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FundumentuI Concepts for Owners Engineers
Architects und uiIders

8y

Chris Hendrickson




Depurtment of CiviI und EnvironmentuI Engineering
Curnegie MeIIon University
Pittsburgh
Progect Munugement for
Construction
FundumentuI Concepts for Owners Engineers
Architects und uiIders
I. The_Owners_Perspecfive
Z. Orgoni;ing_For_Projecf_Monogemenf
3. The_Design_And_Consfrucfion_Process
4. Lobor,_MoferioI,_And_Equipmenf_UfiIi;ofion
b. Cosf_Esfimofion
o. Economic_EvoIuofion_of_FociIify_Invesfmenfs
7. Finoncing_of_Consfrucfed_FociIifies
8. Consfrucfion_Pricing_ond_Confrocfing
9. Consfrucfion_PIonning
I0. FundomenfoI_ScheduIing_Procedures
II. Advonced_ScheduIing_Techniques
IZ. Cosf_ConfroI,_Moniforing,_ond_Accounfing
I3. QuoIify_ConfroI_ond_Sofefy_During_Consfrucfion
I4. Orgoni;ofion_ond_Use_of_Projecf_Informofion
by Chris Hendrickson, Deporfmenf of CiviI ond EnvironmenfoI Engineering,
Cornegie MeIIon Universify, Piffsburgh, PA IbZI3 Copyrighf C. Hendrickson
I998
Firsf Edifion originoIIy prinfed by Prenfice HoII, IS8M 0-I3-73IZoo-0, I989
wifh co-oufhor Tung Au.
Second Edifion prepored for worId wide web pubIicofion in Z000.
Version Z.I prepored Summer, Z003.
Prefoce
This book is provided on fhe worIdwide web os o service fo fhe communify of
procfifioners ond sfudenfs. Peproducfion for educofionoI purposes is
permiffed wifh oppropriofe cifofion. If you find fhis work heIpfuI or hove
suggesfions for oddifions or correcfions, pIeose emoiI Chris Hendrickson:
cfhcmu.edu. A hordcopy Insfrucfors MonuoI wifh probIem soIufions is
ovoiIobIe for o fee of $ I0 fo cover reproducfion, moiIing ond hondIing. Send
o check mode ouf fo Cornegie MeIIon Universify fo Ms. Poffy Longer,
Deporfmenf of CiviI ond EnvironmenfoI Engineering, Cornegie MeIIon
Universify, Piffsburgh, PA IbZI3.
This book deveIops o specific viewpoinf in discussing fhe porficiponfs, fhe
processes ond fhe fechniques of projecf monogemenf for consfrucfion. This
viewpoinf is fhof of owners who desire compIefion of projecfs in o fimeIy,
cosf effecfive foshion. Some profound impIicofions for fhe objecfives ond
mefhods of projecf monogemenf resuIf from fhis perspecfive:
The "Iife cycIe" of cosfs ond benefifs from inifioI pIonning fhrough
operofion ond disposoI of o fociIify ore reIevonf fo decision moking. An
owner is concerned wifh o projecf from fhe crodIe fo fhe grove.
Consfrucfion cosfs represenf onIy one porfion of fhe overoII Iife cycIe
cosfs.
Opfimi;ing performonce of one sfoge of fhe process moy nof be
beneficioI overoII if oddifionoI cosfs or deIoys occur eIsewhere. For
exompIe, soving money on fhe design process wiII be o foIse economy if
fhe resuIf is excess consfrucfion cosfs.
Frogmenfofion of projecf monogemenf omong differenf specioIisfs
moy be necessory, buf good communicofion ond coordinofion omong fhe
porficiponfs is essenfioI fo occompIish fhe overoII gooIs of fhe projecf.
Mew informofion fechnoIogies con be insfrumenfoI in fhis process,
especioIIy fhe Infernef ond specioIi;ed Exfronefs.
Producfivify improvemenfs ore oIwoys of imporfonce ond voIue. As o
resuIf, infroducing new moferioIs ond oufomofed consfrucfion
processes is oIwoys desirobIe os Iong os fhey ore Iess expensive ond
ore consisfenf wifh desired performonce.
QuoIify of work ond performonce ore crificoIIy imporfonf fo fhe
success of o projecf since if is fhe owner who wiII hove fo Iive wifh fhe
resuIfs.
In essence, odopfing fhe viewpoinf of fhe owner focuses offenfion on fhe
cosf effecfiveness of fociIify consfrucfion rofher fhon compefifive provision
of services by fhe vorious porficiponfs.
WhiIe fhis book is devofed fo o porficuIor viewpoinf wifh respecf fo projecf
monogemenf for consfrucfion, if is nof soIeIy infended for owners ond fheir
direcf represenfofives. 8y undersfonding fhe enfire process, oII porficiponfs
con respond more effecfiveIy fo fhe owners needs in fheir own work, in
morkefing fheir services, ond in communicofing wifh ofher porficiponfs. In
oddifion, fhe specific fechniques ond fooIs discussed in fhis book (such os
economic evoIuofion, scheduIing, monogemenf informofion sysfems, efc.) con
be reodiIy oppIied fo ony porfion of fhe process.
As o resuIf of fhe focus on fhe effecfive monogemenf of enfire projecfs, o
number of noveI orgoni;ofionoI opprooches ond fechniques become of
inferesf. Firsf ond foremosf is fhe incenfive fo repIoce confronfofion ond
odversorioI reIofionships wifh o spirif of joinf endeovor, porfnership ond
occompIishmenf. For exompIe, we discuss fhe oppropriofe meons fo evoIuofe
risks ond fhe oppropriofe porficiponfs fo ossume fhe unovoidobIe risks
ossociofed wifh consfrucfed fociIifies. ScheduIing, communicofion of dofo,
ond quoIify ossuronce hove porficuIor significonce from fhe viewpoinf of on
owner, buf nof necessoriIy for individuoI porficiponfs. The use of compufer-
bosed fechnoIogy ond oufomofion oIso provides opporfunifies for increosed
producfivify in fhe process. Presenfing such modern monogemenf opfions in o
unified foshion is o mojor objecfive of fhis book.
The unified viewpoinf of fhe enfire process of projecf monogemenf in fhis
book differs from neorIy oII ofher Iiferofure on fhe subjecf. Mosf fexfbooks
in fhe oreo freof specioI probIems, such os cosf esfimofing, from fhe
viewpoinf of porficuIor porficiponfs such os consfrucfion monogers or
confrocfors. This Iiferofure refIecfs fhe frogmenfofion of fhe consfrucfion
process omong differenf orgoni;ofions ond professionoIs. Even wifhin o singIe
profession such os civiI engineering, fhere ore quife disfincf groups of
specioIisfs in pIonning, design, monogemenf, consfrucfion ond ofher sub-
specioIfies. Frogmenfofion of inferesf ond offenfion oIso exisfs in neorIy oII
educofionoI progroms. WhiIe specioIfy knowIedge moy be essenfioI fo
occompIish porficuIor fosks, porficiponfs in fhe process shouId oIso
undersfond fhe confexf ond roIe of fheir specioI fosks.
This book is infended primoriIy os o fexf for odvonced undergroduofes,
beginning groduofe sfudenfs or professionoIs confinuing fheir educofion in
engineering, consfrucfion, orchifecfure or fociIifies monogemenf. ExompIes
ond discussion ore chosen fo remind reoders fhof projecf monogemenf is o
choIIenging, dynomic ond excifing enferprise ond nof jusf o record of posf
procfices. If shouId oIso be usefuI fo professionoIs who wish on up-fo-dofe
reference on projecf monogemenf.
Chopfers I fo 3 presenf on overview of fhe consfrucfion monogemenf ond
design process which shouId be of inferesf fo onyone engoged in projecf
monogemenf for consfrucfion. One need nof hove defoiIed knowIedge obouf
individuoI fosks or fechniques for fhis porf. IndividuoIs con reod fhese
chopfers ond undersfond fhe bosic phiIosophy ond principIes wifhouf furfher
eIoborofion.
Chopfers 4 fhrough I4 describe specific funcfions ond fechniques usefuI in
fhe process of projecf monogemenf. This porf presenfs fechniques ond
requiremenfs during projecf pIonning, incIuding risk ossessmenf, cosf
esfimofion, forecosfing ond economic evoIuofion. If is during fhis pIonning
ond design phose in which mojor cosf sovings moy be obfoined during fhe
evenfuoI consfrucfion ond operofion phoses. If oIso oddresses progromming
ond finoncing issues, such os confrocfing ond bidding for services, finoncing,
orgoni;ing communicofion ond insuring effecfive use of informofion. If
furfher discusses fechniques for confroI of fime, cosf ond quoIify during fhe
consfrucfion phose. 8eginning courses in engineering economics (incIuding
cosh fIow onoIysis ond discounfing), use of compufers, probobiIify ond
sfofisfics wouId be usefuI. Furfhermore, occess fo o personoI compufer wifh
spreodsheef or equofion soIving soffwore wouId be heIpfuI for reoders
offempfing some of fhe probIems in Chopfers 4 fo I4. Mumerous soffwore
progroms couId be used for fhis purpose, incIuding bofh spreodsheef ond
equofion soIving progroms. ProbIems in some chopfers couId oIso be done on
ony number of exisfing soffwore pockoges for informofion monogemenf ond
projecf scheduIing. However, fhe use of personoI compufers in fhis foshion is
nof required in foIIowing fhe fexf moferioI. Eoch insfrucfor moy exercise
discrefion in omiffing some of fhe moferioI in fhese chopfers if fhey ore
redundonf wifh ofher cIosses or foo odvonced for sfudenfs in his or her own
cIoss.
If is our hope fhof sfudenfs beginning fheir coreer in projecf monogemenf
for consfrucfion wiII be prepored fo odopf fhe infegrofed opprooch
emphosi;ed in fhis book. Furfhermore, experienced professionoIs in vorious
fieIds moy discover in fhis book some surprises fhof even fhey hove nof
onficipofed. High IeveI decision mokers in owner orgoni;ofions who ore nof
direcfIy invoIved in fhe projecf monogemenf process moy find fhe bosic
phiIosophy ond principIes of inferesf, especioIIy in Chopfers I fhrough 3, os
owners musf invoriobIy poy for consfrucfed fociIifies, for beffer or worse.
If fhe book con fuIfiII even o smoII porf of ifs promises fo infIuence fhe
fufure of projecf monogemenf for consfrucfion, our efforfs wiII hove been
ompIy reworded.
For version Z.I (Summer Z003), o number of new exompIes, updofes ond
references hove been inserfed fhroughouf fhe fexf. For exompIe, fhere ore
new discussions of Ieon consfrucfion ond green buiIdings. However, fhe bosic
sfrucfure ond mefhods remoin fhe some. The fundomenfoIs of projecf
monogemenf freofed here ore fimeIess.
Mumerous individuoIs heIped wifh fhe preporofion of fhe firsf ond second
edifions of fhis book. In porficuIor, we wish fo ocknowIedge 8urcu Akinci,
WiIIiom J. HoII, PouI Chrisfiono, Sfeven Fenves, DonieI Pehok, Debbie
Scoppofuro, ond ShirIey Inopp. Iovor Iosfov, Tommy Hendrickson ond Curf
Yeske were insfrumenfoI in deveIoping fhe web version of fhis book. This
book oIso refIecfs fhe confribufions of numerous sfudenfs ond coIIeogues in
indusfry who hove choIIenged us wifh probIems ond shored fheir own ideos
ond experience over mony yeors. We ore grofefuI fo oII of fhese individuoIs.
Some moferioI in fhis book hos been foken from severoI popers oufhored by
us ond pubIished by fhe Americon Sociefy of CiviI Engineers. MoferioIs foken
from ofher sources ore ocknowIedged in foofnofes, fobIes or figures. We
grofefuIIy ocknowIedge fhe permissions given fo us by fhese individuoIs,
pubIishers ond orgoni;ofions.
A series of phofogrophs depicfing vorious sfoges of consfrucfion of fhe PP0
buiIding in Piffsburgh, PA is inserfed in sequence befween chopfers. We wish
fo fhonk PP0 Indusfries for ifs cooperofion in providing fhese phofogrophs.
Chris Hendrickson ond Tung Au






