROJECT LEVEL IN CONSTRUCTION 60 2.2.1 Objectives 2.2.2 Rationale for TQM in construction 2.2.3 Factors influencing construction quality 2.2.4 TQM in the construction industry 2.2.5 Implementing TQM at the project level in construction 2.2.5.1 Project implementation guidelines 2.2.5.2 Subcontractors’ participation 2.2.5.3 Keys to continuous improvement 2.2.6 Section conclusion 2.3 CONSTRUCTION QUALITY AND COST 66 2.3.1 ISO 9000 and quality costs 2.3.2 Importance of quality costs 2.3.3 Quality costs and productivity 2.3.4 Significance of quality costs to the construction industry 2.3.5 Cost of quality failure / non-conformances on construction sites 2.3.6 Capturing rework costs in construction projects 2.3.7 Section conclusion 2.4 EFFECTIVENESS OF ISO CERTIFICATION IN CONSTRUCTION COMPANIES 72 2.4.1 Effectiveness of ISO 9000 in raising construction quality standards 2.4.2 ISO in quantity surveying firms 2.4.3 Effectiveness of ISO certification in manufacturing, service and construction firms 2.4.4 Section conclusion 2.5 LINKING QUALITY MANAGEMENT SYSTEMS IN CONSTRUCTION WITH CONTRACTORS’ IM PROVED QUALITY PERFORMANCE 79 2.5.1 Key performance indicators (KPIs) for measuring construction success 2.5.2 Performance assessment scoring system (PASS) for construction quality improvement 2.5.3 Linking quality management systems with contractors’ improved quality performance 2.5.4 Section conclusion 2.6 CONCLUSIONS (CHAPTER 2) 84

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CHAPTER 3 DAMAGES CAUSED BY RECENT EARTQUAKES, INCEARING SEISMIC RISK AND THE NEED OF CONT RIBUTIONS TO CONSTRUCTION MANAGEMENT IN SEISMIC AREA - OBJECTIVES AND STRUCTURE OF THE CHAPTER 86 3.1 RISK AND ITS MANAGEMENT 87 3.1.1 Different meanings of risk 3.1.2 The risk management system 3.1.3 Risk analysis 3.1.4 Threat / Event analysis 3.1.5 Risk transfer 3.1.6 Section conclusion 3.2 RISK AND ORGANIZATIONAL BEHAVIOUR 90 3.2.1 The risk society 3.2.2 Risk and strategic management 3.2.3 Risk management 3.2.4 Risk management philosophy 3.2.5 Risk perception 3.2.5.1 Risk perception and decision making 3.2.5.2 Social, cultural and political impacts 3.2.5.3 Risk perception within the organization 3.2.5.4 The contingency model and corporate performance 3.2.6 Putting it together: risk and organizational performance 3.2.7 Section conclusion 3.3. INVESTMENT IN CONSTRUCTION AND THE IMPORTANCE OF SAFETY OF STRUCTURES AGAINST EARTHQUAKES 100 3.3.1 Costs and Benefits of a Constructed Facility 3.3.2 Uncertainty and Risk 3.3.3 Effects of Financing on Project Selection 3.3.4 Public versus Private Ownership of Facilities 3.3.5 Investment in construction and the importance of safety of structures against earthquakes 3.4 EARHQUAKE STATISTICS 103 3.4.1 What is an earthquake? 3.4.2 Measuring an earthquake 3.4.3 Where earthquakes happen 3.4.4 Earthquake statistics 3.4.5 Section conclusion 3.5. DAMAGES CAUSED BY RECENT EARTHQUAKE, INCREASING SEISMIC RISK AND NEED FOR CONTRIBUTIONS TO CONSTRUCTION MANAGEMENT IN SEISMIC AREA 107 3.5.1 Damages on account of recent earthquakes 3.5.2 Construction related issues in recent earthquakes 3.5.3 Increasing seismic risk and the need of contributions to construction management in seismic area 3.6 CONCLUSIONS (CHAPTER 3) 119

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CHAPTER 4 EARTHQUAKE DISASTER MITIGATION (NEED OF A QUALITATIVE SHIFT IN EARTHQUAKE DISASTER RISK REDUCT ION STRATEGY AT GLOBAL LEVEL) - OBJECTIVES AND STRUCTURE OF THE CHAPTER 121 4.1 DISASTER MITIGATION: THE CONCEPT OF VULNERABILITY REDUCTION 122 4.1.1 Background 4.1.2 The concept of vulnerability 4.1.3 Towards a common approach of vulnerability 4.1.4 The integration of vulnerability in risk assessment and disaster management 4.1.5 Section Conclusion 4.2 USE OF SCENARIO METHODOLOGY IN CIVIL PROTECTION AND DISASTER PREVENTION 129 4.2.1 Background 4.2.2 What is an emergency scenario? 4.2.3 Scenarios in emergency management training 4.2.4 Scenario methodology for emergency training 4.2.5 Section conclusion 4.3 ISSUES AND PROCESSES FOR GOVERNMENT READINESS IN PREPARING COMMUNITIES FOR DISATER MITIGATION 133 4.3.1 Background information 4.3.2 The preparedness process 4.3.3 Implementing a preparedness program 4.3.3.1 Leadership and professionalism 4.3.3.2 Advocacy 4.3.3.3 Inter-agency networking 4.3.3.4 Rely on modern technology 4.3.4 Section Conclusion 4.4 POSSIBLE SOLUTIONS TO THE WEAKNESSES OF THE INTERNATIONAL DISASTER RELIEF AND MITIGATION COMMUNITY 143 4.4.1 Weaknesses of the relief and mitigation community 4.4.2 Possible solutions to the weaknesses of the international disaster relief and mitigation community 4.4.2.1 Protecting human rights in disasters 4.4.2.2 Improving the co-ordination of relief efforts 4.4.2.3 Overcoming the difficulties and drawbacks of providing aid 4.4.2.4 Resolving the dilemmas of development 4.4.3 The implications of above challenges and their respective solutions for both the academic and practitioner 4.4.4 Section conclusion 4.5 NEED OF A QUALITATIVE SHIFT IN DISASTER RISK REDUCTION STRATEGY AT GLOBAL LEVEL 154 4.5.1 Natural disasters: Increasing visibility and impacts 4.5.2 Disasters: preparedness and mitigation 4.5.3 Approaches to disaster management 4.5.4 Need of a qualitative shift in disaster risk reduction strategy at global level 4.6 CONCLUSIONS (CHAPTER 4) 159

