University of Waterloo

Civil Engineering

CIV E 596 – CONSTRUCTION MANAGEMENT Course Outline

Instructor: Tarek M. Hegazy, CPH 2369C, ext: 32174, Email: [email protected]

Course web site: www.civil.uwaterloo/tarek

Objectives:

This course focuses on the successful management of construction projects within budget,
deadlines, and resource limits. Students will learn the basics of cost estimating, scheduling,
bidding, and project control. The course focuses on the use of computer tools to train
students on:
- Project delivery approaches and contract types
- Detailed cost estimation
- Planning and Scheduling
- Sharing multi-project resources
- Scheduling of Repetitive Projects (Infrastructure)
- Resource-constrained scheduling & Resource leveling
- Time-Cost Trade-off Analysis
- Cash flow analysis
- Project control techniques
- Case Studies of Successful Projects

Suggested Textbook: Hegazy 2002, “Computer-Based Construction Project Management,”

Prentice Hall.

References on Project Management:

- Books on Project Management and Construction Management;
- Trade magazines (e.g., ENR);
- International journals such as the Journal of Construction Eng. and
Management (ASCE) and the Journal of Computing in Civil Eng. (ASCE);
- Databases such as “current contents” and “compendex”;
- International organizations such as Project Management Institute (PMI) and
American Association of Cost Engineers (AACE);
- A lot of computer software programs;
- Internet search;
- Government publications such as statistics Canada, etc.

1
 CIVE 596 - Course Notes Based on

Computer-Based Construction Project Management

© Tarek Hegazy, Prentice Hall 2002

CHAPTER 1: CONSTRUCTION PROJECT INITIATION

From studying this chapter, you will be introduced to:

- The unique characteristics and challenges of the construction industry

- The life-cycle phases of projects
- The various decisions involved in initiating a project: project delivery methods; contract types; and
contractual relations among project participants
- The competitive bidding process for project acquisition
- Recent trends in contract strategies

1.1 Introduction

A construction project is defined as a planned undertaking to construct a facility or group facilities. The principal
participants in construction projects are the owner, the architect/engineer, the consultant, the general contractor,
and the subcontractors. Usually, there are many ways in which some or all of the participants join their efforts in
a project. A suitable arrangement of these participants depends on the nature of the project, the size and
strength of each participant, and the project objectives and constraints. It is important therefore to understand
the environment in which a construction project is initiated so that to clearly define the roles and responsibilities
of the various participants and to bring the project to a success with respect to all of them. This chapter provides
the background material regarding the organizational aspects of selecting the project participants, the contract
type, and the project delivery approach that suit the environment of a project under consideration.

1.2 Construction: A Magnificent Creativity

Since the beginning of time, humans have been fascinated by large scale objects in nature such as mountains,
landscape, and the endless oceans. With the sophistication of the humans along the years, some groups began
to build large-size monuments of their own to glorify their civilization. The great pyramids of Giza are early
examples of these monuments. Undoubtedly, the effort spent on building such huge monuments is a witness to
the human ability to make creative and challenging construction. The impact of such large structures on human
development has been tremendous on all fronts including social, economic, and cultural.

In recent history, the human fascination with developing large scale structures remains unchanged. The
twentieth century has been marked by its far leap in terms of technology, materials, and human sophistication.
No wonder it is the greatest century in which humans have developed so many structures of unique scale and
creativity that impacted the lives of almost all humans. This century has also witnessed a rapid pace of
developments on science and technology made by so many people in different places on our planet that is
currently becoming a one village.

1.3 Need for Scientific Project Management in Construction

The construction industry is the largest industry in North America and worldwide. Although products are made,
the construction industry is more of a service than a manufacturing industry. In Canada and the United States,
investments in the construction industry amount to about 10% of the total investments in all industries. Growth in
this industry in fact is an indicator of the economic conditions of a country. This is because the industry cuts
across a large number of trades that consume a wide employment circle of labor. Construction also feeds and
interacts with the manufacturing industry, which exports a large portion of its products to the construction
industry.
2
In the construction industry, most projects exhibit cost overruns, time extensions, and conflicts among parties.
The reasons for the widespread of these problems can generally be attributed to three main factors (Fig. 1.1):
(1) the unique and highly uncertain nature of construction projects; (2) the fragmented and highly competitive
nature of the construction industry; and (3) the ever increasing challenges facing the industry as a whole. In view
of these increasing challenges, efficient management becomes a key to the success of any construction
organization.

A scientific approach to construction project management can help construction participants in many ways,
including:

- Cope with the increasing complexity of modern projects;

- Utilize resources (4 M’s) efficiently: Manpower, Materials, Machinery, and Money;
- Meet fiscal requirements and deadlines;
- Communicate effectively among the participants and avoid adverse relations;
- Improve construction quality and safety record;
- Achieve higher productivity; and
- Document and utilize past experience to improve future construction.

Nature of Industry Increasing

Projects Characteristics Challenges

- Projects are unique and - Extremely fragmented, with - Global market competition;
unrepeatable; many small specialties involved; - Increasing regulations (e.g.,
- Projects are temporary; - Intense competition and high environmental and safety);
- Projects are constrained by failure rates; - New advances in materials and
time, money, & quality; - Rapidly affected by recessions; equipment;
- Projects involve many - Little R&D expenditures; - Tight budget, less time, yet
conflicting parties; and - Confidentiality and lack of better quality is demanded;
- Many decisions are made information sharing; and - Rising costs; and
based solely on experience. - Slow to adopt new technologies. - Lack of skilled resources.

Fig. 1.1: Reasons for Poor Performance in Construction

In order for these benefits to be materialized, construction project management as a discipline, has as its
objective the control of three main aspects of construction: Time (T); Quality (Q); and Money (M). The (TQM)
acronym is also in rhythm with the principles of “Total Quality Management” (Fig. 1.2) which is a wide umbrella
for quality in business and manufacturing. The specific discipline of Construction project management, therefore,
involves a wide spectrum of techniques and approaches that are discussed in this book and attempt to achieve
its objectives through systematic application of: (1) Contract Management; (2) Information Management; (3)
Cost Management; (4) Time Management; (5) Resource Management; (6) Financial Management; and (7)
Execution Management.
Time

Quality Money

Fig. 1.2: Total Quality Management Objectives

3
1.4 Construction Project Participants

Owner: The owner (also referred to as the Client) is the individual or organization for whom a facility or project
is to be built or a service furnished under a contract. The owner, whether public or private, owns and finances
the facility or project. Public owners are public bodies of some kind ranging from agencies of the federal
government down through the state, county, and municipal entities including boards, commissions, and
authorities. Most Public projects or facilities are built for public use and not sold to others. Private owners may
be individuals, partnerships, corporations, or various combinations thereof.