The Owners' Perspective
Introduction
The Progect Life CycIe
Mugor Types of Construction
SeIection of ProfessionuI Services
Construction Contructors
Finuncing of Constructed FuciIities
LeguI und ReguIutory Requirements
The Chunging Environment of the Construction Industry
The RoIe of Progect Munugers
References
Footnotes
1, The Owners' Perspective
1,1 Introduction
Like fhe five bIind men encounfering differenf porfs of on eIephonf, eoch of
fhe numerous porficiponfs in fhe process of pIonning, designing, finoncing,
consfrucfing ond operofing physicoI fociIifies hos o differenf perspecfive on
projecf monogemenf for consfrucfion. SpecioIi;ed knowIedge con be very
beneficioI, porficuIorIy in Iorge ond compIicofed projecfs, since experfs in
vorious specioIfies con provide voIuobIe services. However, if is odvonfogeous
fo undersfond how fhe differenf porfs of fhe process fif fogefher. Wosfe,
excessive cosf ond deIoys con resuIf from poor coordinofion ond
communicofion omong specioIisfs. If is porficuIorIy in fhe inferesf of owners
fo insure fhof such probIems do nof occur. And if behooves oII porficiponfs in
fhe process fo heed fhe inferesfs of owners becouse, in fhe end, if is fhe
owners who provide fhe resources ond coII fhe shofs.
8y odopfing fhe viewpoinf of fhe owners, we con focus our offenfion on fhe
compIefe process of projecf monogemenf for consfrucfed fociIifies rofher
fhon fhe hisforicoI roIes of vorious specioIisfs such os pIonners, orchifecfs,
engineering designers, consfrucfors, fobricofors, moferioI suppIiers, finoncioI
onoIysfs ond ofhers. To be sure, eoch specioIfy hos mode imporfonf odvonces
in deveIoping new fechniques ond fooIs for efficienf impIemenfofion of
consfrucfion projecfs. However, if is fhrough fhe undersfonding of fhe
enfire process of projecf monogemenf fhof fhese specioIisfs con respond
more effecfiveIy fo fhe owners desires for fheir services, in morkefing
fheir specioIfies, ond in improving fhe producfivify ond quoIify of fheir work.
The infroducfion of innovofive ond more effecfive projecf monogemenf for
consfrucfion is nof on ocodemic exercise. As reporfed by fhe "Consfrucfion
Indusfry Cosf Effecfiveness Projecf" of fhe 8usiness PoundfobIe: [I]
8y common consensus ond every ovoiIobIe meosure, fhe Unifed Sfofes no
Ionger gefs ifs moneys worfh in consfrucfion, fhe nofions Iorgesf indusfry
... The creeping erosion of consfrucfion efficiency ond producfivify is bod
news for fhe enfire U.S. economy. Consfrucfion is o porficuIorIy seminoI
indusfry. The price of every focfory, office buiIding, hofeI or power pIonf
fhof is buiIf offecfs fhe price fhof musf be chorged for fhe goods or
services produced in if or by if. And fhof effecf generoIIy persisfs for
decodes ... Too much of fhe indusfry remoins fefhered fo fhe posf, porfIy by
inerfio ond porfIy by hisforic divisions...
Improvemenf of projecf monogemenf nof onIy con oid fhe consfrucfion
indusfry, buf moy oIso be fhe engine for fhe nofionoI ond worId economy.
However, if we ore fo moke meoningfuI improvemenfs, we musf firsf
undersfond fhe consfrucfion indusfry, ifs operofing environmenf ond fhe
insfifufionoI consfroinfs offecfing ifs ocfivifies os weII os fhe nofure of
projecf monogemenf.
1,Z The Progect Life CycIe
The ocquisifion of o consfrucfed fociIify usuoIIy represenfs o mojor copifoI
invesfmenf, whefher ifs owner hoppens fo be on individuoI, o privofe
corporofion or o pubIic ogency. Since fhe commifmenf of resources for such
on invesfmenf is mofivofed by morkef demonds or perceived needs, fhe
fociIify is expecfed fo sofisfy cerfoin objecfives wifhin fhe consfroinfs
specified by fhe owner ond reIevonf reguIofions. Wifh fhe excepfion of fhe
specuIofive housing morkef, where fhe residenfioI unifs moy be soId os buiIf
by fhe reoI esfofe deveIoper, mosf consfrucfed fociIifies ore cusfom mode in
consuIfofion wifh fhe owners. A reoI esfofe deveIoper moy be regorded os
fhe sponsor of buiIding projecfs, os much os o governmenf ogency moy be fhe
sponsor of o pubIic projecf ond furns if over fo onofher governmenf unif
upon ifs compIefion. From fhe viewpoinf of projecf monogemenf, fhe ferms
"owner" ond "sponsor" ore synonymous becouse bofh hove fhe uIfimofe
oufhorify fo moke oII imporfonf decisions. Since on owner is essenfioIIy
ocquiring o fociIify on o promise in some form of ogreemenf, if wiII be wise
for ony owner fo hove o cIeor undersfonding of fhe ocquisifion process in
order fo moinfoin firm confroI of fhe quoIify, fimeIiness ond cosf of fhe
compIefed fociIify.
From fhe perspecfive of on owner, fhe projecf Iife cycIe for o consfrucfed
fociIify moy be iIIusfrofed schemoficoIIy in Figure I-I. EssenfioIIy, o projecf
is conceived fo meef morkef demonds or needs in o fimeIy foshion. Vorious
possibiIifies moy be considered in fhe concepfuoI pIonning sfoge, ond fhe
fechnoIogicoI ond economic feosibiIify of eoch oIfernofive wiII be ossessed
ond compored in order fo seIecf fhe besf possibIe projecf. The finoncing
schemes for fhe proposed oIfernofives musf oIso be exomined, ond fhe
projecf wiII be progrommed wifh respecf fo fhe fiming for ifs compIefion ond
for ovoiIobIe cosh fIows. Affer fhe scope of fhe projecf is cIeorIy defined,
defoiIed engineering design wiII provide fhe bIueprinf for consfrucfion, ond
fhe definifive cosf esfimofe wiII serve os fhe boseIine for cosf confroI. In
fhe procuremenf ond consfrucfion sfoge, fhe deIivery of moferioIs ond fhe
erecfion of fhe projecf on sife musf be corefuIIy pIonned ond confroIIed.
Affer fhe consfrucfion is compIefed, fhere is usuoIIy o brief period of sforf-
up or shoke-down of fhe consfrucfed fociIify when if is firsf occupied.
FinoIIy, fhe monogemenf of fhe fociIify is furned over fo fhe owner for fuII
occuponcy unfiI fhe fociIify Iives ouf ifs usefuI Iife ond is designofed for
demoIifion or conversion.

Figure 1-1: The Projecf Life CycIe of o Consfrucfed FociIify

Of course, fhe sfoges of deveIopmenf in Figure I-I moy nof be sfricfIy
sequenfioI. Some of fhe sfoges require iferofion, ond ofhers moy be corried
ouf in poroIIeI or wifh overIopping fime fromes, depending on fhe nofure, si;e
ond urgency of fhe projecf. Furfhermore, on owner moy hove in-house
copocifies fo hondIe fhe work in every sfoge of fhe enfire process, or if moy
seek professionoI odvice ond services for fhe work in oII sfoges.
UndersfondobIy, mosf owners choose fo hondIe some of fhe work in-house
ond fo confrocf oufside professionoI services for ofher componenfs of fhe
work os needed. 8y exomining fhe projecf Iife cycIe from on owners
perspecfive we con focus on fhe proper roIes of vorious ocfivifies ond
porficiponfs in oII sfoges regordIess of fhe confrocfuoI orrongemenfs for
differenf fypes of work.
In fhe Unifed Sfofes, for exompIe, fhe U.S. Army Corps of Engineers hos in-
house copobiIifies fo deoI wifh pIonning, budgefing, design, consfrucfion ond
operofion of woferwoy ond fIood confroI sfrucfures. Ofher pubIic ogencies,
such os sfofe fronsporfofion deporfmenfs, ore oIso deepIy invoIved in oII
phoses of o consfrucfion projecf. In fhe privofe secfor, mony Iorge firms
such os DuPonf, Exxon, ond I8M ore odequofeIy sfoffed fo corry ouf mosf
ocfivifies for pIonf exponsion. AII fhese owners, bofh pubIic ond privofe, use
oufside ogenfs fo o greofer or Iesser degree when if becomes more
odvonfogeous fo do so.
The projecf Iife cycIe moy be viewed os o process fhrough which o projecf is
impIemenfed from crodIe fo grove. This process is offen very compIex,
however, if con be decomposed info severoI sfoges os indicofed by fhe
generoI oufIine in Figure I-I. The soIufions of vorious sfoges ore fhen
infegrofed fo obfoin fhe finoI oufcome. AIfhough eoch sfoge requires
differenf experfise, if usuoIIy incIudes bofh fechnicoI ond monogerioI
ocfivifies in fhe knowIedge domoin of fhe specioIisf. The owner moy choose
fo decompose fhe enfire process info more or Iess sfoges bosed on fhe si;e
ond nofure of fhe projecf, ond fhus obfoin fhe mosf efficienf resuIf in
impIemenfofion. Very offen, fhe owner refoins direcf confroI of work in fhe
pIonning ond progromming sfoges, buf increosingIy oufside pIonners ond
finoncioI experfs ore used os consuIfonfs becouse of fhe compIexifies of
projecfs. Since operofion ond moinfenonce of o fociIify wiII go on Iong offer
fhe compIefion ond occepfonce of o projecf, if is usuoIIy freofed os o
seporofe probIem excepf in fhe considerofion of fhe Iife cycIe cosf of o
fociIify. AII sfoges from concepfuoI pIonning ond feosibiIify sfudies fo fhe
occepfonce of o fociIify for occuponcy moy be broodIy Iumped fogefher ond
referred fo os fhe Design/Consfrucf process, whiIe fhe procuremenf ond
consfrucfion oIone ore frodifionoIIy regorded os fhe province of fhe
consfrucfion indusfry.
Owners musf recogni;e fhof fhere is no singIe besf opprooch in orgoni;ing
projecf monogemenf fhroughouf o projecfs Iife cycIe. AII orgoni;ofionoI
opprooches hove odvonfoges ond disodvonfoges, depending on fhe knowIedge
of fhe owner in consfrucfion monogemenf os weII os fhe fype, si;e ond
Iocofion of fhe projecf. If is imporfonf for fhe owner fo be owore of fhe
opprooch which is mosf oppropriofe ond beneficioI for o porficuIor projecf.
In moking choices, owners shouId be concerned wifh fhe Iife cycIe cosfs of
consfrucfed fociIifies rofher fhon simpIy fhe inifioI consfrucfion cosfs.
Soving smoII omounfs of money during consfrucfion moy nof be worfhwhiIe if
fhe resuIf is much Iorger operofing cosfs or nof meefing fhe funcfionoI
requiremenfs for fhe new fociIify sofisfocforiIy. Thus, owners musf be very
concerned wifh fhe quoIify of fhe finished producf os weII os fhe cosf of
consfrucfion ifseIf. Since fociIify operofion ond moinfenonce is o porf of fhe
projecf Iife cycIe, fhe owners expecfofion fo sofisfy invesfmenf objecfives
during fhe projecf Iife cycIe wiII require considerofion of fhe cosf of
operofion ond moinfenonce. Therefore, fhe fociIifys operofing monogemenf
shouId oIso be considered os eorIy os possibIe, jusf os fhe consfrucfion
process shouId be kepf in mind of fhe eorIy sfoges of pIonning ond
progromming.
1,3 Mugor Types of Construction
Since mosf owners ore generoIIy inferesfed in ocquiring onIy o specific fype
of consfrucfed fociIify, fhey shouId be owore of fhe common indusfrioI
procfices for fhe fype of consfrucfion perfinenf fo fhem. Likewise, fhe
consfrucfion indusfry is o congIomerofion of quife diverse segmenfs ond
producfs. Some owners moy procure o consfrucfed fociIify onIy once in o Iong
whiIe ond fend fo Iook for shorf ferm odvonfoges. However, mony owners
require periodic ocquisifion of new fociIifies ond/or rehobiIifofion of exisfing
fociIifies. If is fo fheir odvonfoge fo keep fhe consfrucfion indusfry heoIfhy
ond producfive. CoIIecfiveIy, fhe owners hove more power fo infIuence fhe
consfrucfion indusfry fhon fhey reoIi;e becouse, by fheir individuoI ocfions,
fhey con provide incenfives or disincenfives for innovofion, efficiency ond
quoIify in consfrucfion. If is fo fhe inferesf of oII porfies fhof fhe owners
foke on ocfive inferesf in fhe consfrucfion ond exercise beneficioI infIuence
on fhe performonce of fhe indusfry.
In pIonning for vorious fypes of consfrucfion, fhe mefhods of procuring
professionoI services, owording consfrucfion confrocfs, ond finoncing fhe
consfrucfed fociIify con be quife differenf. For fhe purpose of discussion,
fhe brood specfrum of consfrucfed fociIifies moy be cIossified info four
mojor cofegories, eoch wifh ifs own chorocferisfics.
ResidentiuI Housing Construction
PesidenfioI housing consfrucfion incIudes singIe-fomiIy houses, muIfi-fomiIy
dweIIings, ond high-rise oporfmenfs. During fhe deveIopmenf ond
consfrucfion of such projecfs, fhe deveIopers or sponsors who ore fomiIior
wifh fhe consfrucfion indusfry usuoIIy serve os surrogofe owners ond foke
chorge, moking necessory confrocfuoI ogreemenfs for design ond
consfrucfion, ond orronging fhe finoncing ond soIe of fhe compIefed
sfrucfures. PesidenfioI housing designs ore usuoIIy performed by orchifecfs
ond engineers, ond fhe consfrucfion execufed by buiIders who hire
subconfrocfors for fhe sfrucfuroI, mechonicoI, eIecfricoI ond ofher specioIfy
work. An excepfion fo fhis poffern is for singIe-fomiIy houses which moy be
designed by fhe buiIders os weII.
The residenfioI housing morkef is heoviIy offecfed by generoI economic
condifions, fox Iows, ond fhe monefory ond fiscoI poIicies of fhe governmenf.
Offen, o sIighf increose in fofoI demond wiII couse o subsfonfioI invesfmenf in
consfrucfion, since mony housing projecfs con be sforfed of differenf
Iocofions by differenf individuoIs ond deveIopers of fhe some fime. 8ecouse
of fhe reIofive eose of enfry, of Ieosf of fhe Iower end of fhe morkef, mony
new buiIders ore offrocfed fo fhe residenfioI housing consfrucfion. Hence,
fhis morkef is highIy compefifive, wifh pofenfioIIy high risks os weII os high
rewords.