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CHAPTER 5 TRENDS IN GLOBAL URBAN SEISMIC RISK AND INTERNATIONAL INITIATIVES OF SEISMIC RISK REDUCTION IN URBAN AREAS - OBJECTIVES AND STRUCTURE OF THE CHAPTER 160 5.1 TRENDS IN GLOBAL URBAN EARTHQUAKE RISK 161 5.1.1 Background 5.1.2 What is being done to improve global urban earthquake risk management? 5.1.3 Are current efforts to reduce urban global earthquake risk “enough”? 5.1.4 How can the international Earth science and earthquake engineering communities help? 5.1.5 Need for an International Earthquake Safety Advocacy Federation 5.1.6 Section conclusion 5.2 INTERNATIONAL INITIATIVE OF EARTHQUAKE RISK REDUCTION IN URBAN AREAS 165 5.2.1 Background 5.2.2 Achievements of the RADIUS project 5.2.3 Global Earthquake Safety Initiative (GESI) 5.2.4 Application of GESI 5.2.4.1 Potential to Raise Public Awareness 5.2.4.2 Potential to Evaluate Mitigation options 5.2.4.3 Potential to Improve Earthquake Risk Management 5.2.5 Section Conclusion 5.3 COUNTER MEASURES AGAINST EARTHQUAKE RISKS AROUND THE WORLD 171 5.3.1 Background 5.3.2 Earthquake risk 5.3.3 The future 5.3.4 Earthquake risk management 5.3.4.1 Identify and assessing the earthquake risk and preparing for it 5.3.4.2 Mitigating earthquake hazard 5.3.4.3 Improving location selection and reducing exposure 5.3.4.4 Reducing Vulnerability 5.3.4.5 Disaster planning and management 5.3.4.6 A free market approach to determine earthquake insurance premium 5.3.4.7 National earthquake insurance program 5.3.4.8 National earthquake reinsurance program 5.3.4.9 Maximizing insurance industry capacity for coverage of earthquakes 5.3.4.10 Making earthquake reserves tax deductible 5.3.5 Section conclusion 5.4 TSUNAMI 2004: ISSUES, CHALLENGES AND STRATEGIES 178 5.4.1 Background 5.4.2 Communications and warning failure 5.4.3 Challenges 5.4.4 Strategies 5.4.4.1 The media 5.4.4.2 Logistics and integration 5.4.4.3 Co-ordination 5.4.5 Summary and implications 5.4.6 Section conclusion 5.5 CONCLUSIONS (CHAPTER 5) 186

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CHAPTER 6 SEISMIC RISK TO MAJOR CITIES AROUND THE WORLD AND THE NEED FOR THE APPLICATION OF QUALITY MANAGEMENT PRACTICES IN CONSTRUCTION & ADOPTION OF A RISK MANAGEMENT STRATEGY FOR SEISMIC RISK REDUCTION - OBJECTIVES AND STRUCTURE OF THE CHAPTER 188 6.1 MOST DEVASTATING EARTHQUAKES OF THE LAST 100 YEARS IN INDO-PAK REGION 189 6.1.1 Bihar earthquake 1934 6.1.2 Quetta Earthquake (May 31, 1935) 6.1.3 Balochistan Earthquake (November 28, 1945) 6.1.4 Assam - Tibet Earthquake (August 15 1950) 6.1.5 Hunza earthquake (December 28, 1974) 6.1.6 Latur earthquake (September 30, 1993) 6.1.7 Gujarat earthquake (January 26, 2001) 6.1.8 Kashmir earthquake (October 8, 2005) 6.1.9 Section conclusion 6.2 LESSONS LEANED FROM KASHMIR EARTHQUAKE 195 6.2.1 Overview 6.2.2 Damages in Pakistan 6.2.3 Damages in Indian Occupied Kashmir 6.2.4 Section conclusion 6.3 SEISMIC RISK TO MAJOR CITIES IN PAKISTAN AND THE IMPORTANT COMPONENTS FOR ENSURING SAFE CONSTRUCTIONS IN THE REGION 202 6.3.1 Seismic risk to major cities in Pakistan 6.3.2 Scientists predict more quakes to come in the Indo-Pak region 6.3.3 Important components for ensuring safe constructions in the region 6.3.4 Proposed pre- earthquake measures to reduce seismic risk to major cities in Pakistan at local government level 6.3.5 Section conclusion 6.4 SEISMIC RISK IN ROMANIA AND THE ROLE OF VARIOUS STAKEHOLDERS CONTRIBUTING TO EARTHQUAKE DISASTER MITIGATION 214 6.4.1 Seismic Risk in Romania 6.4.2 Role of various stakeholders contributing to earthquake disaster mitigation in Romania 6.4.2.1 The Role of Government 6.4.2.2 Role of National Institute for Research-Development in Construction and Construction Economics (INCERC) 6.4.2.3. Role of National Center for Seismic Risk Reduction (NCSRR) and Japanese International Cooperation Agency (JICA) 6.4.2.4 Role of General Inspectorate for Emergency Situations (GIES) 6.4.2.5 The Role of United Nations Development Programme (UNDP) 6.4.2.6 The role of private sector, civil society, non-governmental organizations, educational institutions and media in disaster risk reduction efforts 6.4.3 Proposed steps to promote improvement in earthquake disaster mitigation area 6.4.4 Section conclusion

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6.5 LINKING QUALITY MANAGEMENT IN CONSTRUCTION WITH SEISMIC RISK REDUCTION 226 6.5.1 Poor construction quality- the major cause of human & financial losses 6.5.2 Life cycle of a construction project 6.5.3 Linking Quality Management in the life cycle of a construction project with seismic risk reduction 6.5.4 Linking Quality Management Systems in construction organizations with seismic risk reduction 6.5.5 Section conclusion 6.6 RISK MANAGEMENT STRATEGY FOR SEISMIC RISK REDUCTION 232 6.6.1 Background 6.6.2 Role of various stakeholders in the process of earthquake risk mitigation 6.6.2.1 Role of Government 6.6.2.2 Role of Organizational Management Authorities 6.6.2.3 Role of Insurance Sector 6.6.2.4 Role of Construction Industry 6.6.2.5 Role of research and development institutions 6.6.2.6 Role of educational institutions 6.6.2.7 The role of NGOs 6.6.2.8 Role of Media 6.6.2.9 Role of International community, Local population and the common man 6.6.3 Organizational methods for seismic risk reduction 6.6.4 Formulating the strategy for seismic risk reduction 6.6.5 Section conclusion 6.7 A QUALITATIVE APPROACH TO EARTHQUAKE RISK MANAGEMENT 240 6.7.1 Introduction 6.7.2 Proposed qualitative approach to earth quake risk management 6.7.3 Section conclusion 6.8 CONCLUSIONS (CHAPTER 6) 244 CHAPTER 7 CONCLUSIONS, RECOMMENDATIONS AND CONTRIBUTIONS 7.1 CONCLUSIONS 246 7.2 RECOMMENDATIONS 253 7.3 CONTRIBUTIONS 264 REFERENCES 275 LIST OF TABLES & FIGURES 282 LIST OF ACRONYMS 285 ANNEXES ANNEX- I: ELEMENTS OF CALIFORNIA EARTHQUAKE LOSS REDUCTION PLAN i ANNEX- II: PILLARS OF EARTHQUAKE HAZARD RISK MANAGEMENT IN PAKISTAN xxiv ANNEX- III: DISASTER PREPAREDNESS & MANAGEMENT PLAN (DP&MP) AT LOCAL GOVERNMENT LEVEL (EXAMPLE: KARACHI PAKISTAN) xxviii ANNEX- IV: CONSTRUCTION QUALITY ASSESSMENT SYSTEM (CONQUAS) QUALITY STANDARDS SINGAPORE xliv ANNEX- V: PERFORMANCE ASSESSMENT SCORING SYSTEM (PASS) OF PUBLIC HOUSING CONSTRUCTION FOR QUALITY IMPROVEMENT IN HONGKONG li EXPERIENCE AND PUBLICATIONS OF AUTHOR lv