Architect: An Architect is an individual who plans, programs, and designs buildings and their associated
landscaping. Sometimes the architect also provides the aesthetics of the whole envelope or concept of the
whole project. Since most architects have only limited capabilities in structural, electrical, and other specialized
design, they mostly rely on consulting engineers for such work.

Architect/Engineer (A/E): The architect/engineer (also known as the design professional) is part of the
business firm that employees both architects and engineers and has the capability to do complete design work.
The A/E firm also may have the capability to perform construction management services.

Construction Manager: The construction manager is a specialized firm or organization which furnishes the
administrative and management services. The construction manager is responsible for design coordination,
liaison in the proper selection of materials and methods, contracts preparation, and cost/schedule/quality control.

Engineer: usually refers to an individual and/or a firm engaged in specialized design or other work associated
with design or construction. Design engineers are usually classified as civil, electrical, mechanical,
environmental, and so on, depending upon their specialty. There are also scheduling, estimating, cost, and
construction engineers who originated from any of the basic engineering disciplines.

Engineering-Construction Firm: an organization that combines both architect/engineering and construction

contracting. The firm has the capability of executing a complete design-build sequence, or any portion of it.
Sometimes this firm does the procurement of the equipment and materials needed to construct the project.

General Contractor (G.C.): The general contractor (also known as the Prime Contractor) is the business firm
that is under contract to the owner for the construction of the project, or for a major portion of the project.
Subcontractors are frequently engaged, although the prime contractor retains the responsibility for the
satisfactory performance of these subcontractors.

Project Manager: The project manager is the individual charged with the overall coordination of all the facets of
a construction program: planning, design, procurement, and construction, for the owner.

Subcontractor: A subcontractor is under contract to another contractor, as opposed to an owner, to perform a

portion on the contractor's work. A general contractor who is under contract with an owner may engage
subcontractors for portions of the project, the type and amount depending on the nature of the project and the
contractor's own organization. These subcontractors, in turn, may engage other subcontractors. Thus, there can
be several levels of subcontracting to a general contractor.

Specialty Contractor: This contractor performs only specialized construction, like plumbing, electrical, and
painting, either as a subcontractor or as a prime contractor.

Heavy, Highway, Residential

1.5 Types of Construction Marine, & Military 25-35% 35-40% Buildings
25-35%
There is no universal agreement on the categories
or types of construction and their inclusive elements.
One simple classification is shown in Fig. 1.3 with
the three main categories of residential buildings,
non-residential buildings, and non-building Commercial,
Institutional, &
construction. The numbers shown in the figure are
Industrial Buildings
approximate and generally apply to the United
States and Canada.
Fig. 1.3 Simple Classification of Construction Types

4
1.6 Life Cycle Stages of Projects

The development of a construction project, from its initiation into its operation, may be divided into the following
consecutive stages, as shown in Fig. 1.4:

Concept Stage: When the need to build a new project is identified, the process of appraising various
alternatives commences. This study, which is known as feasibility study, can in some cases expand several
years, particularly if environmental assessments need to be made. The study determines whether the project is
truly viable and which are the various alternatives for carrying it out will be best. The master schedule using
approximate durations of various operations is then prepared in order that the owner may know how long and
how much it would take to reach the objective. The concept stage, in fact, is one of the major steps in a project
life-cycle as it has the largest impact on cost and performance, as shown in Fig. 1.4.

100% 100%
Ability to
Influence Cost Cost

CONCEP
DESIGN CONSTRUCTION O&M
T

Fig. 1.4: Project Life-Cycle Phases

Design Stage: In this stage, decisions are taken concerning the sizes and types of structures required and the
conceptual design is prepared. This involves the preparation of outline drawings and details of all services.

Upon owner approval of the conceptual design, detailed design, other steps are carried out to prepare detailed
design, prepare specification and quantities of work, prepare tender documents, and implement the project
contract strategy to procure of bids and award the construction contract.

Construction Stage: The chosen project completion date will determine the overlap between the design and
construction stages. The general contractor will carry out site construction. A mechanical and or electrical
installation may be subcontracted under the supervision of the general contractor. The consultants will be
deployed for contract administration and construction supervision. The contractor would seek the most efficient
use of his resources using construction management techniques.Commissioning is then made and performance
tests conducted, leading to project acceptance.

Operation & Maintenance (O & M): The operational maintenance of the project may be carried out by the
owner’s own employees. Project review may be required for future interests. Demolition at end of service life.

5
1.7 Project Contract Strategy

At the early stage of a project and once a project manager is selected, the main issue that faces the owner is to
decide on the contract strategy that best suits the project objectives. Contract strategy means selecting
organizational and contractual policies required for the execution of a specific project. The development of the
contract strategy comprises a complete assessment of the choices available for the management of design and
construction to maximize the likelihood of achieving project objectives.

A road map to selecting a proper contract strategy for a project is illustrated in Fig. 1.5, involving five
key decisions related to:

1. Setting the project objectives and constraints

2. Selecting a proper project delivery method
3. Selecting a proper design/construction interaction scheme
4. Selecting a proper contract form / type
5. Contract administration practices

Details on these five broad aspects are given in the following subsections.

Z
Design/Construction Interaction

Separate Phased Construction Fast Track

Traditional Contractual
Relations

Y Design-Build
Many Combinations Selecting \
Project to Satisfy Project Key Players
Delivery TurnKey* Objectives & Constraints: Project
Method Administration
Time, Cost, & Performance Contract
BOT Documents
X
PCM Organization
Structure

Competitive Bidding Negotiated Cost Plus Combination

Contract Form/Type
[
* Abbreviations are explained in detail in the following sections

Fig. 1.5: Key Considerations in a Contracting Strategy

As shown in Fig. 1.5, there exist a large number of possibilities for a contracting strategy. Innovative strategies
can achieve various benefits, including: Shortening project duration by overlapping design and construction;
providing flexibility for changes during construction; creating more designer/contractor teamwork to reduce
adverse relationships; allowing a contractor to participate in the design process, thus augmenting the designer’s
construction experience; providing incentives for the contractor to save the owner money; and providing
alternative financing methods.

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1.7.1 Project Objectives and Constraints

A summary of various project objectives and constraints are as follows:

Time objective: There may be a need for an early start to the construction phase for political reasons and/or a
need for minimum project duration to maximize economic return. If this objective is top ranked by the owner, the
contracting strategies that allow speedy project delivery, such as overlapping design and construction, may
become desirable.

Cost objective: There may be a need for minimum project cost to ensure adequate economic return, a need for
minimum total cost incorporating operation and maintenance costs, or a need to observe a maximum limit on
monthly expenditure. The selected contracting strategy, therefore, should be flexible to the owner’s requirement,
while also maintaining the other objectives.

Performance objective: An appropriate functional performance of each component in a project can be defined
as the minimum acceptable to the owner and to society. To attain this objective, a “Value Engineering” program
may be adopted by the project management team at the design stage to reevaluate the design components,
thus introducing changes that save cost without sacrificing performance. If this objective is top ranked by the
owner, a contracting strategy that accommodates changes and to a teamwork approach may become desirable.