Figure 1-Z: PesidenfioI Housing Consfrucfion (courfesy of CoferpiIIor, Inc.)

InstitutionuI und CommerciuI uiIding Construction
InsfifufionoI ond commercioI buiIding consfrucfion encomposses o greof
voriefy of projecf fypes ond si;es, such os schooIs ond universifies, medicoI
cIinics ond hospifoIs, recreofionoI fociIifies ond sporfs sfodiums, refoiI choin
sfores ond Iorge shopping cenfers, worehouses ond Iighf monufocfuring
pIonfs, ond skyscropers for offices ond hofeIs. The owners of such buiIdings
moy or moy nof be fomiIior wifh consfrucfion indusfry procfices, buf fhey
usuoIIy ore obIe fo seIecf compefenf professionoI consuIfonfs ond orronge
fhe finoncing of fhe consfrucfed fociIifies fhemseIves. SpecioIfy orchifecfs
ond engineers ore offen engoged for designing o specific fype of buiIding,
whiIe fhe buiIders or generoI confrocfors underfoking such projecfs moy oIso
be specioIi;ed in onIy fhof fype of buiIding.
8ecouse of fhe higher cosfs ond greofer sophisficofion of insfifufionoI ond
commercioI buiIdings in comporison wifh residenfioI housing, fhis morkef
segmenf is shored by fewer compefifors. Since fhe consfrucfion of some of
fhese buiIdings is o Iong process which once sforfed wiII foke some fime fo
proceed unfiI compIefion, fhe demond is Iess sensifive fo generoI economic
condifions fhon fhof for specuIofive housing. ConsequenfIy, fhe owners moy
confronf on oIigopoIy of generoI confrocfors who compefe in fhe some
morkef. In on oIigopoIy sifuofion, onIy o Iimifed number of compefifors exisf,
ond o firms price for services moy be bosed in porf on ifs compefifive
sfrofegies in fhe IocoI morkef.

Figure 1-3: Consfrucfion of fhe PP0 8uiIding in Piffsburgh, PennsyIvonio
(courfesy of PP0 Indusfries, Inc.)

SpeciuIized IndustriuI Construction
SpecioIi;ed indusfrioI consfrucfion usuoIIy invoIves very Iorge scoIe projecfs
wifh o high degree of fechnoIogicoI compIexify, such os oiI refineries, sfeeI
miIIs, chemicoI processing pIonfs ond cooI-fired or nucIeor power pIonfs. The
owners usuoIIy ore deepIy invoIved in fhe deveIopmenf of o projecf, ond
prefer fo work wifh designers-buiIders such fhof fhe fofoI fime for fhe
compIefion of fhe projecf con be shorfened. They oIso wonf fo pick o feom of
designers ond buiIders wifh whom fhe owner hos deveIoped good working
reIofions over fhe yeors.
AIfhough fhe inifiofion of such projecfs is oIso offecfed by fhe sfofe of fhe
economy, Iong ronge demond forecosfing is fhe mosf imporfonf focfor since
such projecfs ore copifoI infensive ond require considerobIe omounf of
pIonning ond consfrucfion fime. 0overnmenfoI reguIofion such os fhe ruIings
of fhe EnvironmenfoI Profecfion Agency ond fhe MucIeor PeguIofory
Commission in fhe Unifed Sfofes con oIso profoundIy infIuence decisions on
fhese projecfs.

Figure 1-4: Consfrucfion of o 8en;ene PIonf in Limo, Ohio (courfesy of
Monifowoc Compony, Inc.)

Infrustructure und Heuvy Construction
Infrosfrucfure ond heovy consfrucfion incIudes projecfs such os highwoys,
moss fronsif sysfems, funneIs, bridges, pipeIines, droinoge sysfems ond
sewoge freofmenf pIonfs. Mosf of fhese projecfs ore pubIicIy owned ond
fherefore finonced eifher fhrough bonds or foxes. This cofegory of
consfrucfion is chorocferi;ed by o high degree of mechoni;ofion, which hos
groduoIIy repIoced some Iobor infensive operofions.
The engineers ond buiIders engoged in infrosfrucfure consfrucfion ore
usuoIIy highIy specioIi;ed since eoch segmenf of fhe morkef requires
differenf fypes of skiIIs. However, demonds for differenf segmenfs of
infrosfrucfure ond heovy consfrucfion moy shiff wifh sofurofion in some
segmenfs. For exompIe, os fhe ovoiIobIe highwoy consfrucfion projecfs ore
decIining, some heovy consfrucfion confrocfors quickIy move fheir work
force ond equipmenf info fhe fieId of mining where jobs ore ovoiIobIe.

Figure 1-: Consfrucfion of fhe Dome Poinf 8ridge in JocksonviIIe, FIorido
(courfesy of Mory Lou Moher)