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INTRODUCTION The world has been facing huge losses on account of earthquakes time by time. The earthquakes not only cause huge losses of human lives but a significant financial loss also results in the shape of collapsed structures. The damages caused by recent earthquakes in Pakistan, Indonesia, Iran, India and Turkey have brought attention to the increasing social and economic vulnerability to seismic risks. There continue to be large human losses from earthquakes and the economic losses are rising dramatically. In addition to this, earthquake risk in poor countries is large and rapidly growing. Fifty years ago, the population of the world’s largest earthquake-threatened cities was equally divided between rich and poor countries. Today, there are five times as many people in poor as in rich earthquake-threatened cities. Fifty years ago, the earthquake resistance of buildings in rich countries was better than that of buildings in poor countries, and since then it has steadily improved, while that in poor countries has steadily worsened. In the next 20 years, the world’s population is likely to increase by 2 billion. Of that 2 billion, only 50 million will be added to industrialized countries, the rest to developing countries. Because of internal migration, from the countryside to cities, the urban population of developing countries is likely to increase by itself by 2 billion people over this period (Brian E. Tucker, 2004). Imagine that in the next 20 years the combined population of today’s India and China is likely to appear in some of the world’s poorest cities and will need places to live, learn, and work. Given the lack of resources and the urgency to build, the quality of construction will, unless something changes quickly, continue to decline. Safety in the built environment is a fundamental right. The declaration of United Nations Commission on Human Rights states that, ‘‘All persons have the right to adequate housing, land tenure and living conditions in a secure, healthy and ecologically sound environment’’ (UNCHR report, 1994). Experiences in recent earthquakes, particularly in developing countries, conclusively demonstrate that we are far from reaching this goal. The gap between developed and developing countries is widening: four of every five deaths caused by earthquakes in the twentieth century occurred in developing countries. Of people living in earthquake threatened cities in 1950, two of every three were in developing countries; in 2000, nine of ten were in developing countries (Geohazards International, 2004). As the world’s population grows, particularly in developing countries, this vulnerability becomes even more pronounced. According to the United Nations, in 2000, one-half of the world’s population lived in urban areas crowded into 3% of the land area, an alarming increase in population density. By 2015, the United Nations estimates that 23 cities will have populations exceeding ten million, and of those, all but 4 will be in less developed countries. Of the top ten urban agglomerations projected for 2015, eight are cities with a known moderate to high seismic risk, including Tokyo, Mumbai, Dhaka, Karachi, Mexico City, New York, Jakarta, and Calcutta. A major earthquake in one of these cities, particularly in a city with a vulnerable building stock and fragile infrastructure, could cause major devastation and a significant number of deaths. Not only are urban populations in developing countries becoming increasingly more vulnerable, but also the number of disasters is increasing. Considering the increase in population, vulnerability and number of disasters around the world it is necessary for the developing countries to take proactive measures for earthquake disaster mitigation. A major challenge for the earthquake community and one of the most important measures of success is to have earthquake hazard mitigation placed on public, municipal, and legislative agendas. The adoption of policy measures will significantly increase any nation’s ability to prevent major disasters and thus reduce their devastating economic and social consequences. The mitigation technology has advanced considerably over the years but deployment has not kept pace. One of the principal reasons for the lag in deployment is that many view earthquake risk reduction as a technical problem with a technical solution. However, even once a technology has been proven, it requires institutions and people to implement workable solutions. The above mentioned problems highlight the need to focus on the improvement of management characteristics in this area. This study therefore concentrates on the management aspects related to seismic risk reduction from the local authorities point of view.

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Scope of the study A better management approach to seismic risk reduction in order to reduce the risk of human and finacial losses in the event of future possible earthquakes. Objectives The main focus of this study is on the mangement asspects related to earhquake risk management and it does not include the technical part of construction. This study concentrates on the management of local authorities and on the plan of activities and measures taken by the authorities at pre and post earthquake stages. An other objective of this study is to highlight the aspect that how risk can be reduced in construction. In thiscontext, this study links the implementation of Quality Management Systems in construction companies and construction process with seismic risk reduction. Besides this it also describes the link between risk management strategy and organizational behavior. This study also aims to observe the effectiveness of international initiatives taken at global level for earthquake disaster mitigation. In this area it studies the earthquake disaster mitigation plans, efforts and strategies at pre and post earthquake stages in both developed and developing countries. In order to achieve the objectives, this study suggests many actions to be taken by local authorities, construction companies and other stakeholders in earthquake disaster mitigation for effectively responding the problems and future challenges at both pre and post earthquake stages. The main contributions of this study are the recommendation and proposals for better earthquake disaster mitigation at global level. In this context, this study describes that how the implementation of Quality Management System in construction companies and construction process, adoption of effective risk management strategy, effective role of stakeholders contributing in earthquake disaster mitigation and actions of local management authorities can help in reduc ing the risk of earthquake damages around the world. Structure of the objectives The structure of the objectives of study is presented below: 1. To link Quality Management in construction with improved construction quality

• To study the aspects regarding the adoption and implementation of TQM in construction companies and to highlight the importance of aligning organizational culture with TQM.

• To formulate a framework for implementing TQM at construction project level. • To observe the effects of construction quality on construction cost. • To study the effectiveness of ISO certification in construction companies. • To observe the effects of Quality Management Systems on contractor’s quality performance

and to link the implementation of Quality Management Systems in construction companies with improved construction quality.

2. To describe construction related issues during recent earthquakes; to highlight the importance of increasing seismic risk around the world and to emphasize over the need of contributions to construction management in seismic area

• To explain the management of general risk. • To describe the link between risk management strategy and organizational behavior. • To highlight the importance of investment in construction and describe the significance of

safety of structures against earthquakes. • To present the statistics of damages caused on account of recent earthquakes. • To describe construction related issues during recent earthquakes; to highlight the importance

of increasing seismic risk around the world and to emphasize over the need of contributions to construction management in seismic area.

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3. To study the issues and processes for government readiness in preparing communities for disaster mitigation and to describe the importance of a qualitative shift in disaster risk reduction strategy at global level

• To study the effectiveness of concept of vulnerability reduction in earthquake disaster mitigation.

• To study the impact of using scenario methodology in civil protection and disaster prevention. • To study the issues and processes for government readiness in preparing communities for

disaster mitigation. • To propose possible solutions to the weaknesses of the international disaster relief and

mitigation community. • To highlight the importance of a qualitative shift in disaster risk reduction strategy at global

level. 4. To study the effectiveness of international initiatives of seismic risk reduction in urban areas and to highlight the required counter counter-measures for earthquake risk mitigation

• To observe the trends in urban earthquake risk • To study the effectiveness of international initiatives of seismic risk reduction in urban areas • To study the required counter counter-measures against earthquake risk reduction. • To examine the challenges of effectively managing the tsunamis and to formulate the strategy

for preparedness against tsunamis. 5. To describe the seismic risk to major cities around the world and propose a qualitative approach to earthquake risk management

• To highlight the most devastating earthquakes of Indo-Pak region. • To summarize the lessons learned from October 8, 2005 Kashmir earthquake. • To highlight the seismic risk to major cities in Pakistan and to describe the important

components for ensuring safe constructions • To propose pre- earthquake measures to be taken at local government level in Pakistan. • To describe the role of various stakeholders contributing to earthquake disaster mitigation in

Romania and propose steps to promote improvement in this area. • To link the effective application of quality management in construction process and

implementation of quality management system in construction companies with seismic risk reduction.

• To formulate risk management strategy for seismic risk reduction. • To propose qualitative approach to earthquake risk management.

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CHAPTER 1

LITERATURE REVIEW (SELECTION AND STUDY OF IMPORTANT AREAS OF CONSTRUCTION

MANAGEMENT TO LINK WITH SEISMIC RISK REDUCTION) OBJECTIVE AND STRUCTURE OF THE CHAPTER The main objective of this chapter is to select and study the important areas of construction management to link with seismic risk reduction. The structure of the chapter is shown in figure 1.1.