Project constraints: All construction projects will have constraints that influence the achievement of project
objectives. These constraints should therefore be considered when choosing an appropriate contract strategy.
Some of the project constraints are:

- Conditions of contract - Target dates of the project - Access to the site

- Method of tender - Possibility of design changes - Number of contractors willing to
- Project size and duration - Availability of construction resources tender
- Project location - Freedom to choose designers and - Inflation
- Relationship to other projects contractors - Exchange-rate
- Possession of land - Adequacy of site investigation - Union Regulations
- Number of work packages - Seasonal working

1.7.2 Project Delivery Methods

The choice of a project delivery method should be related to project objectives and constraints, and also to the
scope or the portion of the project tasks- design, construction, and finance- that is assigned to the contractor.
The various project delivery methods are summarized as follows:

Traditional Approach: This is the most common approach in civil engineering projects in which the design has
to be completed before construction can start. Design and construction are usually performed by two different
parties who interact directly and separately with the owner. This approach takes two common forms:

a) Owner direct force:

b) General Contractor (G.C.):

Table 1.1: Pros and Cons of the Traditional Approach

Advantages Disadvantages
- Price competition - Long time
- Total cost is known before construction - Design does not benefit from construction
starts experience
- Well documented approach used in most - Conflicts between owner & G.C. and
government projects done for public works between A/E & G.C.
- Changes may lead to disputes and claims

Therefore, this method is fine in many cases where the project is clearly definable, design is
completed, time need not be shortened, and changes are unlikely to occur during construction.
7
Design-Build: In this approach, a single organization is responsible for performing both design and construction
and, in some cases, providing a certain “know-how” for the project.

Table 1.2: Pros and Cons of the Design-Build Approach

Advantages Disadvantages
- One contract that may include know-how - Cost may not be known until the end of
- Minimum owner involvement design
- Time can be reduced if the design-build - High risk to contractor and more cost to
company overlaps design and construction owner
- Possible coordination between design and - Design-Build company may reduce quality
construction to save cost
- Easier implementation of changes - Due to minimal owner involvement, result
- Less adversary relationships may not be to his satisfaction

The use of this approach, therefore, should be considered when contractors offer specialized
design/construction/know-how expertise or when design is strongly influenced by the method of
construction.

Turnkey: This approach is similar to the design-build approach but with the organization being responsible for
performing both design, construction, know-how (if any), and project financing. Owner payment is then made at
the completion (when the contractor turns over the “key”). An example is franchise projects in which a new
branch of a restaurant chain needs to maintain the same design, construction quality, and food service quality.

Build-Operate-Transfer (BOT): In this approach, a business entity is responsible for performing the design,
construction, long-term financing, and temporary operation of the project. At the end of the operation period,
which can be many years, operation of the project is transferred to the owner. This approach has been
extensively used in recent years and is expected to continue. An example of its use is in express routes and
turnpikes. A consortium of companies shares the cost (design, construction, financing, operation, and
maintenance) and the profits gained from user fees, for a stipulated number of years. Afterwards, the project
returns to the government to become publicly owned. This approach has also been used extensively in large
infrastructure projects financed by the World Bank in parts of the world that cannot afford the high investment
cost of such projects.

Professional Construction Management (PCM): In this approach, the owner appoints a PCM organization
(also known as Construction Management organization) to manage and coordinate the design and construction
phases of a project using a Teamwork approach. The design may be provided by specialist design firms and in
some cases by the PCM organization. With high level of coordination between the participants, innovative
approaches of overlapping design and construction (i.e., fast tracking) can be adopted. The PCM organization
aims at holding a friendly position similar to that of the consultants in the traditional approach.

The services offered by the PCM organization overlap those traditionally performed by the architect, the
engineer, and the contractor. This may include: management and programming of design; cost forecasting and
financial arrangements; preparation of tender documents; tender analysis and selection of contractors; selection
of methods of construction; recommendations on construction economics; planning and scheduling construction
works; materials procurement and delivery expedition; provision for site security, cleanup, and temporary
utilities; supervision of control of construction contractors; construction quality assurance; cost control; costing of
variations and assessment of claims; and certification of interim and final payments to contractors.

Table 1.3: Pros and Cons of the PCM Approach

Advantages Disadvantages
- Utilization of construction skills at all - Higher owner involvement and
stages with no conflict among participants responsibilities
- Independent evaluation of cost and - Need skilled construction managers
schedule to the best owner interest - PCM fees (up to 4%)
- Time could be much less
- Principals such as “Value Engineering”
could be applied in all phases
The use of PCM approach, therefore, should be considered when there is a need for time saving,
flexibility for design changes is required, and owner has insufficient management resources.
8
1.7.3 Design/Construction Interaction

In conjunction with decisions related to a suitable project delivery approach, the owner generally has three basic
choices for the management of design and construction, as illustrated in Fig. 1.6:

Design
Separate
Construction

- Overlap among phases

Phase 1
- No overlap within each phase

Phased
Phase 2

Phase 3

- Overlap among phases

Phase 1 - Overlap within each phase
Fast-Track

Phase 2

Phase 3

Time
Fig. 1.6: Different Design/Construction Interaction Schemes

Phased and fast-track approaches certainly require high levels of coordination and management to bring them to
success. A PCM project delivery approach, therefore, may become desirable if time saving is a top ranked
objective to the owner. In general, therefore, decisions regarding the level of design/construction interaction
required for a project can be facilitated by considering the following aspects:

- Extent to which construction is to be separated from or integrated with design;

- Size and nature of the work packages within the project;
- Appropriate number of design teams to suit the nature of the work;
- Selection of the design teams from in-house resources or external consultants;
- Process of supervision of construction; and
- Restrictions on using a combination of contracting strategies within the project.

1.7.4 Construction Contract Form/Type

Construction contracts can be broadly grouped into two categories: (1) competitive biding contracts; and (2)
negotiated cost-plus contracts. Specific contract types are classified according to the method of payment to the
contractor. For example, the two common forms of competitive bidding contracts, lump sum and unit price,
explicitly specify the method by which the contractor’s submitted price is paid to him. Similarly, the various types
of negotiated cost-plus contracts differ in the way in which the contractor is reimbursed for his cost (rather than
price). The various contract forms are illustrated in Fig. 1.7. A discussion of the process of competitive bidding,
as the main process for selecting contractors, is provided next. The three basic factors that favor the use of a
particular type of contract are:

9
 - The need to provide an adequate incentive for efficient performance;
- The ability to introduce changes during construction; and
- The allocation of risks between owner and contractor and the cost implication.