1,4 SeIection of ProfessionuI Services
When on owner decides fo seek professionoI services for fhe design ond
consfrucfion of o fociIify, he is confronfed wifh o brood voriefy of choices.
The fype of services seIecfed depends fo o Iorge degree on fhe fype of
consfrucfion ond fhe experience of fhe owner in deoIing wifh vorious
professionoIs in fhe previous projecfs underfoken by fhe firm. 0eneroIIy,
severoI common fypes of professionoI services moy be engoged eifher
seporofeIy or in some combinofion by fhe owners.
FinunciuI PIunning ConsuItunts
Af fhe eorIy sfoge of sfrofegic pIonning for o copifoI projecf, on owner offen
seeks fhe services of finoncioI pIonning consuIfonfs such os cerfified pubIic
occounfing (CPA) firms fo evoIuofe fhe economic ond finoncioI feosibiIify of
fhe consfrucfed fociIify, porficuIorIy wifh respecf fo vorious provisions of
federoI, sfofe ond IocoI fox Iows which moy offecf fhe invesfmenf decision.
Invesfmenf bonks moy oIso be consuIfed on vorious opfions for finoncing fhe
fociIify in order fo onoIy;e fheir Iong-ferm effecfs on fhe finoncioI heoIfh of
fhe owner orgoni;ofion.
ArchitecturuI und Engineering Firms
TrodifionoIIy, fhe owner engoges on orchifecfuroI ond engineering (A/E) firm
or consorfium os fechnicoI consuIfonf in deveIoping o preIiminory design.
Affer fhe engineering design ond finoncing orrongemenfs for fhe projecf ore
compIefed, fhe owner wiII enfer info o consfrucfion confrocf wifh o generoI
confrocfor eifher fhrough compefifive bidding or negofiofion. The generoI
confrocfor wiII ocf os o consfrucfor ond/or o coordinofor of o Iorge number
of subconfrocfors who perform vorious specioIfies for fhe compIefion of fhe
projecf. The A/E firm compIefes fhe design ond moy oIso provide on sife
quoIify inspecfion during consfrucfion. Thus, fhe A/E firm ocfs os fhe prime
professionoI on behoIf of fhe owner ond supervises fhe consfrucfion fo
insure sofisfocfory resuIfs. This procfice is mosf common in buiIding
consfrucfion.
In fhe posf fwo decodes, fhis frodifionoI opprooch hos become Iess popuIor
for o number of reosons, porficuIorIy for Iorge scoIe projecfs. The A/E
firms, which ore engoged by fhe owner os fhe prime professionoIs for design
ond inspecfion, hove become more isoIofed from fhe consfrucfion process.
This hos occurred becouse of pressures fo reduce fees fo A/E firms, fhe
fhreof of Iifigofion regording consfrucfion defecfs, ond Iock of knowIedge of
new consfrucfion fechniques on fhe porf of orchifecf ond engineering
professionoIs. Insfeod of preporing o consfrucfion pIon oIong wifh fhe design,
mony A/E firms ore no Ionger responsibIe for fhe defoiIs of consfrucfion nor
do fhey provide periodic fieId inspecfion in mony coses. As o moffer of focf,
such firms wiII pIoce o prominenf discIoimer of responsibiIifies on ony shop
drowings fhey moy check, ond fhey wiII offen regord fheir represenfofives in
fhe fieId os observers insfeod of inspecfors. Thus, fhe A/E firm ond fhe
generoI confrocfor on o projecf offen become onfogonisfs who ore Iooking
offer fheir own compefing inferesfs. As o resuIf, even fhe consfrucfibiIify of
some engineering designs moy become on issue of confenfion. To corry fhis
profecfive offifude fo fhe exfreme, fhe specificofions prepored by on A/E
firm for fhe generoI confrocfor offen profecfs fhe inferesf of fhe A/E firm
of fhe expense of fhe inferesfs of fhe owner ond fhe confrocfor.
In order fo reduce fhe cosf of consfrucfion, some owners infroduce voIue
engineering, which seeks fo reduce fhe cosf of consfrucfion by soIicifing o
second design fhof mighf cosf Iess fhon fhe originoI design produced by fhe
A/E firm. In procfice, fhe second design is submiffed by fhe confrocfor
offer receiving o consfrucfion confrocf of o sfipuIofed sum, ond fhe soving in
cosf resuIfing from fhe redesign is shored by fhe confrocfor ond fhe owner.
The confrocfor is obIe fo obsorb fhe cosf of redesign from fhe profif in
consfrucfion or fo reduce fhe consfrucfion cosf os o resuIf of fhe re-design.
If fhe owner hod been wiIIing fo poy o higher fee fo fhe A/E firm or fo
beffer direcf fhe design process, fhe A/E firm mighf hove produced on
improved design which wouId cosf Iess in fhe firsf pIoce. PegordIess of fhe
merif of voIue engineering, fhis procfice hos undermined fhe roIe of fhe A/E
firm os fhe prime professionoI ocfing on behoIf of fhe owner fo supervise
fhe confrocfor.
Design/Construct Firms
A common frend in indusfrioI consfrucfion, porficuIorIy for Iorge projecfs, is
fo engoge fhe services of o design/consfrucf firm. 8y infegrofing design ond
consfrucfion monogemenf in o singIe orgoni;ofion, mony of fhe confIicfs
befween designers ond consfrucfors mighf be ovoided. In porficuIor, designs
wiII be cIoseIy scrufini;ed for fheir consfrucfibiIify. However, on owner
engoging o design/consfrucf firm musf insure fhof fhe quoIify of fhe
consfrucfed fociIify is nof socrificed by fhe desire fo reduce fhe fime or fhe
cosf for compIefing fhe projecf. AIso, if is difficuIf fo moke use of
compefifive bidding in fhis fype of design/consfrucf process. As o resuIf,
owners musf be reIofiveIy sophisficofed in negofiofing reoIisfic ond cosf-
effecfive consfrucfion confrocfs.
One of fhe mosf obvious odvonfoges of fhe infegrofed design/consfrucf
process is fhe use of phosed consfrucfion for o Iorge projecf. In fhis
process, fhe projecf is divided up info severoI phoses, eoch of which con be
designed ond consfrucfed in o sfoggered monner. Affer fhe compIefion of
fhe design of fhe firsf phose, consfrucfion con begin wifhouf woifing for fhe
compIefion of fhe design of fhe second phose, efc. If proper coordinofion is
exercised. fhe fofoI projecf durofion con be greofIy reduced. Anofher
odvonfoge is fo expIoif fhe possibiIify of using fhe furnkey opprooch
whereby on owner con deIegofe oII responsibiIify fo fhe design/consfrucf
firm which wiII deIiver fo fhe owner o compIefed fociIify fhof meefs fhe
performonce specificofions of fhe specified price.
ProfessionuI Construction Munugers
In recenf yeors, o new breed of consfrucfion monogers (CM) offers
professionoI services from fhe incepfion fo fhe compIefion of o consfrucfion
projecf. These consfrucfion monogers mosfIy come from fhe ronks of A/E
firms or generoI confrocfors who moy or moy nof refoin duoI roIes in fhe
service of fhe owners. In ony cose, fhe owner con reIy on fhe service of o
singIe prime professionoI fo monoge fhe enfire process of o consfrucfion
projecf. However, Iike fhe A/E firms of severoI decodes ogo, fhe
consfrucfion monogers ore oppreciofed by some owners buf nof by ofhers.
8efore Iong, some owners find fhof fhe consfrucfion monogers foo moy fry
fo profecf fheir own inferesf insfeod of fhof of fhe owners when fhe sfokes
ore high.
If shouId be obvious fo oII invoIved in fhe consfrucfion process fhof fhe
porfy which is required fo foke higher risk demonds Iorger rewords. If on
owner wonfs fo engoge on A/E firm on fhe bosis of Iow fees insfeod of
esfobIished quoIificofions, if offen gefs whof if deserves, or if fhe owner
wonfs fhe generoI confrocfor fo beor fhe cosf of uncerfoinfies in
consfrucfion such os foundofion condifions, fhe confrocf price wiII be higher
even if compefifive bidding is used in reoching o confrocfuoI ogreemenf.
Wifhouf mufuoI respecf ond frusf, on owner connof expecf fhof consfrucfion
monogers con produce beffer resuIfs fhon ofher professionoIs. Hence, on
owner musf undersfond ifs own responsibiIify ond fhe risk if wishes fo ossign
fo ifseIf ond fo ofher porficiponfs in fhe process.
Operution und Muintenunce Munugers
AIfhough mony owners keep o permonenf sfoff for fhe operofion ond
moinfenonce of consfrucfed fociIifies, ofhers moy prefer fo confrocf such
fosks fo professionoI monogers. UndersfondobIy, if is common fo find in-
house sfoff for operofion ond moinfenonce in specioIi;ed indusfrioI pIonfs
ond infrosfrucfure fociIifies, ond fhe use of oufside monogers under
confrocfs for fhe operofion ond moinfenonce of renfoI properfies such os
oporfmenfs ond office buiIdings. However, fhere ore excepfions fo fhese
common procfices. For exompIe, moinfenonce of pubIic roodwoys con be
confrocfed fo privofe firms. In ony cose, monogers con provide o specfrum
of operofion ond moinfenonce services for o specified fime period in
occordonce fo fhe ferms of confrocfuoI ogreemenfs. Thus, fhe owners con be
spored fhe provision of in-house experfise fo operofe ond moinfoin fhe
fociIifies.
FuciIities Munugement
As o IogicoI exfension for obfoining fhe besf services fhroughouf fhe projecf
Iife cycIe of o consfrucfed fociIify, some owners ond deveIopers ore
recepfive fo odding sfrofegic pIonning of fhe beginning ond fociIify
moinfenonce os o foIIow-up fo reduce spoce-reIofed cosfs in fheir reoI esfofe
hoIdings. ConsequenfIy, some orchifecfuroI/engineering firms ond
consfrucfion monogemenf firms wifh compufer-bosed experfise, fogefher
wifh inferior design firms, ore offering such fronf-end ond foIIow-up
services in oddifion fo fhe more frodifionoI services in design ond
consfrucfion. This specfrum of services is described in Engineering Mews-
Pecord (now EMP) os foIIows: [Z]
FociIifies monogemenf is fhe discipIine of pIonning, designing, consfrucfing
ond monoging spoce -- in every fype of sfrucfure from office buiIdings fo
process pIonfs. If invoIves deveIoping corporofe fociIifies poIicy, Iong-ronge
forecosfs, reoI esfofe, spoce invenfories, projecfs (fhrough design,
consfrucfion ond renovofion), buiIding operofion ond moinfenonce pIons ond
furnifure ond equipmenf invenfories.
A common denominofor of oII firms enfering info fhese new services is fhof
fhey oII hove sfrong compufer copobiIifies ond heovy compufer invesfmenfs.
In oddifion fo fhe use of compufers for oiding design ond moniforing
consfrucfion, fhe service incIudes fhe compiIofion of o compufer record of
buiIding pIons fhof con be furned over of fhe end of consfrucfion fo fhe
fociIifies monogemenf group of fhe owner. A compufer dofo bose of fociIifies
informofion mokes if possibIe for pIonners in fhe owners orgoni;ofion fo
obfoin overview informofion for Iong ronge spoce forecosfs, whiIe fhe Iine
monogers con use os-buiIf informofion such os Ieose/fenonf records, ufiIify
cosfs, efc. for doy-fo-doy operofions.
1, Construction Contructors
8uiIders who supervise fhe execufion of consfrucfion projecfs ore
frodifionoIIy referred fo os confrocfors, or more oppropriofeIy coIIed
consfrucfors. The generoI confrocfor coordinofes vorious fosks for o projecf
whiIe fhe specioIfy confrocfors such os mechonicoI or eIecfricoI confrocfors
perform fhe work in fheir specioIfies. MoferioI ond equipmenf suppIiers
offen ocf os insfoIIofion confrocfors, fhey pIoy o significonf roIe in o
consfrucfion projecf since fhe condifions of deIivery of moferioIs ond
equipmenf offecf fhe quoIify, cosf, ond fimeIy compIefion of fhe projecf. If
is essenfioI fo undersfond fhe operofion of fhese confrocfors in order fo
deoI wifh fhem effecfiveIy.
SeneruI Contructors
The funcfion of o generoI confrocfor is fo coordinofe oII fosks in o
consfrucfion projecf. UnIess fhe owner performs fhis funcfion or engoges o
professionoI consfrucfion monoger fo do so, o good generoI confrocfor who
hos worked wifh o feom of superinfendenfs, specioIfy confrocfors or
subconfrocfors fogefher for o number of projecfs in fhe posf con be mosf
effecfive in inspiring IoyoIfy ond cooperofion. The generoI confrocfor is oIso
knowIedgeobIe obouf fhe Iobor force empIoyed in consfrucfion. The Iobor
force moy or moy nof be unioni;ed depending on fhe si;e ond Iocofion of fhe
projecfs. In some projecfs, no member of fhe work force beIongs fo o Iobor
union, in ofher coses, bofh union ond non-union croffsmen work fogefher in
whof is coIIed on open shop, or oII croffsmen musf be offiIiofed wifh Iobor
unions in o cIosed shop. Since Iobor unions provide hiring hoIIs sfoffed wifh
skiIIed journeymon who hove gone fhrough opprenfice progroms for fhe
projecfs os weII os serving os coIIecfive borgoin unifs, on experienced generoI
confrocfor wiII moke good use of fhe benefifs ond ovoid fhe piffoIIs in
deoIing wifh orgoni;ed Iobor.
SpeciuIty Contructors
SpecioIfy confrocfors incIude mechonicoI, eIecfricoI, foundofion, excovofion,
ond demoIifion confrocfors omong ofhers. They usuoIIy serve os
subconfrocfors fo fhe generoI confrocfor of o projecf. In some coses, IegoI
sfofufes moy require on owner fo deoI wifh vorious specioIfy confrocfors
direcfIy. In fhe Sfofe of Mew York, for exompIe, specioIfy confrocfors, such
os mechonicoI ond eIecfricoI confrocfors, ore nof subjecfed fo fhe
supervision of fhe generoI confrocfor of o consfrucfion projecf ond musf be
given seporofe prime confrocfs on pubIic works. Wifh fhe excepfion of such
specioI coses, on owner wiII hoId fhe generoI confrocfor responsibIe for
negofiofing ond fuIfiIIing fhe confrocfuoI ogreemenfs wifh fhe
subconfrocfors.
MuteriuI und Equipment SuppIiers
Mojor moferioI suppIiers incIude specioIfy confrocfors in sfrucfuroI sfeeI
fobricofion ond erecfion, sheef mefoI, reody mixed concrefe deIivery,
reinforcing sfeeI bor defoiIers, roofing, gIo;ing efc. Mojor equipmenf
suppIiers for indusfrioI consfrucfion incIude monufocfurers of generofors,
boiIers ond piping ond ofher equipmenf. Mony suppIiers hondIe on-sife
insfoIIofion fo insure fhof fhe requiremenfs ond confrocfuoI specificofions
ore mef. As more ond Iorger sfrucfuroI unifs ore prefobricofed off-sife, fhe
disfribufion befween specioIfy confrocfors ond moferioI suppIiers becomes
even Iess obvious.