Figure 1.1: Structure of the chapter

(11) Conclusions

(10) Risk

Management in Construction

(9)

TQM in Construction

Process

(8)

ISO 9000 Quality Management

System

(7)

Quality Management in

Construction

(6)

Selection of Construction Management

Areas

(5)

Construction Project

Management

(4)

Management for

Construction

(3)

History of Construction Management

(2)

Sub-disciplines of Civil

Engineering

(1)

History of Civil Engineering

LITERATURE REVIEW

(Selection and Study of the important Areas of

Construction Management to link with Seismic Risk

reduction)

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1.1 HISTORY OF CIVIL ENGINEERING Engineering is one of the oldest professions in the world. Around 2550 BC, Imhotep, the first documented engineer, built a famous stepped pyramid of King Zoser located at Saqqarah. With simple tools and mathematics he created a monument that stands to this day. His greatest contribution to engineering was his discovery of the art of building with shaped stones. Those who followed him carried engineering to remarkable heights using skill and imagination. Vitruvius' De archiectura was published in 1AD in Rome and survived to give us a look at engineering education in ancient times. The first engineers were military engineers, combining military and civil skills. During periods of conflict the engineers made and used instruments of war such as catapults, battering rams, towers, and ramps to aid in attacking their enemies' forts & encampments and also to defend their own. During the periods of peace, they were involved in many military and civil activities such as building fortifications for defense against further attacks, roads, bridges, aqueducts, canals and cathedrals. The construction and hydraulics techniques used by the medieval engineers in China, Japan, India and other regions of the Far East were far more sophisticated than those of the medieval European engineers.

Figure 1.2: The Step Pyramid of Djoser at Saqqara in Egypt

Civil engineering is the oldest of the main disciplines of engineering. In the ancient world, the works of civil engineers included the Egyptian pyramids, the Roman highways, roads, aqueducts, bridges, canals and harbors. However, they were called architects instead of civil engineers. It is not until the eighteenth century, that men who dedicated themselves to the planning, constructing and maintaining public works began to call themselves "civil engineers" or "civilian engineers". In 1761, John Smeaton, who designed and built the Eddy stone Lighthouse (England) first advertised himself as a Civil engineer as well as created the Society of Civil Engineering (Smeatonian Society), and thus, making the public aware of the presence of civil engineers who devoted themselves to society. These civil engineers built all types of structures, designed water-supply and sewer systems, designed railroads and highways, and planned cities. In 1828 the world's first engineering society came into being, the Institution of Civil Engineers in England. The commencement of civil engineering as a separate profession may be seen in the foundation in France in the year of 1716 of the Bridge and Highway Corps, from which branched out the National School of Bridges and Highways in year1747. The materials written by teachers of this French Institute became a standard model in the field of civil engineering. Different civil engineering schools merged at all different parts of Europe, such as The Ecole Polytechnique (The School of Multiple techniques) created in 1794 in Paris, France; Berlin's Baukademi started in 1799. By the year 1818, a group of interested engineers found the Institution of Civil Engineering, which was led by the British

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dean of civil engineering, Thomas Telford. Although the new idea of Civil Engineering was still not a common subject at the time, countries around the world gradually became aware of civil engineering, it grew quickly in universities and colleges worldwide. Today, the subject of civil engineering is known, taught, and learned by people everywhere. In modern usage, civil engineering is a broad field of engineering that deals with the planning, construction, and maintenance of fixed structures, or public works, as they are related to earth, water, or civilization and their processes. Most civil engineering today deals with roads, railways, structures, water supply, sewer, flood control and traffic. In essence, civil engineering may be regarded as the profession that makes the world a more agreeable place in which to live. 1.2 SUB-DISCIPLINES OF CIVIL ENGINEERING 1.2.1 General engineering General civil engineering is concerned with the overall interface of fixed projects with the greater world. General civil engineers work closely with surveyors and specialized civil engineers to fit and serve fixed projects within their given site, community and terrain by designing grading, drainage (flood control), paving, water supply, sewer service, electric and communications supply and land (real property) divisions. General engineers spend much of their time visiting project sites, developing community/neighborhood consensus, and preparing construction plans. 1.2.2 Structural engineering In the field of civil engineering, structural engineering is concerned with structural design and structural analysis of structural components of buildings and nonbuilding structures. This involves calculating the stresses and forces that affect or arise within a structure. Major design concerns are building seismic resistant structures and seismically retrofitting existing structures. 1.2.3 Geotechnical engineering The main subject of the studies also known as soil mechanics is concerned with soil properties, mechanics of soil particles, compression and swelling of soils, seepage, slopes, retaining walls, foundations, footings, ground and rock anchors, use of synthetic tensile materials in soil structures, soil-structure interaction and soil dynamics. Geotechnical engineering covers this field of studies for application in engineering. The importance of geotechnical engineering can hardly be overstated: buildings must be supported by reliable foundations. Dam design and construction reducing flooding of lower drainage areas is an important subject of geotechnical engineering. 1.2.4 Transportation engineering Transportation engineering is concerned with moving people and goods efficiently and safely. This involves specifying, designing, constructing, and maintaining transportation infrastructure which includes streets, highways, rail systems, airports, ports, and mass transit. It includes areas such as queueing theory, traffic engineering, pavement engineering, and infrastructure management. For example, in traffic engineering, driver behavior patterns are analyzed and simulated through the use of trip generation and traffic assignment algorithms which can be highly complex computational problems. Since the passage of the 1991 Intermodal Surface Transportation Efficiency Act there has been a large focus on intermodal transportation in an attempt to improve efficiency, safety, and productivity with the existing infrastructure. Such a transportation system is called an Intelligent Transportation System (ITS). 1.2.5 Environmental engineering Environmental engineering deals with the treatment of chemical, biological, and/or thermal waste, the purification of water and air, and the remediation of contaminated sites, due to prior waste disposal or

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accidental contamination. Among the topics covered by environmental engineering are water purification, sewage treatment, and hazardous waste management. Environmental engineering is related to the fields of hydrology, geohydrology and meteorology insofar as knowledge of water and groundwater flows is required to understand pollutant transport. Environmental engineers are also involved in pollution reduction, green engineering, and industrial ecology. Environmental engineering also deals with the gathering of information on the environmental consequences of proposed actions and the assessment of effects of proposed actions for the purpose of assisting society and policy makers in the decision making process. 1.2.6 Hydraulic engineering Hydraulic engineering is concerned with the flow and conveyance of fluids, principally water. This area of engineering is intimately related to the design of pipelines, water distribution systems, drainage facilities (including bridges, dams, channels, culverts, levees, and storm sewers), canals, and to environmental engineering. Hydraulic engineers design these facilities using the concepts of fluid pressure, fluid statics, fluid dynamics, and hydraulics, among others. 1.2.7 Materials science Civil engineering also includes materials science. Engineering materials with broad application in civil engineering include concrete, aluminum and steel. The study of materials also includes polymers and ceramics with potential engineering application. 1.2.8 Surveying Elements of a building or structure must be correctly sized and positioned in relation to each other and to site boundaries and adjacent structures. This is accomplished using various surveying techniques. Civil engineers are trained in the methods of surveying and may seek Professional Land Surveyor status. 1.2.9 Urban engineering Urban engineering is a subset of the general practice of urban planning. It is limited to civil engineering in an urban setting and does not include designing buildings or their functions. 1.2.10 Construction engineering Construction engineering concerns the planning and management of the construction of structures such as highways, bridges, airports, railroads, buildings, dams, and reservoirs. Construction of such projects requires knowledge of engineering and management principles and business procedures, economics, and human behavior. Construction engineers engage in the design of structures temporary, cost estimating, planning and scheduling, materials procurement, selection of equipment, and cost control. (Wikipedia Encyclopedia ) 1.2.11 Construction management Construction management is a term referring to the study of the managerial and technological aspects of the construction industry, or to a business model where one party to a construction contract serves as a construction consultant, providing both design and construction advice. According to the American Council for Construction Management, the academic field of construction management encompasses a wide range of topics. These range from general management skills, to management skills specifically related to construction, to technical knowledge of construction methods and practices. Journal of Construction Education defines construction management as, “Basic business and management topics that provide oversight and control of the construction process, i.e., accounting, bidding, building codes, business strategy, contracts, economics, ethics, general business, finance, inspections, investment, labor relations, law, marketing, specifications, surety bonds, and supervision.