Construction
Contract Forms

1 Competitive
Bidding
2 Negotiated 3 Combination
Cost-Plus

Two Main Types: Many Types: New Innovative Types:

- Cost + % of Cost - Use a combination of
- Lump Sum (Buildings)
- Cost + Fixed Fee contract types in a
- Unit Price (Heavy) - Cost + Fee + Profit Sharing single project
- Cost + Sliding Fee
- Cost + GMP - Teamwork
Complex projects, tunnels,
power plants, process plants

- High risk to contractor CM administered

Risk sharing
- Low risk to owner

Fig. 1.7: Construction Contract Forms

1. Competitive Bidding Contracts:

a) Lump Sum: A single tender price is given to the contractor for the completion of a specified work to the
satisfaction of the owner. Payment may be staged at intervals of time, with the completion of milestones.
Since the contractor is committed to a fixed price, this type of contract has been very limited flexibility for
design changes. In addition, the tender price, expectedly, includes a high level of financing and high
undisclosed risk contingency. One benefit to the owner, however, is that the contract final price is known
at tender. But, an important risk to the owner is when not receiving competitive bids from considerable
contractors who avoid higher risks on lump sum contract. Generally, this contract is appropriate when
the work is defined in detail, limited variation is needed, and level of risk is low and quantifiable. It can
be used for traditional, design-build, and turnkey projects. Lump sum contracts are also suitable for
building projects since many items of the work in which detailed quantities of work cannot be estimated,
such as electrical work.

b) Unit Price: In this contract type, bidders enter rates against the estimated quantities of work. The
quantities are re-measured during the course of the contract, valued at the tendered rates, and contract
price adjusted according. The rates include risk contingency. Payment is made monthly for all quantities
of work completed during the month. The contract offers a facility for the owner to introduce variations in
the work defined in the tender documents. The contractor can claim additional payment for any
changes in the work content of the contract, but this often leads to disputes and disagreements. One
variation of this type is called “Schedule of Rates” contract which contains inaccurate quantities of
work, possibly with upper and lower probable limits. Therefore, instead of submitting one total rate for
each item of work, contractors submit separate rates for the labor hour, plant hour, and materials rates.
The contract price is then devised by measuring the man-hours, plant hours, and quantities of materials
actually consumed, and then pricing them at the tendered rates. Unit price contracts are best suited for
heavy civil and repetitive work in which work quantities can be easily estimated from design documents.

2. Negotiated Cost-Plus Contracts:

In this category of contract types, project risks are high and can discourage contractors from being committed to
a lump sum or fixed unit prices. Therefore, the owner shares the project risks by reimbursing the contractor for
10
his actual costs plus a specified fee for head office overheads and profit. To allow for that, the contractor makes
all his accounts available for inspection by the owner or by some agreed-upon third party. This category of
contracts offers a high level of flexibility for design changes. The contractor is usually appointed early in the
project and he is encouraged to propose design changes in the context of value engineering. The final price,
thus, depends on the changes and the extent to which risks materialize.

Some of the common types of cost-plus contracts, classified by the method of payment to the contractor, are:

a) Cost + Fixed Percentage: While this contract is simple to administer, it has no incentive for the
contractor to save owner’s money or time. Also, problems may occur if the contractor engages his
resources in other projects and delays the work.

b) Cost + Fixed Fee: The fee is a fixed amount of money. As such, the contractor’s fee will not increase if
costly changes are introduced. While the contractor may desire to finish the project earlier, he still has
no incentive to save owner’s money.

c) Cost + Fixed Fee + Profit Sharing: In addition to the reimbursement of actual costs plus a fixed fee,
the contractor is paid a share of any cost saving that he introduces into the work.

d) Cost + Sliding Fee: The sliding fee is a fee that increases linearly with the amount of cost saving that
the contractor introduces between the actual cost and a preset target cost, as shown in Fig. 1.8. The fee
can also be reduced when the actual cost exceeds the target.

5%

Fig. 1.8: Sliding Fee Fee

3%

o.5T T: Target Cost

Actual Cost
It is noted that the target tender should be realistic and the incentive must be sufficient to generate the
desired motivation. Specific risks can be excluded from the tendered target cost and when these risks
occur, the target cost is adjusted accordingly.

e) Cost + Guaranteed Maximum Price (GMP): The contractor’s cost in this case is reimbursed with the
contractor giving a cap on the total price not to exceed a pre-set value.

A brief summary of the level of risk exposed by each of the discussed contract forms is illustrated in Fig. 1.9. As
shown in the figure, competitive bidding contracts (Lump Sum and Unit Price) are among the top risky contracts
to contracts and thus present a challenge in estimating their cost and schedule at the bidding stage and before a
commitment is made.

0% 100%
Turnkey
Lump Sum
Unit Price
GMP
Cost Plus
Owner Direct Force
100% 0%

OWNER RISK CONTRACTOR RISK

Fig. 1.9: Level of Risk Associated with Various Contracts

11
1.7.5 Project Administration Practices

1. Contractual Relationships
Within each project delivery method, the contractual relationships among the project participants can take
various arrangements and the owner needs to make a decision regarding the proper arrangement that suits the
project and the parties involved. The two basic contractual relationships with an owner are: agent relationship,
referred to as (A); and non-agent relationship, referred to as ($). The agent relationship is a contract, such as
that between the owner and an A/E firm. In this case, the agent organization performs some service (e.g.,
design), in addition to, possibly, representing the owner in front of other parties (e.g., supervision over the
contractor). The non-agent relationship, on the other hand, is a regular legally binding contract to perform a
service, such as the contract between the owner and the contractor. The different contractual relationships
associated with various project delivery methods are illustrated in Figs. 1.10 and 1.11.

Owner Owner Owner

or $ $
$ A
Subcontractors Direct Force GC Supervision A/E GC A/E

$ $
Sub Sub
Subcontractors Subcontractors

Sub Sub Sub Sub

Owner’s Own Force General Contractor Design-Build and Turnkey

Fig. 1.10: Contractual Relations in Traditional and Design-Build Projects

Owner Owner Owner

A A A A A
$
A/E CM A/E CM A/E CM
$
$ $

GC(s) GC(s) GC(s) CM

Subcontractors Subcontractors Subcontractors

Agent CM Design CM Constructor CM

Owner Owner CM A/E Owner CM

A A A
$
A/E CM A/E

$ $
$

GC(s) GC(s) GC(s)

Subcontractors Subcontractors Subcontractors

Contractor CM Owner CM Owner/Design/CM

Fig. 1.11: Various Forms of Construction Management (CM) Contracts

12
2. Selecting the Key Player: The Contractor

Selecting key personnel and organizations that will participate in a project is a major step for the owner and can
mean the success or failure of a project. By large, the competitive bidding process has been the main vehicle for
contractors to obtain jobs. The process is required by law for public projects, which has been the largest
percentage of all projects, except in emergencies such as war or natural disasters. Under this process, a simple
quantitative criteria is used to award the bid to the “lowest responsible bidder”, thus potentially obtaining the
lowest construction cost. The process, however, has its drawbacks, including: (1) overlooking important criteria
such as contractor’s experience and strength; (2) potentially causing construction delays and problems if the
contractor bids below cost to win the job; and (3) contributing to adverse relationships between the owner and
the contractor. The competitive bidding process encompasses three main steps (Fig. 1.12):