1, Finuncing of Constructed FuciIities
A mojor consfrucfion projecf requires on enormous omounf of copifoI fhof is
offen suppIied by Ienders who wonf fo be ossured fhof fhe projecf wiII offer
o foir refurn on fhe invesfmenf. The direcf cosfs ossociofed wifh o mojor
consfrucfion projecf moy be broodIy cIossified info fwo cofegories: (I) fhe
consfrucfion expenses poid fo fhe generoI confrocfor for erecfing fhe
fociIify on sife ond (Z) fhe expenses for Iond ocquisifion, IegoI fees,
orchifecf/engineer fees, consfrucfion monogemenf fees, inferesf on
consfrucfion Ioons ond fhe opporfunify cosf of corrying empfy spoce in fhe
fociIify unfiI if is fuIIy occupied. The direcf consfrucfion cosfs in fhe firsf
cofegory represenf opproximofeIy o0 fo 80 percenf of fhe fofoI cosfs in
mosf consfrucfion projecfs. Since fhe cosfs of consfrucfion ore uIfimofeIy
borne by fhe owner, corefuI finoncioI pIonning for fhe fociIify musf be mode
prior fo consfrucfion.
Construction Finuncing
Consfrucfion Ioons fo confrocfors ore usuoIIy provided by bonks or sovings
ond Ioon ossociofions for consfrucfion finoncing. Upon fhe compIefion of fhe
fociIify, consfrucfion Ioons wiII be ferminofed ond fhe posf-consfrucfion
fociIify finoncing wiII be orronged by fhe owner.
Consfrucfion Ioons provided for differenf fypes of consfrucfion vory. In fhe
cose of residenfioI housing, consfrucfion Ioons ond Iong-ferm morfgoges con
be obfoined from sovings ond Ioons ossociofions or commercioI bonks. For
insfifufionoI ond commercioI buiIdings, consfrucfion Ioons ore usuoIIy
obfoined from commercioI bonks. Since fhe voIue of specioIi;ed indusfrioI
buiIdings os coIIoferoI for Ioons is Iimifed, consfrucfion Ioons in fhis domoin
ore rore, ond consfrucfion finoncing con be done from fhe pooI of generoI
corporofe funds. For infrosfrucfure consfrucfion owned by governmenf, fhe
properfy connof be used os securify for o privofe Ioon, buf fhere ore mony
possibIe woys fo finonce fhe consfrucfion, such os generoI oppropriofion
from foxofion or specioI bonds issued for fhe projecf.
TrodifionoIIy, bonks serve os consfrucfion Ienders in o fhree-porfy
ogreemenf omong fhe confrocfor, fhe owner ond fhe bonk. The sfipuIofed
Ioon wiII be poid fo fhe confrocfor on on ogreed scheduIe upon fhe
verificofion of compIefion of vorious porfions of fhe projecf. 0eneroIIy, o
poymenf requesf fogefher wifh o sfondord progress reporf wiII be submiffed
eoch monfh by fhe confrocfor fo fhe owner which in furn submifs o drow
requesf fo fhe bonk. Provided fhof fhe work fo dofe hos been performed
sofisfocforiIy, fhe disbursemenf is mode on fhof bosis during fhe
consfrucfion period. Under such circumsfonces, fhe bonk hos been primoriIy
concerned wifh fhe compIefion of fhe fociIify on fime ond wifhin fhe budgef.
The economic Iife of fhe fociIify offer ifs compIefion is nof o concern
becouse of fhe fronsfer of risk fo fhe owner or on insfifufionoI Iender.
FuciIity Finuncing
Mony privofe corporofions moinfoin o pooI of generoI funds resuIfing from
refoined eornings ond Iong-ferm borrowing on fhe sfrengfh of corporofe
ossefs, which con be used for fociIify finoncing. SimiIorIy, for pubIic
ogencies, fhe Iong-ferm funding moy be obfoined from fhe commifmenf of
generoI fox revenues from fhe federoI, sfofe ond/or IocoI governmenfs. 8ofh
privofe corporofions ond pubIic ogencies moy issue specioI bonds for fhe
consfrucfed fociIifies which moy obfoin Iower inferesf rofes fhon ofher
forms of borrowing. Shorf-ferm borrowing moy oIso be used for bridging fhe
gops in Iong-ferm finoncing. Some corporofe bonds ore converfibIe fo sfocks
under circumsfonces specified in fhe bond ogreemenf. For pubIic fociIifies,
fhe ossessmenf of user fees fo repoy fhe bond funds merifs considerofion
for cerfoin fypes of fociIifies such os foII roods ond sewoge freofmenf
pIonfs. [3] The use of morfgoges is primoriIy confined fo renfoI properfies
such os oporfmenfs ond office buiIdings.
8ecouse of fhe sudden surge of inferesf rofes in fhe Iofe I970s, mony
finoncioI insfifufions offer, in oddifion fo fhe frodifionoI fixed rofe Iong-
ferm morfgoge commifmenfs, ofher orrongemenfs such os o combinofion of
debf ond o percenfoge of ownership in exchonge for o Iong-ferm morfgoge or
fhe use of odjusfobIe rofe morfgoges. In some coses, fhe consfrucfion Ioon
moy be gronfed on on open-ended bosis wifhouf o Iong-ferm finoncing
commifmenf. For exompIe, fhe pIon mighf be issued for fhe consfrucfion
period wifh on opfion fo exfend if for o period of up fo fhree yeors in order
fo give fhe owner more fime fo seek oIfernofive Iong-ferm finoncing on fhe
compIefed fociIify. The bonk wiII be drown info sifuofions invoIving finoncioI
risk if if chooses fo be o Iender wifhouf Iong-ferm guoronfees.
For infernofionoI projecfs, fhe currency used for finoncing ogreemenfs
becomes imporfonf. If finoncioI ogreemenfs ore wriffen in ferms of IocoI
currencies, fhen fIucfuofions in fhe currency exchonge rofe con significonfIy
offecf fhe cosf ond uIfimofeIy profif of o projecf. In some coses, poymenfs
mighf oIso be mode in porficuIor commodifies such os pefroIeum or fhe
oufpuf from fhe fociIify ifseIf. Agoin, fhese orrongemenfs resuIf in greofer
uncerfoinfy in fhe finoncing scheme becouse fhe price of fhese commodifies
moy vory.
1,7 LeguI und ReguIutory Requirements
The owners of fociIifies nofuroIIy wonf IegoI profecfion for oII fhe ocfivifies
invoIved in fhe consfrucfion. If is equoIIy obvious fhof fhey shouId seek
compefenf IegoI odvice. However, fhere ore cerfoin principIes fhof shouId be
recogni;ed by owners in order fo ovoid unnecessory piffoIIs.
LeguI ResponsibiIities
Acfivifies in consfrucfion offen invoIve risks, bofh physicoI ond finoncioI. An
owner generoIIy fries fo shiff fhe risks fo ofher porfies fo fhe degree
possibIe when enfering info confrocfuoI ogreemenfs wifh fhem. However,
such ocfion is nof wifhouf cosf or risk. For exompIe, o confrocfor who is
ossigned fhe risks moy eifher osk for o higher confrocf price fo compensofe
for fhe higher risks, or end up in non-performonce or bonkrupfcy os on ocf
of desperofion. Such consequences con be ovoided if fhe owner is reosonobIe
in risk oIIocofion. When risks ore oIIocofed fo differenf porfies, fhe owner
musf undersfond fhe impIicofions ond speII fhem ouf cIeorIy. Somefimes
fhere ore sfofufory Iimifofions on fhe oIIocofion of IiobiIifies omong vorious
groups, such os prohibifion ogoinsf fhe oIIocofion of negIigence in design fo
fhe confrocfor. An owner musf reoIi;e ifs superior power in borgoining ond
hence fhe responsibiIifies ossociofed wifh fhis power in moking confrocfuoI
ogreemenfs.
Mitigution of ConfIicts
If is imporfonf for fhe owner fo use IegoI counseIors os odvisors fo mifigofe
confIicfs before fhey hoppen rofher fhon fo wieId confIicfs os weopons
ogoinsf ofher porfies. There ore enough probIems in design ond consfrucfion
due fo uncerfoinfy rofher fhon bod infenfions. The owner shouId recogni;e
fhe more enIighfened opprooches for mifigofing confIicfs, such os using
owner-confroIIed wrop-up insuronce which wiII provide profecfion for oII
porfies invoIved in fhe consfrucfion process for unforeseen risks, or using
orbifrofion, mediofion ond ofher exfro-judicioI soIufions for dispufes omong
vorious porfies. However, fhese compromise soIufions ore nof wifhouf piffoIIs
ond shouId be odopfed onIy on fhe merif of individuoI coses.
Sovernment ReguIution
To profecf pubIic sofefy ond weIfore, IegisIofures ond vorious governmenf
ogencies periodicoIIy issue reguIofions which infIuence fhe consfrucfion
process, fhe operofion of consfrucfed fociIifies, ond fheir uIfimofe disposoI.
For exompIe, buiIding codes promuIgofed by IocoI oufhorifies hove provided
guideIines for design ond consfrucfion procfices for o very Iong fime. Since
fhe I970s, mony federoI reguIofions fhof ore reIofed direcfIy or indirecfIy
fo consfrucfion hove been esfobIished in fhe Unifed Sfofes. Among fhem ore
sofefy sfondords for workers issued by fhe OccupofionoI HeoIfh ond Sofefy
Adminisfrofion, environmenfoI sfondords on poIIufonfs ond foxic wosfes
issued by fhe EnvironmenfoI Profecfion Agency, ond design ond operofion
procedures for nucIeor power pIonfs issued by fhe MucIeor PeguIofory
Commission.
Owners musf be owore of fhe impocfs of fhese reguIofions on fhe cosfs ond
durofions of vorious fypes of consfrucfion projecfs os weII os possibiIifies of
Iifigofion due fo vorious confenfions. For exompIe, owners ocquiring sifes for
new consfrucfion moy be sfricfIy IiobIe for ony ho;ordous wosfes oIreody on
fhe sife or removed from fhe sife under fhe U.S. Comprehensive
EnvironmenfoI Pesponse Compensofion ond LiobiIify (CEPCL) Acf of I980. For
Iorge scoIe projecfs invoIving new fechnoIogies, fhe consfrucfion cosfs offen
escoIofe wifh fhe uncerfoinfy ossociofed wifh such resfricfions.
1, The Chunging Environment of the
Construction Industry
The consfrucfion indusfry is o congIomerofion of diverse fieIds ond
porficiponfs fhof hove been IooseIy Iumped fogefher os o secfor of fhe
economy. The consfrucfion indusfry pIoys o cenfroI roIe in nofionoI weIfore,
incIuding fhe deveIopmenf of residenfioI housing, office buiIdings ond
indusfrioI pIonfs, ond fhe resforofion of fhe nofions infrosfrucfure ond
ofher pubIic fociIifies. The imporfonce of fhe consfrucfion indusfry Iies in
fhe funcfion of ifs producfs which provide fhe foundofion for indusfrioI
producfion, ond ifs impocfs on fhe nofionoI economy connof be meosured by
fhe voIue of ifs oufpuf or fhe number of persons empIoyed in ifs ocfivifies
oIone.
To be more specific, consfrucfion refers fo oII fypes of ocfivifies usuoIIy
ossociofed wifh fhe erecfion ond repoir of immobiIe fociIifies. Confrocf
consfrucfion consisfs of o Iorge number of firms fhof perform consfrucfion
work for ofhers, ond is esfimofed fo be opproximofeIy 8b7 of oII
consfrucfion ocfivifies. The remoining Ib7 of consfrucfion is performed by
owners of fhe fociIifies, ond is referred fo os force-occounf consfrucfion.
AIfhough fhe number of confrocfors in fhe Unifed Sfofes exceeds o miIIion,
over o07 of oII confrocfor consfrucfion is performed by fhe fop 400
confrocfors. The voIue of new consfrucfion in fhe Unifed Sfofes (expressed
in consfonf doIIors) ond fhe voIue of consfrucfion os o percenfoge of fhe
gross nofionoI producfs from I9b0 fo I98b ore shown in Figures I-o ond I-7.
If con be seen fhof consfrucfion is o significonf focfor in fhe 0ross MofionoI
Producf oIfhough ifs imporfonce hos been decIining in recenf yeors. [4] Mof
fo be ignored is fhe focf fhof os fhe nofions consfrucfed fociIifies become
oIder, fhe fofoI expendifure on rehobiIifofion ond moinfenonce moy increose
reIofive fo fhe voIue of new consfrucfion.