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1.3 HISTORY OF CONSTRUCTION MANAGEMENT Construction has a long history closely paralleling to development of human civilization. We can start with prehistoric do-it-your-selfers piling up some rocks in the Rift Valley to mark a good hunting ground. Or with the first people to build a fireplace, piling some stones around the fire to improve its overall performance and enhance their cooking. The lever and a strong back were the construction technology of that era. Technology moved rather slowly in those early years, but later it produced some impressive projects, such as the rudimentary but precise stone observatory at Stonehenge in England. How the Druid construction people erected those stone structures without heavy equipment is most impressive. We must also consider the management abilities of people who conceived and supervised the construction. The temple and tomb builders of of the Mediterranean Civilization left many high-profile construction projects of their era. Construction technology had moved along with the development of the wedge, lever, sledges, rollers, and the inclined plane to make these monuments possible. At this point the wheel, the block and tackle, or the derrick had not yet been invented. Even with the new technology, those projects were still highly labor-intensive. Much of the heavy construction work in those days was done with slave labor. We can safely assume that the construction managers had minimal labor problems. Also, they probably used more stick than carrot in their approach to labor relations. The Egyption work, however was done with free labor. They may have been among the first to practice personnel management on their construction projects. Considering the scope and quality of their projects, and the amount of manpower required over normal 20-year project schedules, keeping the work force motivated was a monumental construction management accomplishementsin itself. The next quantum leaps in construction technology occurred in the 1800s, as a result of indus trial revolution. Construction people quickly adopted the tools and machinery from the workshops and mines to construction use. Cranes, derricks, hoists, and shovels were converted to steam power. Earth-moving equipment converted from horse and mule power to steam. Less labor- intensive operations made field productivity soar. Construction managers had to adopt their thinking to get the most from the new technology. The new technology also made new forms of facilities possible. We could now build larger power dams, skyscrapers, transportation systems, bridges, and the like, to serve the burgeoing economy. The availability of electricity, the internal combustion engine, and electrical motors at the turn of the century replaced steam to make construction tools and equipment even more mobile and efficient. Construction technology continued to race ahead along a broad front in the twentieth century as well. We learned to pump concrete, use slip forms, improve welding, and apply the steady stream of new products and materials made available by modern research and industry. Even management made some strides during the twentieth century. We adopted Gantt bar-charting techniques for scheduling construction projects. We even adopted some budgeting and cost-controlling procedures from buisness and industry to improve our project financial performance. Finally, in the early sixtees, the comuter burst on the construction scene. We suddenly had a new tool with which to crunch all of those payroll, budget, and scheduling numbers in record time. The computer as a construction management tool arrived just as construction projects were getting much larger and more complex after the second world war. The increased size and complexity of the construction projects caused scheduling and cost performance to suffer. Field productivity improvement started to wane and even decrease in the face of new technology advances. Suddenly the construction field offices were inundated with the data in the form of interminable computer printouts from the home office. In the early computer age the flow of data was largely ignored by the field people, because they were not trained to use it. This was a slight oversight by the early computer gurus. And that ‘slight oversight’ almost caused the application of computers in construction management to fail. (George J. Ritz, 1994)

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It also took some time and training to make the new computer technology effective in the field. First the commercial software simplified the payroll and accounting end of the field operations. Later, sheduling and cost-control applications were developed and proven out in the field. 1.3.1 Where do construction managers come from? Until the arrival of the computer, the development of field construction managers was pretty much left to its own devices. Those formen who had some buisness smarts and a dash of charishma rose through the craft ranks to become field superintendents and construction managers. Many were long on construction technology and know-how, but short on management skills. The advent of more sophisticated construction technology, along with larger and more complex projects, brought with it a need for construction managers with more technical and bisness skills. That in turn meant that present-day construction managers needed to start with a four-year bachelor,s degree in a field related to construction just to master the basic technology. They would then start in lower-management, on-the-job training assignments to build their construction know-how skills in their specialized field. However, that was still not the total solution to improving construction project performance, because the management training received along with the technical degree was so limited. The priority given to the technical training left little or no room for buisness and management courses. Would-be construction managers still need courses and training to learn and sharpen the necessary management skills to become effective on the management side of construction project execution. The number of universities offering construction management training has been growing in recent years, but more are needed to raise the leval of training. This brief review of history tell us a few things about the construction industry:

• Construction has a long tradition of creating structures and facilities pomoting the development of humankind.

• Construction has provided a world civilization with a huge infrastructure, ranging from basic shelter to facilities in outer space.

• Construction productivity and efficiency have improved greatly over the centuries. However, the construction industry cannot afford to rest on its past laurels. The construction industry around the world has been experiencing slackening growth in overall productivity and efficiency in the face of improving productivity in other businesses. Considering the size and dollar volume of the construction industry, we can’t let that condition persist in developing economies. Construction must join the other industries in improving productivity and performances to survive in the world economy. Improving construction management practices appears to offer the surest route to meeting the improvement goals. 1.4 MANAGEMENT FOR CONSTRUCTION 1.4.1 Construction Planning Construction planning is a fundamental and challenging activity in the management and execution of construction projects. It involves the choice of technology, the definition of work tasks, the estimation of the required resources and durations for individual tasks, and the identification of any interactions among the different work tasks. A good construction plan is the basis for developing the budget and the schedule for work. Developing the construction plan is a critical task in the management of construction, even if the plan is not written or otherwise formally recorded. In addition to these technical aspects of construction planning, it may also be necessary to make organizational decisions about the relationships between project participants and even which organizations to include in a project. For example, the extent to which sub-contractors will be used on a project is often determined during construction planning. Like a detective, a planner begins with a result (i.e. a facility design) and must synthesize the steps required to yield this result. Essential