1
Step
ANNOUNCEMENT

Owner
2
A/E PREPARATION &
CM SUBMISSION

Contractor
3
EVALUATION & Site H and-over
SELECTION to start
Construction
Owner, A/E, CM

Notice to Time
Proceed
Notice to Buy Bid Bid Formal
Bidders Package Opening Contract

Bidding Period Acceptance Period

(30, 60, or 90 days)

Announcement Announcement includes the following information:

- Subject/scope of work, location, type of project;
- Dates: purchase of bid package, bid submission, bid opening, etc;
- Required pre-qualification documents;
- Bid bond and its amount (0 to 10%) to ensure seriousness;
- Performance bond and its amount (e.g., 100%) to ensure quality;
- Price of bid package; and
- Conditions for acceptance/rejection.
Bid Preparation Contractor responsibilities:
- Receive bid package from the owner. It may contain: drawings;
specifications; bill of quantities; bid proposal form; general
conditions; soil report; and Addenda (changes to the bid package);
- Inspect the site and its weather, services, bylaws, and resources;
- Detailed planning, estimating, scheduling, & cash flow;
- Prepare bid bond;
- Complete all forms including bid proposal form;
- Prepare data regarding his organization structure (if needed); and
- Submit his bid.

Owner’s responsibilities:
- Inform all bidders of any changes in dates or regulations; and
- Answer any questions.
Bid Evaluation - Options for selecting the winner: Lowest responsible bidder;
Average bidder; bidder closer but below average; or weighted multi-
criteria.
- Negotiation among top ranked bidders.
- Analysis of all bids to be passed to the decision committee.

Fig. 1.12: The Competitive Bidding Process

13
To announce for a project, the owner should have the design completed and a bid package prepared with all
design information. The owner then announces a general call for bidders or sends a limited invitation to a list of
pre-qualified contractors. Through the limited invitation, the owner organization can reduce potential construction
problems by avoiding unknown contractors who intentionally reduce their bids to win jobs, particularly if the
project requires a certain experience. Owners, therefore, need to maintain a list of qualified contractors with
whom they had successful experience or by advertising a call for pre-qualification.

3. Contract documents

Once the parties that will be involved in a project are identified, their legal binding is a set of contract documents.
The main goals of the contract documents are to enable fair payment for the work done by the contractor, to
facilitate evaluation of changes, and to set standards for quality control. Typical contract documents that are
needed for this purpose are:

- Conditions of contract;
- Specifications;
- Working drawings;
- Priced bills of quantities or schedules of rates;
- Signed form of agreement which confirm the intent of the parties; and
- Contract minutes of correspondence.

The basis of a successful contract is the preparation of the conditions of contract to clearly define the
responsibilities of the parties. These conditions form much of the legal basis of the contract on which any
decision by the courts would be made. The interests of all parties to a construction contract would be best
served if the contractor is required to carry only those risks that he can reasonably be expected to foresee at the
time a bidding. This will be less costly to the owner and better suited to the efficiency of the construction
industry.

Some of the legally binding aspects included in the conditions of contract are briefly discussed in this section.
The contract period, liquidated damages, and incentives clearly defines that if the contractor fails to
complete the works within the contract period, he will pay the liquidated damages. In case of early completion,
the contractor is paid the incentive amount. A Retention amount is also an amount that is held back by the
owner for each certificate of payment due to the contractor. Its value is about 5% to of each payment as
insurance against defective work and to ensure the contractor has incentive to complete all aspects of work. The
retention money is paid at the end of the contract. Maintenance period is usually specified as 52 weeks after the
contract is completed, in which the contractor must remedy any defects that may appear in the work. Two types
of Bonds are required from the contractor in the form of letters of guarantee given by an approved surety, a
bank, or a company that agrees to discharge the legal duties of the contractor if he fails to do so. The bid bond
ranges from 0 to 10% of the tender price to ensure that the bidder is serious and will maintained his offer when
selected. The performance bond, on the other hand, is required from the selected contractor after award of the
contract to ensure that he faithfully performs his obligations under the contract. This bond may be 5 to hundred
percent of the total contract price. Conditions for a valid claim can also be specified in the conditions of
contract. The contractor should read the conditions of contract to ascertain which category of claim is applicable.
Construction managers are advised, immediately after the event that is likely to produce extra cost or delay, to
negotiate with the owner the basis for the claim.

4. Project Organization Structure

At the early stage of project initiation, one important decision has to be made by owners best on how to tie the
project to the owner’s parent firm. To address this issue, we look at the major organizational forms commonly
used to house projects and discuss some of the critical factors that might lead us to choose one form over the
other. As shown in Fig. 1.13(a), the two extreme ways of organizing a project are the Functional and the Project
organizations. In between these two extremes are various forms of Matrix (mixed) organization structures. With
the full authority in the Functional structure with the functional managers, an urgent work that is needed for a
specific project might be delayed if functional managers are busy with other projects. On the other hand, while
the Project structure is more responsive to the needs of a construction project, it requires a lot of owner
resources since each project has all the resources it needs. Also, the project structure is likely to exhibit a
stressful work environment and anxiety as compared to the functional structure. The matrix structure, therefore,
is a sort of trade-off that ensures efficient utilization of owner resources. The general form of a matrix

14
organization is illustrated in Fig. 1.13(d). Among the various matrix variations, several studies have reported that
Project-Matrix is most suited to the dynamic nature of construction projects. It's requirement of resources is not a
purely project structure and as such does not require large amount of resources. However, the matrix structure
has some potential problems that are a result of the fact that several project managers are competing to have
the pool of technical experts under the various functional areas work on their projects before others. In some
cases political problems may occur between various project managers. In other cases, there could be a doubt
who is in command, the project manager or the functional manager. Careful assignment of the responsibilities in
addition to proper management practices are, therefore, important issues for the success of owner organization.
Project is assigned to relevant
Functional Manager
Authority
Function functional areas.

A PM limited authority coordinates

Function – Matrix across different functional areas.

Balanced Matrix A PM shares responsibility and

Manager Authority

authority with functional managers.

Project – Matrix A PM is the prime authority. Funct-

ional personnel are used if needed.
Project

Project A PM is in charge of a team of

personnel from functional areas.
(a) Comparison of Organization Structures

Project A Finance
Vice-President
. Vice-President .
. .
Financing Project A
Engineering
Project N

Project A Finance
President

Vice-President . Vice-President .
. .
Project B
President

Marketing Engineering
Project N
Project A Finance
Vice-President
. Vice-President .
.
. Project C
Manufacturing Engineering
.
. Project N .
.
Project A Finance
Vice-President . Vice-President .