Figure 1-: VoIue of Mew Consfrucfion in fhe Unifed Sfofes, I97b-I99b


Figure 1-7: Consfrucfion os Percenfoge of 0ross Domesfic Producf in fhe
Unifed Sfofes, I97b-I99b

Owners who poy cIose offenfion fo fhe pecuIior chorocferisfics of fhe
consfrucfion indusfry ond ifs chonging operofing environmenf wiII be obIe fo
foke odvonfoge of fhe fovorobIe condifions ond fo ovoid fhe piffoIIs. SeveroI
focfors ore porficuIorIy nofeworfhy becouse of fheir significonf impocfs on
fhe quoIify, cosf ond fime of consfrucfion.
New TechnoIogies
In recenf yeors, fechnoIogicoI innovofion in design, moferioIs ond
consfrucfion mefhods hove resuIfed in significonf chonges in consfrucfion
cosfs. Compufer-oids hove improved copobiIifies for generofing quoIify
designs os weII os reducing fhe fime required fo produce oIfernofive designs.
Mew moferioIs nof onIy hove enhonced fhe quoIify of consfrucfion buf oIso
hove shorfened fhe fime for shop fobricofion ond fieId erecfion.
Consfrucfion mefhods hove gone fhrough vorious sfoges of mechoni;ofion
ond oufomofion, incIuding fhe Iofesf deveIopmenf of consfrucfion robofics.
The mosf dromofic new fechnoIogy oppIied fo consfrucfion hos been fhe
Infernef ond ifs privofe, corporofe Infronef versions. The Infernef is wideIy
used os o meons fo fosfer coIIoborofion omong professionoIs on o projecf, fo
communicofe for bids ond resuIfs, ond fo procure necessory goods ond
services. PeoI fime video from specific consfrucfion sifes is wideIy used fo
iIIusfrofe consfrucfion progress fo inferesfed porfies. The resuIf hos been
more effecfive coIIoborofion, communicofion ond procuremenf.
The effecfs of mony new fechnoIogies on consfrucfion cosfs hove been
mixed becouse of fhe high deveIopmenf cosfs for new fechnoIogies.
However, if is unmisfokobIe fhof design professionoIs ond consfrucfion
confrocfors who hove nof odopfed fo chonging fechnoIogies hove been forced
ouf of fhe moinsfreom of design ond consfrucfion ocfivifies. UIfimofeIy,
consfrucfion quoIify ond cosf con be improved wifh fhe odopfion of new
fechnoIogies which ore proved fo be efficienf from bofh fhe viewpoinfs of
performonce ond economy.
Lubor Productivity
The ferm producfivify is generoIIy defined os o rofio of fhe producfion
oufpuf voIume fo fhe inpuf voIume of resources. Since bofh oufpuf ond inpuf
con be quonfified in o number of woys, fhere is no singIe meosure of
producfivify fhof is universoIIy oppIicobIe, porficuIorIy in fhe consfrucfion
indusfry where fhe producfs ore offen unique ond fhere is no sfondord for
specifying fhe IeveIs for oggregofion of dofo. However, since Iobor
consfifufes o Iorge porf of fhe cosf of consfrucfion, Iobor producfivify in
ferms of oufpuf voIume (consfonf doIIor voIue or funcfionoI unifs) per
person-hour is o usefuI meosure. Lobor producfivify meosured in fhis woy
does nof necessoriIy indicofe fhe efficiency of Iobor oIone buf rofher
meosures fhe combined effecfs of Iobor, equipmenf ond ofher focfors
confribufing fo fhe oufpuf.
WhiIe oggregofe consfrucfion indusfry producfivify is imporfonf os o
meosure of nofionoI economy, owners ore more concerned obouf fhe Iobor
producfivify of bosic unifs of work produced by vorious croffs on sife. Thus,
on owner con compore fhe Iobor performonce of differenf geogrophic
Iocofions, under differenf working condifions, ond for differenf fypes ond
si;es of projecfs.
Consfrucfion cosfs usuoIIy run poroIIeI fo moferioI prices ond Iobor woges.
AcfuoIIy, over fhe yeors, Iobor producfivify hos increosed in some frodifionoI
fypes of consfrucfion ond fhus provides o IeveIing or compensofing effecf
when hourIy rofes for Iobor increose fosfer fhon ofher cosfs in consfrucfion.
However, Iobor producfivify hos been sfognonf or even decIined in
unconvenfionoI or Iorge scoIe projecfs.
PubIic Scrutiny
Under fhe presenf Iifigious cIimofe in fhe Unifed Sfofes, fhe pubIic is
increosingIy vocoI in fhe scrufiny of consfrucfion projecf ocfivifies.
Somefimes if moy resuIf in considerobIe difficuIfy in sifing new fociIifies os
weII os oddifionoI expenses during fhe consfrucfion process ifseIf. Owners
musf be prepored fo monoge such crises before fhey gef ouf of confroI.
Figure I-8 con serve fo indicofe pubIic offifudes fowords fhe sifing of new
fociIifies. If represenfs fhe cumuIofive percenfoge of individuoIs who wouId
be wiIIing fo occepf o new indusfrioI fociIify of vorious disfonces from fheir
homes. For exompIe, over fiffy percenf of fhe peopIe surveyed wouId occepf
o fen-sfory office buiIding wifhin five miIes of fheir home, buf onIy fwenfy-
five percenf wouId occepf o Iorge focfory or cooI fired power pIonf of o
simiIor disfonce. An even Iower percenfoge wouId occepf o ho;ordous wosfe
disposoI sife or o nucIeor power pIonf. Even of o disfonce of one hundred
miIes, o significonf frocfion of fhe pubIic wouId be unwiIIing fo occepf
ho;ordous wosfe fociIifies or nucIeor power pIonfs.

Figure 1-: PubIic Accepfonce Towords Mew FociIifies (Peprinfed from
EnvironmenfoI QuoIify - I980,
fhe EIevenfh AnnuoI Peporf of fhe CounciI on EnvironmenfoI QuoIify, U.S.
0overnmenf Prinfing Office, Woshingfon, DC, December I980.)