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aspects of construction planning include the generation of required activities, analysis of the implications of these activities, and choice among the various alternative means of performing activities. In contrast to a detective discovering a single train of events, however, construction planners also face the normative problem of choosing the best among numerous alternative plans. Moreover, a detective is faced with an observable result, whereas a planner must imagine the final facility as described in the plans and specifications. In developing a construction plan, it is common to adopt a primary emphasis on either cost control or on schedule control. Some projects are primarily divided into expense categories with associated costs. In these cases, construction planning is cost or expense oriented. Within the categories of expenditure, a distinction is made between costs incurred directly in the performance of an activity and indirectly for the accomplishment of the project. For example, borrowing expenses for project financing and overhead items are commonly treated as indirect costs. For other projects, scheduling of work activities over time is critical and is emphasized in the planning process. In this case, the planner insures that the proper precedences among activities are maintained and that efficient scheduling of the available resources prevails. Traditional scheduling procedures emphasize the maintenance of task precedences (resulting in critical path scheduling procedures) or efficient use of resources over time (resulting in job shop scheduling procedures). Finally, most complex projects require consideration of both cost and scheduling over time, so that planning, monitoring and record keeping must consider both dimensions. In these cases, the integration of schedule and budget information is a major concern. 1.4.2 Construction Scheduling Procedures Construction scheduling is intended to match the resources of equipment, materials and labor with project work tasks over time. Good scheduling can eliminate problems due to production bottlenecks, facilitate the timely procurement of necessary materials, and otherwise insure the completion of a project as soon as possible. In contrast, poor scheduling can result in considerable waste as laborers and equipment wait for the availability of needed resources or the completion of preceding tasks. Delays in the completion of an entire project due to poor scheduling can also create havoc for owners who are eager to start using the constructed facilities. Attitudes toward the formal scheduling of projects are often extreme. Many owners require detailed construction schedules to be submitted by contractors as a means of monitoring the work progress. The actual work performed is commonly compared to the schedule to determine if construction is proceeding satisfactorily. After the completion of construction, similar comparisons between the planned schedule and the actual accomplishments may be performed to allocate the liability for project delays due to changes requested by the owner, worker strikes or other unforeseen circumstances. Formal scheduling procedures have become much more common with the advent of personal computers on construction sites and easy-to-use software programs. Sharing schedule information via the Internet has also provided a greater incentive to use formal scheduling methods. Savvy construction supervisors often carry schedule and budget information around with wearable or handheld computers. As a result, the continued development of easy to use computer programs and improved methods of presenting schedules have overcome the practical problems associated with formal scheduling mechanisms. But problems with the use of scheduling techniques will continue until managers understand their proper use and limitations. Despite considerable attention by researchers and practitioners, the process of construction planning and scheduling still presents problems and opportunities for improvement. The importance of scheduling in insuring the effective coordination of work and the attainment of project deadlines is indisputable. For large projects with many parties involved, the use of formal schedules is indispensable. The network model for representing project activities has been provided as an important conceptual and computational framework for planning and scheduling. Networks not only communicate the basic precedence relationships between activities, they also form the basis for most scheduling computations.

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As a practical matter, most project scheduling is performed with the critical path scheduling method, supplemented by heuristic procedures used in project crash analysis or resource constrained scheduling. Many commercial software programs are available to perform these tasks. Probabilistic scheduling or the use of optimization software to perform time/cost trade-offs is rather more infrequently applied, but there are software programs available to perform these tasks if desired. Rather than concentrating upon more elaborate solution algorithms, the most important innovations in construction scheduling are likely to appear in the areas of data storage, ease of use, data representation, communication and diagnostic or interpretation aids. Integration of scheduling information with accounting and design information through the means of database systems is one beneficial innovation; many scheduling systems do not provide such integration of information. With regard to ease of use, the introduction of interactive scheduling systems, graphical output devices and automated data acquisition should produce a very different environment than has existed. In the past, scheduling was performed as a batch operatio n with output contained in lengthy tables of numbers. Updating of work progress and revising activity duration was a time consuming manual task. It is no surprise that managers viewed scheduling as extremely burdensome in this environment. The lower costs associated with computer systems as well as improved software make "user friendly" environments a real possibility for field operations on large projects. Finally, information representation is an area which can result in substantial improvements. While the network model of project activities is an extremely useful device to represent a project, many aspects of project plans and activity inter-relationships cannot or have not been represented in network models. For example, the similarity of processes among different activities is usually unrecorded in the formal project representation. As a result, updating a project network in response to new information about a process such as concrete pours can be tedious. What is needed is a much more flexible and complete representation of project information. 1.4.3 Cost Estimation 1.4.3.1 Costs Associated with Constructed Facilities The costs of a constructed facility to the owner include both the initial capital cost and the subsequent operation and maintenance costs. Each of these major cost categories consists of a number of cost components. The capital cost for a construction project includes the expenses related to the initial establishment of the facility:

• Land acquisition, including assembly, holding and improvement • Planning and feasibility studies • Architectural and engineering design • Construction, including materials, equipment and labor • Field supervision of construction • Construction financing • Insurance and taxes during construction • Owner's general office overhead • Equipment and furnishings not included in construction • Inspection and testing

The operation and maintenance cost in subsequent years over the project life cycle includes the following expenses:

• Land rent, if applicable • Operating staff • Labor and material for maintenance and repairs • Periodic renovations • Insurance and taxes • Financing costs

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• Utilities • Owner's other expenses

The magnitude of each of these cost components depends on the nature, size and location of the project as well as the management organization, among many considerations. The owner is interested in achieving the lowest possible overall project cost that is consistent with its investment objectives. It is important for design professionals and construction managers to realize that while the construction cost may be the single largest component of the capital cost, other cost components are not insignificant. For example, land acquisition costs are a major expenditure for building construction in high-density urban areas, and construction financing costs can reach the same order of magnitude as the construction cost in large projects such as the construction of nuclear power plants. From the owner's perspective, it is equally important to estimate the corresponding operation and maintenance cost of each alternative for a proposed facility in order to analyze the life cycle costs. The large expenditures needed for facility maintenance, espec ially for publicly owned infrastructure, are reminders of the neglect in the past to consider fully the implications of operation and maintenance cost in the design stage. In most construction budgets, there is an allowance for contingencies or une xpected costs occurring during construction. This contingency amount may be included within each cost item or be included in a single category of construction contingency. The amount of contingency is based on historical experience and the expected difficulty of a particular construction project. For example, one construction firm makes estimates of the expected cost in five different areas:

• Design development changes, • Schedule adjustments, • General administration changes (such as wage rates), • Differing site conditions for those expected, and • Third party requirements imposed during construction, such as new permits.

Contingent amounts not spent for construction can be released near the end of construction to the owner or to add additional project elements. 1.4.3.2 Estimation of Operating Costs In order to analyze the life cycle costs of a proposed facility, it is necessary to estimate the operation and maintenance costs over time after the start up of the facility. The stream of operating costs over the life of the facility depends upon subsequent maintenance policies and facility use. In particular, the magnitude of routine maintenance costs will be reduced if the facility undergoes periodic repairs and rehabilitation at periodic intervals. 1.4.3.3 Historical Cost Data Preparing cost estimates normally requires the use of historical data on construction costs. Historical cost data will be useful for cost estimation only if they are collected and organized in a way that is compatible with future applications. Organizations which are engaged in cost estimation continually should keep a file for their own use. The information must be updated with respect to changes that will inevitably occur. The format of cost data, such as unit costs for various items, should be organized according to the current standard of usage in the organization. Historical cost data must be used cautiously. Changes in relative prices may have substantial impacts on construction costs which have increased in relative price. Unfortunately, systematic changes over a long period of time for such factors are difficult to predict. Errors in analysis also serve to introduce uncertainty into cost estimates. It is difficult, of course, to foresee all the problems which may occur in construction and operation of facilities. There is some evidence that estimates of construction and operating costs have tended to persistently understate the actual costs. This is due to the effects of greater than anticipated increases in costs, changes in design during the construction process, or overoptimism. Since the future prices of constructed facilities are influenced by many uncertain factors, it is important to recognize that this risk must be borne to some degree by all parties involved, i.e., the owner, the design professionals, the construction contractors, and the financing institution. It is to the best interest of all parties that the risk sharing scheme implicit in the design/construct process adopted by

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the owner is fully understood by all. When inflation adjustment provisions have very different risk implications to various parties, the price level changes will also be treated differently for various situations. 1.4.3.4 Cost Indices Since historical cost data are often used in making cost estimates, it is important to note the price level changes over time. Trends in price changes can also serve as a basis for forecasting future costs. The input price indices of labor and/or material reflect the price level changes of such input components of construction; the output price indices, where available, reflect the price level changes of the completed facilities, thus to some degree also measuring the productivity of constructio n.