Engineering
. Project N .

Engineering
Project N

(b) Function Organization (c) Project Organization

President

Program Financing Manufacturing Engineering

.

Manager

Project A

Project B

Project N (d) Matrix Organization

Fig. 1.13: Common Forms of Organization Structure

15
1.8 Emerging Trends

In North America, 85% of the total construction expenditures are typically spent on new projects while the
remaining 15% are spent on repair and rehabilitation. In recent years, however, a larger portion of all
construction work has been shifting from new to reconstruction projects. With a currently aging infrastructure, the
market for rehabilitation and renewal has been growing in North America. On the other hand, the market for new
construction has been growing internationally as various developing countries around the world, particularly in
Asia, Africa, and South America are in need of a lot of new infrastructure projects. It is, therefore, expected that
with the whole world being converted into a one large village, success in competing at the international level is
not expected to be easy and requires adaptation of the firm’s management practices to new, possibly risky,
environments. Contractors need not only to use efficient tools to improve the productivity of their resources, but
also to consider the cultural and political environments associated with projects.

In terms of contract management, various growing trends that have evolved over the last decade are:

- Growing Design/Build;
- Growing BOT (includes financing);
- Project Partnering (PPP and Privatization options);
- Mergers between contractors and engineering firms;
- Internet use: send invitations to bidders, quotation or qualification requests, linking site to head office; and
- Innovative contract practices:
- A + B bidding method for cost and time;
- Lane Rental for high way construction; and
- Incentive/Disincentive clauses for contractors.

1.9 Bibliography
1. Halpin, D., and Woodhead, R. (1998) Construction Management. John Wiley & Sons. 2nd Edition.
2. PMI Standards Committee (1996) A Guide to the Project Management Body of Knowledge (pmbok guide). PMI.
3. Tenah, K. and Guevara, T. (1985) Fundamentals of Construction Management and Organization. Reston
Publishing Co., Inc.
4. Nunnally, S.W. “Construction Methods and Management,” Third Edition, Prentice Hall, 1993.
5. Hendrickson, C. and Au, T. “Project management for Construction: Fundamental Concepts for Owners,
Engineers, Architects, and Builders,” Prentice Hall, New Jersey, 1989.
6. Clough, R.H. and Sears, E. “Construction Project Management,” 2nd Edition, John Wiley & Sons, Toronto, 1979.
7. Goldsmith, I. “Canadian Building Contracts,” 2nd Edition, the Carswell Comp. Ltd., Toronto, Canada, 1976.
8. Thierauf, R.J., & Rrosse, R.A. “Decision making Through Operations Research,” John Wiley & Sons, 1970.
9. Kerzner, H. (2000). Applied Project Mangement. . John Wiley & Sons.
10. Kerridge, A.E. and Vervalin, C.H. (Eds) “Engineering and Construction Project Management” Gulf Publ. Co.,
Houston, 1986.
11. Roman, D.D., “Managing Projects: A Systems Approach” Elsevier Science Publ. Co., Inc., N.Y., 1986.
12. Oxley, R., and Poskitt, J., “Management Techniques Applied to Construction Industry” 3rd edition, Granada
Publ. Ltd., Rexdale, Ontario, Canada, 1986.
13. Fisk, E. (1992) Construction Project Administration. Prentice Hall Inc. New Jersey, USA.
14. Gould, Frederick and Joyce, Nancy (1999) Construction Project Management. Prentice Hall Inc. NJ, USA.
15. Teplitz, C. and Worley, C. (1992) Project Managers are Gaining Power Within Matrix Organizations,
PmNetwork, PMI, Vol. 3, No.2, pp. 33-35.
16. Cook, L. and Hancher, D. (1990) Partenering: Contracting for the Future, Journal of Management in
Engineering, ASCE, Vol. 6, No. 4, pp. 431-446.
17. Cartey, G. (1995) Construction, Journal of Construction Engineering and Management, ASCE, 121(3), 319-328.
18. Herbsman, Z. (1995) A+B Bidding Method-Hidden Success Story for Highway Construction, Journal of
Construction Engineering and Management, ASCE, Vol. 121, No. 4, pp. 430-437.
19. Jaraiedi, M., Plummer, R., and Aber, M. (1995) Incentive/Disincentive Guidelines for Highway Construction
Contracts, Journal of Construction Engineering and Management, ASCE, Vol. 121, No. 1, pp. 112-120.
20. Harris, F., and Srinivasan, R. (1991) Lane Rental Contracting, Journal of Construction Engineering and
Economics, Vol. 9, E. & F.N. Spon Ltd., pp. 151-155.
21. Tiong, R. (1990) Comparative Study of BOT Projects, Journal of Management in Engineering, ASCE, Vol. 6, No.
1, pp. 107-122.
22. Konchar, M., and Sanvido, V. (1998) Comparison of U.S. Project Delivery Systems, Journal of Construction
Engineering and Management, ASCE, Vol. 124, No. 6, pp. 435-444.

16
CHAPTER 2: INFORMATION MANAGEMENT TOOLS

From studying this chapter, you will be able to:

- Manage your company’s information using Excel data management tools

- Understand the simple and powerful spreadsheet functions for managing information
- Use Excel pivot tables for summarizing and reporting data
- Use Excel mathematical optimization tool, the Solver program
- Use other add-in programs for optimization based on genetic algorithms
- Experiment with the Microsoft Project and Primavera P3 software

2.1 Introduction

The construction process is heavily information-dependent. A well-maintained and organized data is crucial to
support the timely and cost effective planning, bidding, and control of projects. With the large amount of
information related to resources and operations, it is sometimes difficult to obtain and organize such information
due either to the limited time available or to the inefficient methods of data collection and organization. Thus,
improving the quality, integrity, and timeliness of construction data is a well-recognized need. This chapter,
therefore, introduces the basic tools that can be used to management construction data. Special emphasis is
made on spreadsheet programs as a simple-to-use tool that is customary to almost all construction practitioners
and also has all the power functions that satisfy the need of construction applications. Some of the database
capabilities in Excel are presented in addition to some add-in programs that provide optimization capabilities.
Two project management software (Microsoft Project and Primavera P3) are then introduced before being used
in the various chapters of this book.

2.2 Excel Data Management Tools

Spreadsheets are among the earliest software innovations that had profound effect on the widespread use of
personal computers. Among their strong features are their intuitive cell-based structure and the simple interface
that is easy to use even for fist time user. Underneath the structure and the interface is a host of powerful and
versatile features, from data entry and manipulation to a large number of functions, charts, and word processing
capabilities. Newer spreadsheet versions have also added many productivity features for Internet connectivity,
workgroup sharing, programmability options, and a number of add-in programs. With their wide use,
spreadsheets, have been proven suitable as a tool for developing computer models in domain such as
construction, for which ease of use, versatility, and productivity are main issues.