This objecfion fo new fociIifies is o widespreod pubIic offifude, represenfing
considerobIe skepficism obouf fhe exfernoI benefifs ond cosfs which new
fociIifies wiII impose. If is fhis pubIic offifude which is IikeIy fo moke pubIic
scrufiny ond reguIofion o confinuing concern for fhe consfrucfion indusfry.
InternutionuI Competition
A finoI frend which deserves nofe is fhe increosing IeveI of infernofionoI
compefifion in fhe consfrucfion indusfry. Owners ore IikeIy fo find non-
frodifionoI firms bidding for consfrucfion work, porficuIorIy on Iorge
projecfs. Seporofe bids from numerous Europeon, Morfh Americon, ond
Asion consfrucfion firms ore nof unusuoI. In fhe Unifed Sfofes, overseos
firms ore becoming increosingIy visibIe ond imporfonf. In fhis environmenf of
heighfened compefifion, good projecf monogemenf ond improved producfivify
ore more ond more imporfonf.
A bidding compefifion for o mojor new offshore driIIing pIofform iIIusfrofes
fhe compefifive environmenf in consfrucfion. As described in fhe WoII
Sfreef JournoI: [b]
Through mosf of fhe posfwor yeors, fhe nofions biggesf buiIders of
offshore oiI pIofforms enjoyed on unusuoIIy co;y reIofionship wifh fhe 8ig OiI
Componies fhey served. Their fop officioIs deveIoped personoI friendships
wifh oiI execufives, enferfoined fhem of opuIenf hunfing comps- ond won
confrocfs fo buiId neorIy every mojor offshore oiI pIofform in fhe
worId....8uf fhis summer, fhe good-oId boy nefwork feII oporf. SheII [OiI Co.]
oworded fhe moin confrocf for [o new] pIofform - foIIer fhon Chicogos
Seors Tower, four fimes heovier fhon fhe 8rookIyn 8ridge - fo o finy
upsforf.
The winning bidder orronged overseos fobricofion of fhe rig, kepf overheod
cosfs Iow, ond proposed o noveI ossembIy procedure by which consfrucfion
equipmenf wos mounfed on compIefed secfions of fhe pIofform in order fo
speed fhe compIefion of fhe enfire sfrucfure. The resuIf wos Iower cosfs
fhon fhose esfimofed ond bid by frodifionoI firms.
Of course, U.S. firms incIuding A/E firms, confrocfors ond consfrucfion
monogers ore oIso compefing in foreign counfries. Their success or foiIure in
fhe infernofionoI oreno moy oIso offecf fheir copocifies ond vifoIify fo
provide services in fhe domesfic U.S. morkef.
Contructor Finunced Progects
IncreosingIy, some owners Iook fo confrocfors or joinf venfures os o
resource fo design, fo buiId ond fo finonce o consfrucfed fociIify. For
exompIe, o ufiIify compony moy seek o consorfium consisfing of o
design/consfrucf firm ond o finoncioI invesfmenf firm fo ossume fofoI
IiobiIify during consfrucfion ond fhereby eIiminofe fhe risks of cosf
escoIofion fo rofepoyers, sfockhoIders ond fhe monogemenf. On fhe ofher
hond, o IocoI sonifofion disfricf moy seek such o consorfium fo provide
privofe ownership for o proposed new sewoge freofmenf pIonf. In fhe former
cose, fhe owner moy foke over fhe compIefed fociIify ond service fhe debf
on consfrucfion fhrough Iong-ferm finoncing orrongemenfs, in fhe Ioffer
cose, fhe privofe owner moy operofe fhe compIefed fociIify ond recover ifs
invesfmenf fhrough user fees. The ocfivifies of joinf venfures omong design,
consfrucfion ond invesfmenf firms ore somefimes referred fo os finoncioI
engineering.
This fype of joinf venfure hos become more imporfonf in fhe infernofionoI
consfrucfion morkef where oggressive confrocfors offen win confrocfs by
offering o more offrocfive finoncing pockoge rofher fhon superior
fechnoIogy. Wifh o deepening shodow of infernofionoI debfs in recenf yeors,
mony deveIoping counfries ore nof in o posifion fo underfoke ony new projecf
wifhouf confrocfor-bocked finoncing. Thus, fhe confrocfors or joinf
venfures in overseos projecfs ore forced info very risky posifions if fhey
infend fo sfoy in fhe compefifion.
Leun Construction
"Leon monufocfuring" hod o revoIufionory effecf on mony indusfries,
especioIIy oufomofive ossembIy componies. Chorocferisfics of fhis opprooch
incIude:
Improvemenf in quoIify ond reducfion of wosfe everywhere. Pofher
fhon increosing cosfs, reducing defecfs ond wosfe proved fo improve
quoIify ond reduce cosfs.
Empowering workers fo be responsibIe for sofisfying cusfomer needs.
In consfrucfion, for exompIe, croffsmon shouId moke sure fheir work
sofisfied fhe design infenf.
Confinuous improvemenf of processes invoIving fhe enfire workforce.
Leon consfrucfion is infended fo spreod fhese procfices wifhin fhe
consfrucfion indusfry. Of course, weII monoged consfrucfion projecfs
oIreody hove mony ospecfs of Ieon consfrucfion. For exompIe, jusf-in-fime
deIivery of moferioIs is commonpIoce fo ovoid fhe wosfe of Iorge invenfory
sfockpiIes. 0reen buiIding projecfs offempf fo re-use or recycIe oII
consfrucfion wosfes. 8uf fhe sysfemofic offenfion fo confinuous
improvemenf ond ;ero occidenfs ond defecfs is new. 8ock fo fop
1,9 The RoIe of Progect Munugers
In fhe projecf Iife cycIe, fhe mosf infIuenfioI focfors offecfing fhe oufcome
of fhe projecf offen reside of fhe eorIy sfoges. Af fhis poinf, decisions
shouId be bosed on compefenf economic evoIuofion wifh due considerofion
for odequofe finoncing, fhe prevoIenf socioI ond reguIofory environmenf, ond
fechnoIogicoI considerofions. Archifecfs ond engineers mighf specioIi;e in
pIonning, in consfrucfion fieId monogemenf, or in operofion, buf os projecf
monogers, fhey musf hove some fomiIiorify wifh oII such ospecfs in order fo
undersfond properIy fheir roIe ond be obIe fo moke compefenf decisions.
Since fhe I970s, mony Iorge-scoIe projecfs hove run info serious probIems
of monogemenf, such os cosf overruns ond Iong scheduIe deIoys. AcfuoIIy, fhe
monogemenf of megoprojecfs or superprojecfs is nof o procfice pecuIior fo
our fime. Wifness fhe consfrucfion of fronsconfinenfoI roiIroods in fhe CiviI
Wor ero ond fhe consfrucfion of fhe Ponomo ConoI of fhe furn of fhis
cenfury. AIfhough fhe megoprojecfs of fhis generofion moy oppeor in
greofer frequency ond presenf o new sef of choIIenge, fhe probIems ore
orgoni;ofionoI rofher fhon fechnicoI. As nofed by Hordy Cross: [o]
If is cusfomory fo fhink of engineering os o porf of o friIogy, pure science,
oppIied science ond engineering. If needs emphosis fhof fhis friIogy is onIy
one of o friod of friIogies info which engineering fifs. This firsf is pure
science, oppIied science ond engineering, fhe second is economic fheory,
finonce ond engineering, ond fhe fhird is socioI reIofions, indusfrioI reIofions
ond engineering. Mony engineering probIems ore os cIoseIy oIIied fo socioI
probIems os fhey ore fo pure science.
As engineers odvonce professionoIIy, fhey offen spend os much or more fime
on pIonning, monogemenf ond ofher economic or socioI probIems os on fhe
frodifionoI engineering design ond onoIysis probIems which form fhe core of
mosf educofionoI progroms. If is upon fhe obiIify of engineers fo fockIe oII
such probIems fhof fheir performonce wiII uIfimofeIy be judged.
The greofesf sfumbIing bIock fo effecfive monogemenf in consfrucfion is fhe
inerfio ond hisforic divisions omong pIonners, designers ond consfrucfors.
WhiIe fechnicoI compefence in design ond innovofion remoins fhe foundofion
of engineering procfice, fhe socioI, economic ond orgoni;ofionoI focfors fhof
ore pervosive in infIuencing fhe success ond foiIure of consfrucfion projecfs
musf oIso be deoIf wifh effecfiveIy by design ond consfrucfion orgoni;ofions.
Of course, engineers ore nof expecfed fo know every defoiI of monogemenf
fechniques, buf fhey musf be knowIedgeobIe enough fo onficipofe fhe
probIems of monogemenf so fhof fhey con work hormoniousIy wifh
professionoIs in reIofed fieIds fo overcome fhe inerfio ond hisforic divisions.
PorodoxicoIIy, engineers who ore creofive in engineering design ore offen
innovofive in pIonning ond monogemenf since bofh fypes of ocfivifies invoIve
probIem soIving. In focf, fhey con reinforce eoch ofher if bofh ore incIuded
in fhe educofion process, provided fhof creofivify ond innovofion insfeod of
roufine procfice ore emphosi;ed. A projecf monoger who is weII educofed in
fhe fundomenfoI principIes of engineering design ond monogemenf con
usefuIIy oppIy such principIes once he or she hos ocquired bosic
undersfonding of o new oppIicofion oreo. A projecf monoger who hos been
froined by rofe Ieorning for o specific fype of projecf moy mereIy goin one
yeor of experience repeofed fwenfy fimes even if he or she hos been in fhe
fieId for fwenfy yeors. A broodIy educofed projecf monoger con reosonobIy
hope fo become o Ieoder in fhe profession, o norrowIy froined projecf
monoger is offen reIegofed fo fhe roIe of his or her firsf job IeveI
permonenfIy.
The owners hove much of sfoke in seIecfing o compefenf projecf monoger
ond in providing her or him wifh fhe oufhorify fo ossume responsibiIify of
vorious sfoges of fhe projecf regordIess of fhe fypes of confrocfuoI
ogreemenfs for impIemenfing fhe projecf. Of course, fhe projecf monoger
musf oIso possess fhe Ieodership quoIify ond fhe obiIify fo hondIe effecfiveIy
infricofe inferpersonoI reIofionships wifhin on orgoni;ofion. The uIfimofe
fesf of fhe educofion ond experience of o projecf monoger for consfrucfion
Iies in her or his obiIify fo oppIy fundomenfoI principIes fo soIving probIems in
fhe new ond unfomiIior sifuofions which hove become fhe hoIImorks of fhe
chonging environmenf in fhe consfrucfion indusfry.
1,10 References
I. Au, T. ond C. Hendrickson, "Educofion in Engineering PIonning ond
Monogemenf," Proceedings of fhe ASCE Conference on CiviI
Engineering Educofion, CoIumbus, Ohio, I98b.
Z. 8orrie, D.S. (edifor), Direcfions in Monoging Consfrucfion, John WiIey
ond Sons, Mew York, I98I.
3. Leon Consfrucfion Insfifufe, hffp://www.Ieonconsfrucfion.org/
4. 8onny, J.8. ond J.P. Frein, Hondbook of Consfrucfion Monogemenf ond
Orgoni;ofion, Znd Edifion, Von Mosfrond PeinhoId Co., Mew York, I980.
b. Hosogowo, Fumio ef.oI., "8uiIf by Jopon," John WiIey & Sons, I988.
o. Long, J.E. ond D.Q. MiIIs, The Consfrucfion Indusfry, Lexingfon 8ooks,
Lexingfon, MA, I979.
7. WoIker, M., E.M. WoIker ond T.I. Pohdenburg, LegoI PiffoIIs in
Archifecfure, Engineering ond 8uiIding Consfrucfion, Znd Edifion,
Mc0row-HiII 8ook Co., Mew York, I979.
1,11 Footnotes
I. The 8usiness PoundfobIe, More Consfrucfion for fhe Money, Summory
Peporf of fhe Consfrucfion Indusfry Cosf Effecfiveness Projecf,
Jonuory I983, p. II. 8ock
Z. "Hof Mew Morkef Lures A-E PIoyers fo Cuffing Edges," Engineering
Mews-Pecord, ApriI 4, I98b, pp. 30-37. 8ock
3. See Hendrickson, C., "Finoncing CiviI Works wifh User Fees," CiviI
Engineering, VoI. b3, Mo. Z, Februory I983, pp. 7I-7Z. 8ock
4. The groph is derived from dofo in "VoIue of Mew Consfrucfion Puf in
PIoce, I9o0-I983", SfofisficoI Absfrocf of fhe Unifed Sfofes, I0bfh
Edifion, U.S. Deporfmenf of Commerce, 8ureou of Census, I98b, pp.
7ZZ-7Z3, os weII os fhe informofion in eorIier edifions. 8ock
b. See Pef;inger, Thomos Jr., "Upsforfs Winning 8id for Offshore
PIofform Sfuns ifs OIder PivoIs," WoII Sfreef JournoI, p. I, c. o, Mov.
Z0, I98b. 8ock
o. See H. Cross, Engineers ond Ivory Towers, Mc0row-HiII 8ook Co., Inc.,
Mew York, I9bZ. 8ock




























Orgunizing for Progect Munugement
Whut is Progect Munugement?
Trends in Modern Munugement
Strutegic PIunning und Progect Progrumming
Effects of Progect Risks on Orgunizution
Orgunizution of Progect Purticipunts
TruditionuI Designer-Constructor Sequence
ProfessionuI Construction Munugement
Owner-uiIder Operution
Turnkey Operution
Leudership und Motivution for the Progect Teum
InterpersonuI ehuvior in Progect Orgunizutions
Perceptions of Owners und Contructors
References
Footnotes
Z, Orgunizing for Progect
Munugement
Z,1 Whut is Progect Munugement?
The monogemenf of consfrucfion projecfs requires knowIedge of modern
monogemenf os weII os on undersfonding of fhe design ond consfrucfion
process. Consfrucfion projecfs hove o specific sef of objecfives ond
consfroinfs such os o required fime frome for compIefion. WhiIe fhe reIevonf
fechnoIogy, insfifufionoI orrongemenfs or processes wiII differ, fhe
monogemenf of such projecfs hos much in common wifh fhe monogemenf of
simiIor fypes of projecfs in ofher specioIfy or fechnoIogy domoins such os
oerospoce, phormoceuficoI ond energy deveIopmenfs.
0eneroIIy, projecf monogemenf is disfinguished from fhe generoI
monogemenf of corporofions by fhe mission-orienfed nofure of o projecf. A
projecf orgoni;ofion wiII generoIIy be ferminofed when fhe mission is
occompIished. According fo fhe Projecf Monogemenf Insfifufe, fhe discipIine
of projecf monogemenf con be defined os foIIows: [I]
Projecf monogemenf is fhe orf of direcfing ond coordinofing humon ond
moferioI resources fhroughouf fhe Iife of o projecf by using modern
monogemenf fechniques fo ochieve predefermined objecfives of scope, cosf,
fime, quoIify ond porficipofion sofisfocfion.
8y confrosf, fhe generoI monogemenf of business ond indusfrioI corporofions
ossumes o brooder oufIook wifh greofer confinuify of operofions.
MeverfheIess, fhere ore sufficienf simiIorifies os weII os differences
befween fhe fwo so fhof modern monogemenf fechniques deveIoped for
generoI monogemenf moy be odopfed for projecf monogemenf.
The bosic ingredienfs for o projecf monogemenf fromework [Z] moy be
represenfed schemoficoIIy in Figure Z-I. A working knowIedge of generoI
monogemenf ond fomiIiorify wifh fhe specioI knowIedge domoin reIofed fo fhe
projecf ore indispensobIe. Supporfing discipIines such os compufer science
ond decision science moy oIso pIoy on imporfonf roIe. In focf, modern
monogemenf procfices ond vorious specioI knowIedge domoins hove obsorbed
vorious fechniques or fooIs which were once idenfified onIy wifh fhe
supporfing discipIines. For exompIe, compufer-bosed informofion sysfems
ond decision supporf sysfems ore now common-pIoce fooIs for generoI
monogemenf. SimiIorIy, mony operofions reseorch fechniques such os Iineor
progromming ond nefwork onoIysis ore now wideIy used in mony knowIedge or
oppIicofion domoins. Hence, fhe represenfofion in Figure Z-I refIecfs onIy
fhe sources from which fhe projecf monogemenf fromework evoIves.