1.4.4 Construction Pricing and Contracting 1.4.4.1 Pricing for Constructed Facilities Because of the unique nature of constructed facilities, it is almost imperative to have a separate price for each facility. The construction contract price includes the direct project cost including field supervision expenses plus the markup imposed by contractors for general overhead expenses and profit. The factors influencing a facility price will vary by type of facility and location as well. Within each of the major categories of construction such as residential housing, commercial buildings, industrial complexes and infrastructure, there are smaller segments which have very different environments with regard to price setting. However, all pricing arrangements have some common features in the form of the legal documents binding the owner and the supplier(s) of the facility. Without addressing special issues in various industry segments, the most common types of pricing arrangements can be described broadly to illustrate the basic principles. 1.4.4.1.1 Competitive Bidding The basic structure of the bidding process consists of the formulation of detailed plans and specifications of a facility based on the objectives and requirements of the owner, and the invitation of qualified contractors to bid for the right to execute the project. The definition of a qualified contractor usually calls for a minimal evidence of previous experience and financial stability. In the private sector, the owner has considerable latitude in selecting the bidders, ranging from open competition to the restriction of bidders to a few favored contractors. In the public sector, the rules are carefully delineated to place all qualified contractors on an equal footing for competition, and strictly enforced to prevent collusion among contractors and unethical or illegal actions by public officials. Detailed plans and specifications are usually prepared by an architectural/engineering firm which oversees the bidding process on behalf of the owner. The final bids are normally submitted on either a lump sum or unit price basis, as stipulated by the owner. A lump sum bid represents the total price for which a contractor offers to complete a facility according to the detailed plans and specifications. Unit price bidding is used in projects for which the quantity of materials or the amount of labor involved in some key tasks is particularly uncertain. In such cases, the contractor is permitted to submit a list of unit prices for those tasks, and the final price used to determine the lowest bidder is based on the lump sum price computed by multiplying the quoted unit price for each specified task by the corresponding quantity in the owner's estimates for quantities. However, the total payment to the winning contractor will be based on the actual quantities multiplied by the respective quoted unit prices. 1.4.4.1.2 Negotiated Contracts Instead of inviting competitive bidding, private owners often choose to award construction contracts with one or more selected contractors. A major reason for using negotiated contracts is the flexibility of this type of pricing arrangement, particularly for projects of large size and great complexity or for projects which substantially duplicate previous facilities sponsored by the owner. An owner may value the expertise and integrity of a particular contractor who has a good reputation or has worked successfully for the owner in the past. If it becomes necessary to meet a deadline for completion of

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the project, the construction of a project may proceed without waiting for the completion of the detailed plans and specifications with a contractor that the owner can trust. However, the owner's staff must be highly knowledgeable and competent in evaluating contractor proposals and monitoring subsequent performance. 1.4.4.1.3 Speculative Residential Construction In residential construction, developers often build houses and condominiums in anticipation of the demand of home buyers. Because the basic needs of home buyers are very similar and home designs can be standardized to some degree, the probability of finding buyers of good housing units within a relatively short time is quite high. Consequently, developers are willing to undertake speculative building and lending institutions are also willing to finance such construction. The developer essentially set the price for each housing unit as the market will bear, and can adjust the prices of remaining units at any given time according to the market trend. 1.4.4.1.4 Force-Account Construction Some owners use in-house labor forces to perform a substantial amount of construction, particularly for addition, renovation and repair work. Then, the total of the force-account charges including in-house overhead expenses will be the pricing arrangement for the construction. 1.4.4.2 Types of Construction Contracts While construction contracts serve as a means of pricing construction, they also structure the allocation of risk to the various parties involved. The owner has the sole power to decide what type of contract should be used for a specific facility to be constructed and to set forth the terms in a contractual agreement. It is important to understand the risks of the contractors associated with different types of construction contracts. 1.4.4.2.1 Lump Sum Contract In a lump sum contract, the owner has essentially assigned all the risk to the contractor, who in turn can be expected to ask for a higher markup in order to take care of unforeseen contingencies. Beside the fixed lump sum price, other commitments are often made by the contractor in the form of submittals such as a specific schedule, the management reporting system or a quality control program. If the actual cost of the project is underestimated, the underestimated cost will reduce the contractor's profit by that amount. An overestimate has an opposite effect, but may reduce the chance of being a low bidder for the project. 1.4.4.2.2 Unit Price Contract In a unit price contract, the risk of inaccurate estimation of uncertain quantities for some key tasks has been removed from the contractor. However, some contractors may submit an "unbalanced bid" when it discovers large discrepancies between its estimates and the owner's estimates of these quantities. Depending on the confidence of the contractor on its own estimates and its propensity on risk, a contractor can slightly raise the unit prices on the underestimated tasks while lowering the unit prices on other tasks. If the contractor is correct in its assessment, it can increase its profit substantially since the payment is made on the actual quantities of tasks; and if the reverse is true, it can lose on this basis. Furthermore, the owner may disqualify a contractor if the bid appears to be heavily unbalanced. To the extent that an underestimate or overestimate is caused by changes in the quantities of work, neither error will affect the contractor's profit beyond the markup in the unit prices. 1.4.4.2.3 Cost plus Fixed Percentage Contract For certain types of construction involving new technology or extremely pressing needs, the owner is sometimes forced to assume all risks of cost overruns. The contractor will receive the actual direct job cost plus a fixed percentage, and have little incentive to reduce job cost. Furthermor e, if there are pressing needs to complete the project, overtime payments to workers are common and will further increase the job cost. Unless there are compelling reasons, such as the urgency in the construction of military installations, the owner should not use this type of contract.