Since the core of any management system, such as the one we intend to develop for construction, is a storage
of the data and information for management operations, a brief review of the database capabilities in
spreadsheet programs is presented. Few basic, but infrequently used, spreadsheet features need to be known
and can be used to develop practical and powerful models for construction applications: Data lists; Data Menu
options; Basic spreadsheet functions such as "Vlookup"; and Pivot table reports.

Note: In Excel, a data list is the basic structure of columns and rows that contain data. The list works as a
database that can be managed easily using built-in functions. It is basically a table of data in which the
rows are data records and the columns are data fields, headed by field names. The characteristics of a
data list are:

- Its top row is termed a header row, consisting of one or more column labels.

- All rows in the list below the header row contain records. The records are values that describe
various items.

The data list figure shows an example of an estimate sheet with each row represent one item in the estimate
and its quantity of work, unit, cost, etc shown in the various columns. Once the list is formed, the data
management tools provided under Excel's "Data" menu, such as "Sort", "Filter", and "Outline" can be directly
used to manage the data in these lists. The data list, a s such, becomes an intuitive and simple way of storing
data related to each other. A separate list can thus be used to store separate data. One list for example can be
used to store labor categories; and another list can be used to store equipment categories, and so on. Later we
can learn how to link all these separate data lists to use all their data together.
17
Note: The software tools used in this book are Excel and Microsoft Project. While vendors may
introduce newer versions from time to time, the features used in this book are mostly standard
and comparable features, if not identical, will be available in any updates. Most of these features
are also available in other software products. The reader can consult with the Help system of his
software to search for desired features.

2.2.1 Sorting Lists

One row of
data headings

Data arranged
with each
record in one
row

Note: File
"Chapter2.xls"
includes all the
spreadsheets
used in this
chapter.

Excel Data List (Database)

Sorting is a valuable way of managing the data in an Excel data list. It helps you bring similar records together,
for visual inspection or other purposes such as preparing reports and charting the data. You can arrange the
list’s data in an order that you choose by sorting the records. Suppose you have the estimate data shown above.
You want to view the data arranged according to the total cost. To do so, use the data sort as shown.

2.2.2 Filtering Lists

Filtering the data in a worksheet list is a useful way to

view a subset of the records that compose a list. To filter
a list is to extract records from it, based on criteria that
you set. There are two menu commands to filter a list,
both found in the Filter menu that cascades from the
Data menu: AutoFilter and Advanced Filter.

While any cell inside the data list is selected, choose the Data-Filter-AutoFilter menu option. The AutoFilter
puts arrows (called AutoFilter control) beside the column labels in the header row to display filtering criteria.
Notice in this figure, the drop-down box that appears when you click the control on cell B1, which contains
several options in order to define the filtering criteria.

Custom AutoFilter

You can also use the Custom option in AutoFilter if you have no more than two criteria to apply. These criteria
can be treated as connected by an AND or by an OR (a record is displayed if it meets either criterion).

18
Applying Advanced Filter

The Advanced Filter command gives you more options than the AutoFilter command. When you choose the
Data-Filter-Advanced Filter menu option to activate it. The Advanced Filter allows you to create more
complicated criteria than does the AutoFilter. In particular, you can use the Advanced Filter to specify:

- More than two criteria, which is the limit of the AutoFilter;

- Computed criteria: For example, "Display only those records whose total cost value is greater than the
average total cost value." This is termed a computed criterion because Excel must compute, in this case, the
average total cost in order to determine whether a record meets the criterion.

- Consult Excel help or the appropriate figure in the "Chapter2.xls" file.

2.2.3 Using Data Forms

Eentering data into the spreadsheet's

native row-and-column grid is extremely
tedious and prone to error. The data-
form available within Excel provides a
solid way for you to enter, view, and
filter data. The figure shows one such
form, which was generated for the
estimate data list behind the form. Using
this built-in form, we can edit or delete
the existing records in the list or add
new records. You can activate the form
from any point in the list using the Data-
Form menu option.

2.3 Useful Excel Functions for Retrieving List Information

Getting data out of a list in a clear and efficient manner is an important part of the data-management process.
Excel has several tools that help you accomplish that task. The Advanced Filter dialog box has already been
introduced, having an option to copy records that match the criteria you specify to another part of the sheet,
where you can manipulate them without affecting the original list.

In addition to extracting selected data from a list, you can create formulas that return specific information from
the list. The built-in STATISTICAL LIST FUNCTIONS calculate statistics for only the records in the list that meet
the criteria that you specify. The LOOKUP FUNCTIONS help you manage large lists of reference data by
returning information for specific records from specific fields. The MATCH and INDEX functions give you further
control over the data by allowing you to identify a given entry's position in a list or an array. The OFFSET
function extends the capabilities of Index function by reaching into a worksheet range and returning any number
of values from that range.

2.3.1 Statistical List Functions

Excel's statistical list functions,

sometimes referred to as the "D"
functions (Database Functions),
provide an instantaneous way to
measure a number of important list
statistics, such as sums, averages,
and standard deviations.

As shown, the most commonly

used statistical list function, DSUM
formula in cell H2 uses the criterion
19
range A21: E22 to calculate the total project value in the Central Region.

The syntax of the DSUM function is =DSUM(list range, calculation field, criteria range)

Because these functions use criteria ranges, you can specify that the calculation includes only certain records
from the list by entering the appropriate criteria. This structure allows you to make the same formula quickly yield
statistics for a number of different sets of records simply by changing the criteria in the criteria range. For
example, if you entered the criterion "west" in cell B22, the DSUM formula would immediately reflect the total
project value in the West Region.

The table below includes a list of Excel's statistical functions that deal with data lists. Each of these functions has
the same syntax as the DSUM formula in cell H2, each uses the same list, field, and criteria arguments.

Statistical List Functions

Function Returns
DAVERAGE Average
DCOUNT Count of cells containing numbers
DCOUNTA Count of nonblank cells
DMAX Maximum
DMIN Minimum
DPRODUCT Product
DSTDEV Standard deviation
DSRDEVP Population standard deviation
DSUM Sum
DVAR Variance
DVARP Population variance

You can use these statistical functions to interpret list data and spot potential problems such as data-entry
errors. You can check maximum and minimum values; compare maximum and minimum values to average; and
compare the population standard deviation and population variance for different criteria.

2.3.2 Looking up Data

Referencing and searching a list is another important part of the data management process. In realistic systems,
where several lists of data are available, a link needs to be established among them (similar to the relational
database concept). One simple and important spreadsheet function "Vlookup" can be used to link separate lists
of information by making a reference to where the original data is.

a) VLOOKUP Function:

b) Using the MATCH Function to Aid Lookups:

c) LOOKUP Function:

d) INDEX Function:

e) OFFSET Function:

2.4 Excel Reporting Features: Pivot

Tables

Reporting is another essential

requirement for obtaining summary
data on resources and operations. In
Excel, the pivot table wizard provides
automated & powerful reports. Pivot
tables enable you to:
20
- summarize long lists in a compact format;
- find relationships within lists that are hidden by all details;
- see differences in one variable that are associated with differences in another variable; and
- display data in the form of subtotals, averages, percentages, standard deviations, and so on.