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1.4.4.2.4 Cost Plus Fixed Fee Contract Under this type of contract, the contractor will receive the actual direct job cost plus a fixed fee, and will have some incentive to complete the job quickly since its fee is fixed regardless of the duration of the project. However, the owner still assumes the risks of direct job cost overrun while the contractor may risk the erosion of its profits if the project is dragged on beyond the expected time. 1.4.4.2.5 Cost Plus Variable Percentage Contract For this type of contract, the contractor agrees to a penalty if the actual cost exceeds the estimated job cost, or a reward if the actual cost is below the estimated job cost. In return for taking the risk on its own estimate, the contractor is allowed a variable percentage of the direct job-cost for its fee. Furthermore, the project duration is usually specified and the contractor must abide by the deadline for completion. This type of contract allocates considerable risk for cost overruns to the owner, but also provides incentives to contractors to reduce costs as much as possible. 1.4.4.2.6 Target Estimate Contract This is another form of contract which specifies a penalty or reward to a contractor, depending on whether the actual cost is greater than or less than the contractor's estimated direct job cost. Usually, the percentages of savings or overrun to be shared by the owner and the contractor are predetermined and the project duration is specified in the contract. Bonuses or penalties may be stipulated for different project completion dates. 1.4.4.2.7 Guaranteed Maximum Cost Contract When the project scope is well defined, an owner may choose to ask the contractor to take all the risks, both in terms of actual project cost and project time. Any work change orders from the owner must be extremely minor if at all, since performance specifications are provided to the owner at the outset of construction. The owner and the contractor agree to a project cost guaranteed by the contractor as maximum. There may be or may not be additional provisions to share any savings if any in the contract. This type of contract is particularly suitable for turnkey operation. 1.4.4.3 Resolution of Contract Disputes Once a contract is reached, a variety of problems may emerge during the course of work. Disputes may arise over quality of work, over responsibility for delays, over appropriate payments due to changed conditions, or a multitude of other considerations. Resolution of contract disputes is an important task for project managers. The mechanism for contract dispute resolution can be specified in the original contract or, less desirably, decided when a dispute arises. The most prominent mechanism for dispute resolution is adjudication in a court of law. This process tends to be expensive and time consuming since it involves legal representation and waiting in queues of cases for available court times. Any party to a contract can bring a suit. In adjudication, the dispute is decided by a neutral, third party with no necessary specialized expertise in the disputed subject. After all, it is not a prerequisite for judges to be familiar with construction procedures! Legal procedures are highly structured with rigid, formal rules for presentations and fact finding. On the positive side, legal adjudication strives for consistency and predictability of results. The results of previous cases are published and can be used as precedents for resolution of new disputes. Negotiation among the contract parties is a second important dispute resolution mechanism. These negotiations can involve the same sorts of concerns and issues as with the original contracts. Negotiation typically does not involve third parties such as judges. The negotiation process is usua lly informal, unstructured and relatively inexpensive. If an agreement is not reached between the parties, then adjudication is a possible remedy. A third dispute resolution mechanism is the resort to arbitration or mediation and conciliation. In these procedures, a third party serves a central role in the resolution. These outside parties are usually chosen by mutually agreement of the parties involved and will have specialized knowledge of the dispute subject. In arbitration, the third party may make a decision which is binding on the participants. In mediation and conciliation, the third party serves only as a facilitator to help the

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participants reach a mutually acceptable resolution. Like negotiation, these procedures can be informal and unstructured. Finally, the high cost of adjudication has inspired a series of non-traditional dispute resolution mechanisms that have some of the characteristics of judicial proceedings. These mechanisms include:

• Private judging in which the participants hire a third party judge to make a decision, • Neutral expert fact-finding in which a third party with specialized knowledge makes a

recommendation, and • Mini-trial in which legal summaries of the participants' positions are presented to a jury

comprised of principals of the affected parties. Some of these procedures may be court sponsored or required for particular types of disputes. While these various disputes resolution mechanisms involve varying costs, it is important to note that the most important mechanism for reducing costs and problems in dispute resolution is the reasonableness of the initial contract among the parties as well as the competence of the project manager. 1.4.5 Materials Management Materials management is an important element in project planning and control. Materials represent a major expense in construction, so minimizing procurement or purchase costs presents important opportunities for reducing costs. Poor materials management can also result in large and avoidable costs during construction. First, if materials are purchased early, capital may be tied up and interest charges incurred on the excess inventory of materials. Even worse, materials may deteriorate during storage or be stolen unless special care is taken. For example, electrical equipment often must be stored in waterproof locations. Second, delays and extra expenses may be incurred if materials required for particular activities are not available. Accordingly, insuring a timely flow of material is an important concern of project managers. Materials management is not just a concern during the monitoring stage in which construction is taking place. Decisions about material procurement may also be required during the initial planning and scheduling stages. For example, activities can be inserted in the project schedule to represent purchasing of major items such as elevators for buildings. The availability of materials may greatly influence the schedule in projects with a fast track or very tight time schedule: sufficient time for obtaining the necessary materials must be allowed. In some case, more expensive suppliers or shippers may be employed to save time. Materials management is also a problem at the organization level if central purchasing and inventory control is used for standard items. In this case, the various projects undertaken by the organization would present requests to the central purchasing group. In turn, this group would maintain inventories of standard items to reduce the delay in providing material or to obtain lower costs due to bulk purchasing. This organizational materials management problem is analogous to inventory control in any organization facing continuing demand for particular items. Materials ordering problems lend themselves particularly well to computer based systems to insure the consistency and completeness of the purchasing process. In the manufacturing realm, the use of automated materials requirements planning systems is common. In these systems, the master production schedule, inventory records and product component lists are merged to determine what items must be ordered, when they should be ordered, and how much of each item should be ordered in each time period. The heart of these calculations is simple arithmetic: the projected demand for each material item in each period is subtracted from the available inventory. When the inventory becomes too low, a new order is recommended. For items that are non-standard or not kept in inventory, the calculation is even simpler since no inventory must be considered. With a materials requirement system, much of the detailed record keeping is automated and project managers are alerted to purchasing requirements.

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1.4.6 Productivity Productivity has been defined in many ways. “The Concise Oxford Dictionary” (9th Edition) defines productivity as the “capacity to produce, the state of being productive; the effectiveness of productive effort, especially in the industry; production per unit of effort”. Productivity by any definition or method of measurement is a comparison between input and output. It is generally expressed as:

Productivity = Output (Units of products)/Input (Resources) An increase in productivity means that either: 1) input is reduced for the same output, and/or 2) the quality or quantity of the output has been improved for the same input. Productivity is the true source of competitive advantage and the key to long-term viability. A company (or an economy) can increase its competitiveness through enhancing its productivity by raising the value-added content of its products and/or services faster than its competitors. The concept of productivity is also increasingly linked with quality – of output, input and the process itself. An element of key importance is the quality of the workforce, its management and working conditions, and it has been generally recognized that raising productivity and improving quality of work life do tend to go hand in hand. 1.4.6.1 Productivity in the Construction Industry There is serious disagreement about the proper definition of the term “productivity” within the construction industry. In general, the term means the output of the construction goods and services per unit of labour input. However, the meaning of “productivity” varies with its application to different areas of the construction industry. Definitions range from industry wide economic parameters to the measurement of crews and individuals. Each of these measures has its own unique purpose. Some of the commonly used definitions to measure productivity are: Labor Productivity = Output / Labor Cost or Labor Productivity = Output / Work Hours In case the input is a combination of various factors, productivity is termed as Total Factor Productivity and is measured as: Total Factor Productivity=Total Output/ (Labor + Material + Equipment + Energy + Capital) Various agencies may modify the definition of productivity as per their requirements by deleting some factors and or adding other factors. For example, the American Federal Highway Administration may define productivity as: Productivity = Output / (Design + Inspection + Construction + Right of Way) Or, Productivity = Lane Mile / Dollars It can be seen that there are a variety of definitions of productivity and a number of ways productivity can be measured. However, productivity or lack of it, is a major challenge facing the construction industry. It is one of the most frequently discussed topics in the construction industry and remains an intriguing subject and a dominating issue in construction management, promising efficient usage of resources and cost savings and ultimately affecting the bottom line of every effort in the construction process. Productivity is one of the most complex issues in construction because of the interaction of management, materials, equipment, manpower, etc. – the elements that make up total on-site productivity. However, productivity is the most common measure of performance in the construction industry, and the clear objective must be to achieve higher productivity. The reason is that productivity translates directly into cost and ultimately into contractor profits or losses. Construction is a labor- intensive process. In absolute terms, manpower is the only productive resource in construction; therefore, construction productivity greatly depends upon human performance. The most reliable measure of productivity is