Using the Pivot Table Wizard to Create a Report

There are two main ways to start the wizard; either by selecting Pivot Table Wizard from the Data menu or by
using the Pivot Table Wizard toolbar button.

2.5 Excel Optimization Tools

Operations research tools such as linear/non-linear programming are quantitative methods that can be used to
enhance decision-making and foster effectiveness in the management of projects. Such techniques are
beneficial because:

- They are applicable to a large variety of practical problems.

- Many software systems like Excel are available inexpensively and have these capabilities built-in.
- These tools can be effectively applied, hiding all the underlying complexities of the theory and mathematical
computations.

2.5.1 Goal-Seek

This Excel feature can be used to determine the proper values for the variables in any application so that a goal
is met.

2.5.2 Excel Solver for Mathematical Optimization

Goal-Seek, as explained is a simple tool, which can be used to solve problems that involve one variable and that
involve no constraints on the solution. Another Excel tool, Solver, which is an add-in program for general linear
and nonlinear integer programming, is very useful for solving multivariable optimization problems. It uses the
Simplex and branch-and-bound mathematical techniques for the optimization.

If Solver is not found under the Tools menu, select Tools, Add-Ins, and install Solver. Then look for the file
"Solvsamp.xls" in your system, which has several interesting applications of the Solver program.

Using Solver to formulate optimization problems is a simple and straightforward process. Optimization, in
general, tries to maximize or minimize an objective function (a goal) by determining the optimum values
(quantities) for a set of decision variables so as to meet certain constraints. Using Solver, the user needs to
establish the calculations sheet and then simply defining the cells that represent the objective function, the
variables, and the constraints.

Example: This example involves the shipment of aggregates from three quarries to five projects. The
aggregates can be shipped from any plant to any project, but it obviously costs more to ship over long distances
than over short distances. The problem is to determine the amounts to ship from each quarry to each project at
minimum shipping cost in order to meet the demand, while not exceeding the supply limit.

Data:
- The three quarries A, B and C can produce a maximum of 310, 260 and 280 truckloads per day,
respectively.
- The five projects PR1, PR2, PR3, PR4, and PR5 have daily demands of 180, 80, 200, 160 and 220
truckloads, respectively.
- The shipping costs ($) from any quarry to any project.

Solution:
The solution has to follow the four steps of the systematic approach described before:

21
1. Variables are
represented in separate
cells (C4: G6) with initial
values of 1s. The
variables represent the
amount to be shipped
from each quarry to
each project;
2. Each data element is
represented in a
separate cell. These
include the maximum
supply of each quarry
(H4:H6); demand
amount of each project
(C8: G8); and shipping
costs (C12: G14);
3. Worksheet formulas
written to perform
intermediate
calculations. This
includes actual amount delivered to each project, actual amount shipped from each quarry, and the
associated shipping cost; and
4. Formulate a single cell for the Goal or objective function, in our example, the sum of overall shipping costs
(cell E23).

Optimization Model

To verify the spreadsheet model, any change in the values of the variables should result in appropriated
changes in the objective function.

The Solver program can then be activated from the Tools menu and the optimization parameters can be set as
shown. The optimization objective is to minimize the total shipping cost (cell E23). The optimization variables are
the quantities in the range C4: G6. The optimization constraints were also set to limit the values of the variables
to positive integers, not to exceed the maximum available truckloads per day, and to meet the demand for each
project. Using Solver, a solution was reached, achieving a minimum total shipping cost of $3,200, as shown.

Solver Solution

The variables take

their optimum
values that result in
lowest shipping
cost.

22
2.5.3 Non-Traditional Optimization Tools

While Solver is a convenient tool for mathematical optimization, in some situations it can get stuck and fails to
solve the problem or gets trapped in local optimum. Alternatively, new software programs have recently been
introduced as a result of advancements in the artificial intelligence branch of computer science. For optimization
applications, a new technique, called Genetic Algorithms (GAs) has recently emerged with random optimization
capabilities inspired by the biological systems' improved fitness through evolution. Usually, the process is
continued for a large number of cycles until a near-optimum solution is arrived at.

One well known software for GA-based optimization is the Evolver software from Palisade Inc. More information
on the two programs can be found on their web sites. This software, and others that you may find through a web
search, works as an add-on to Excel, is very user friendly, and is nicely integrated into the Excel environment.
Usually most of the Genetic Algorithm software provide you with an interface that is much similar to the Excel
Solver. You need to select the cells that represent the objective function, variables and constraints, and can be
identical to those that you specify for the Excel Solver.

2.6 Project Management Software

Proper planning and scheduling, as integral parts of this book, are key factors to the completion of a construction
project within budget, on time, and with few problems. Along the course of this book, we’ll be using one of the
common software systems that support project management functions, Microsoft Project 98 and Primavera P3.
Evaluation versions of both software systems are available from their web sites (see Appencix II). Basically,
Microsoft Project is a popular easy-to-use project management software and P3 is a high-end software for
project management. Both software allow you to put together a project plan, organize resources, assign
responsibilities, and follow up during construction.

Both software, and any other project management software, cannot guarantee a successful project plan but they
are invaluable planning tool for:

- Organizing the plan and thinking through the details of what must be done,
- Scheduling deadlines that must be met,
- Scheduling the tasks in the appropriate sequence,
- Assigning resources and costs to tasks and scheduling tasks around resource availability,
- Fine-tuning the plan to satisfy time and budget constraints or to accommodate changes, and
- Preparing professional-looking reports to explain the project to owners, top management, supervisors,
workers, subcontractors, and the public.

Once work begins on the project, you can use the project management software to:

- Track progress and analyze the evolving "real" schedule to see if it looks like you will finish on time and
within budget,
- Revise the schedule to accommodate changes and unforeseen circumstances,
- Try out different what-if scenarios before modifying the plan,
- Communicate with team members about changes in the schedule (even automatically notify those who are
affected by changes!) and solicit feedback about their progress,
- Post automatically updated progress reports on an Internet Web site or a company intranet, and
- Produce final reports on the success of the project and evaluate problem areas for consideration in future
projects.

2.7 Summary

In this chapter, spreadsheets have been presented as an ideal platform with diverse tools that can be used for
creating comprehensive models in construction. Many of the simple yet powerful features of Excel have been
introduced, in addition to some add-in programs for optimization capabilities. In addition to Excel, one of the
commonly used software for project management, Microsoft Project, has been briefly introduced so that both
tools can be used in the remaining chapters of this book.

23