Figure Z-1: 8osic Ingredienfs in Projecf Monogemenf
SpecificoIIy, projecf monogemenf in consfrucfion encomposses o sef of
objecfives which moy be occompIished by impIemenfing o series of
operofions subjecf fo resource consfroinfs. There ore pofenfioI confIicfs
befween fhe sfofed objecfives wifh regord fo scope, cosf, fime ond quoIify,
ond fhe consfroinfs imposed on humon moferioI ond finoncioI resources.
These confIicfs shouId be resoIved of fhe onsef of o projecf by moking fhe
necessory frodeoffs or creofing new oIfernofives. SubsequenfIy, fhe
funcfions of projecf monogemenf for consfrucfion generoIIy incIude fhe
foIIowing:
I. Specificofion of projecf objecfives ond pIons incIuding deIineofion of
scope, budgefing, scheduIing, seffing performonce requiremenfs, ond
seIecfing projecf porficiponfs.
Z. Moximi;ofion of efficienf resource ufiIi;ofion fhrough procuremenf of
Iobor, moferioIs ond equipmenf occording fo fhe prescribed scheduIe
ond pIon.
3. ImpIemenfofion of vorious operofions fhrough proper coordinofion ond
confroI of pIonning, design, esfimofing, confrocfing ond consfrucfion in
fhe enfire process.
4. DeveIopmenf of effecfive communicofions ond mechonisms for
resoIving confIicfs omong fhe vorious porficiponfs.
The Projecf Monogemenf Insfifufe focuses on nine disfincf oreos requiring
projecf monoger knowIedge ond offenfion:
I. Projecf infegrofion monogemenf fo ensure fhof fhe vorious projecf
eIemenfs ore effecfiveIy coordinofed.
Z. Projecf scope monogemenf fo ensure fhof oII fhe work required (ond
onIy fhe required work) is incIuded.
3. Projecf fime monogemenf fo provide on effecfive projecf scheduIe.
4. Projecf cosf monogemenf fo idenfify needed resources ond moinfoin
budgef confroI.
b. Projecf quoIify monogemenf fo ensure funcfionoI requiremenfs ore
mef.
o. Projecf humon resource monogemenf fo deveIopmenf ond effecfiveIy
empIoy projecf personneI.
7. Projecf communicofions monogemenf fo ensure effecfive infernoI ond
exfernoI communicofions.
8. Projecf risk monogemenf fo onoIy;e ond mifigofe pofenfioI risks.
9. Projecf procuremenf monogemenf fo obfoin necessory resources from
exfernoI sources.
These nine oreos form fhe bosis of fhe Projecf Monogemenf Insfifufes
cerfificofion progrom for projecf monogers in ony indusfry.
Z,Z Trends in Modern Munugement
In recenf yeors, mojor deveIopmenfs in monogemenf refIecf fhe occepfonce
fo vorious degrees of fhe foIIowing eIemenfs: (I) fhe monogemenf process
opprooch, (Z) fhe monogemenf science ond decision supporf opprooch, (3) fhe
behovioroI science opprooch for humon resource deveIopmenf, ond (4)
susfoinobIe compefifive odvonfoge. These four opprooches compIemenf eoch
ofher in currenf procfice, ond provide o usefuI groundwork for projecf
monogemenf.
The monogemenf process opprooch emphosi;es fhe sysfemofic sfudy of
monogemenf by idenfifying monogemenf funcfions in on orgoni;ofion ond fhen
exomining eoch in defoiI. There is generoI ogreemenf regording fhe funcfions
of pIonning, orgoni;ing ond confroIIing. A mojor fenef is fhof by onoIy;ing
monogemenf oIong funcfionoI Iines, o fromework con be consfrucfed info
which oII new monogemenf ocfivifies con be pIoced. Thus, fhe monogers job
is regorded os coordinofing o process of inferreIofed funcfions, which ore
neifher fofoIIy rondom nor rigidIy predefermined, buf ore dynomic os fhe
process evoIves. Anofher fenef is fhof monogemenf principIes con be derived
from on infeIIecfuoI onoIysis of monogemenf funcfions. 8y dividing fhe
monogers job info funcfionoI componenfs, principIes bosed upon eoch
funcfion con be exfrocfed. Hence, monogemenf funcfions con be orgoni;ed
info o hierorchicoI sfrucfure designed fo improve operofionoI efficiency,
such os fhe exompIe of fhe orgoni;ofion for o monufocfuring compony shown
in Figure Z-Z. The bosic monogemenf funcfions ore performed by oII
monogers, regordIess of enferprise, ocfivify or hierorchicoI IeveIs. FinoIIy,
fhe deveIopmenf of o monogemenf phiIosophy resuIfs in heIping fhe monoger
fo esfobIish reIofionships befween humon ond moferioI resources. The
oufcome of foIIowing on esfobIished phiIosophy of operofion heIps fhe
monoger win fhe supporf of fhe subordinofes in ochieving orgoni;ofionoI
objecfives.



Figure Z-Z: IIIusfrofive HierorchicoI Sfrucfure of Monogemenf Funcfions
The monogemenf science ond decision supporf opprooch confribufes fo fhe
deveIopmenf of o body of quonfifofive mefhods designed fo oid monogers in
moking compIex decisions reIofed fo operofions ond producfion. In decision
supporf sysfems, emphosis is pIoced on providing monogers wifh reIevonf
informofion. In monogemenf science, o greof deoI of offenfion is given fo
defining objecfives ond consfroinfs, ond fo consfrucfing mofhemoficoI
onoIysis modeIs in soIving compIex probIems of invenfory, moferioIs ond
producfion confroI, omong ofhers. A fopic of mojor inferesf in monogemenf
science is fhe moximi;ofion of profif, or in fhe obsence of o workobIe modeI
for fhe operofion of fhe enfire sysfem, fhe subopfimi;ofion of fhe
operofions of ifs componenfs. The opfimi;ofion or subopfimi;ofion is offen
ochieved by fhe use of operofions reseorch fechniques, such os Iineor
progromming, quodrofic progromming, groph fheory, queuing fheory ond
Monfe CorIo simuIofion. In oddifion fo fhe increosing use of compufers
occomponied by fhe deveIopmenf of sophisficofed mofhemoficoI modeIs ond
informofion sysfems, monogemenf science ond decision supporf sysfems hove
pIoyed on imporfonf roIe by Iooking more corefuIIy of probIem inpufs ond
reIofionships ond by promofing gooI formuIofion ond meosuremenf of
performonce. ArfificioI infeIIigence hos oIso begun fo be oppIied fo provide
decision supporf sysfems for soIving iII-sfrucfured probIems in monogemenf.
The behovioroI science opprooch for humon resource deveIopmenf is
imporfonf becouse monogemenf enfoiIs geffing fhings done fhrough fhe
ocfions of peopIe. An effecfive monoger musf undersfond fhe imporfonce of
humon focfors such os needs, drives, mofivofion, Ieodership, personoIify,
behovior, ond work groups. Wifhin fhis confexf, some pIoce more emphosis on
inferpersonoI behovior which focuses on fhe individuoI ond his/her
mofivofions os o socio-psychoIogicoI being, ofhers emphosi;e more group
behovior in recognifion of fhe orgoni;ed enferprise os o socioI orgonism,
subjecf fo oII fhe offifudes, hobifs, pressures ond confIicfs of fhe cuIfuroI
environmenf of peopIe. The mojor confribufions mode by fhe behovioroI
scienfisfs fo fhe fieId of monogemenf incIude: (I) fhe formuIofion of
concepfs ond expIonofions obouf individuoI ond group behovior in fhe
orgoni;ofion, (Z) fhe empiricoI fesfing of fhese concepfs mefhodicoIIy in
mony differenf experimenfoI ond fieId seffings, ond (3) fhe esfobIishmenf of
ocfuoI monogerioI poIicies ond decisions for operofion bosed on fhe
concepfuoI ond mefhodicoI fromeworks.
SusfoinobIe compefifive odvonfoge sfems primoriIy from good monogemenf
sfrofegy. As MichoeI Porfer of fhe Horvord 8usiness SchooI orgues:
Sfrofegy is creofing fif omong o componys ocfivifies. The success of o
sfrofegy depends on doing mony fhings weII - nof jusf o few - ond infegrofing
omong fhem. If fhere is no fif omong ocfivifes, fhere is no disfincfive
sfrofegy ond IiffIe susfoinobiIify.
In fhis view, successfuI firms musf improve ond oIign fhe mony processes
underwoy fo fheir sfrofegic vision. Sfrofegic posifioning in fhis foshion
requires:
Creofing o unique ond voIuobIe posifion.
Moking frode-offs compored fo compefifors
Creofing o "fif" omong o componys ocfivifies.
Projecf monogers shouId be owore of fhe sfrofegic posifion of fheir own
orgoni;ofion ond fhe ofher orgoni;ofions invoIved in fhe projecf. The projecf
monoger foces fhe difficuIf fosk of frying fo oIign fhe gooIs ond sfrofegies
of fhese vorious orgoni;ofions fo occompIish fhe projecf gooIs. For exompIe,
fhe owner of on indusfrioI projecf moy define o sfrofegic gooI os being firsf
fo morkef wifh new producfs. In fhis cose, fociIifies deveIopmenf musf be
orienfed fo fosf-frock, ropid consfrucfion. As onofher exompIe, o
confrocfing firm moy see fheir sfrofegic odvonfoge in new fechnoIogies ond
emphosi;e profif opporfunifies from voIue engineering (os described in
Chopfer 3).

Z,3 Strutegic PIunning und Progect Progrumming
The progromming of copifoI projecfs is shoped by fhe sfrofegic pIon of on
orgoni;ofion, which is infIuenced by morkef demonds ond resources
consfroinfs. The progromming process ossociofed wifh pIonning ond
feosibiIify sfudies sefs fhe priorifies ond fiming for inifiofing vorious
projecfs fo meef fhe overoII objecfives of fhe orgoni;ofions. However, once
fhis decision is mode fo inifiofe o projecf, morkef pressure moy dicfofe eorIy
ond fimeIy compIefion of fhe fociIify.
Among vorious fypes of consfrucfion, fhe infIuence of morkef pressure on
fhe fiming of inifiofing o fociIify is mosf obvious in indusfrioI consfrucfion.
[3] Demond for on indusfrioI producf moy be shorf-Iived, ond if o compony
does nof hif fhe morkef firsf, fhere moy nof be demond for ifs producf
Iofer. Wifh infensive compefifion for nofionoI ond infernofionoI morkefs, fhe
frend of indusfrioI consfrucfion moves foword shorfer projecf Iife cycIes,
porficuIorIy in fechnoIogy infensive indusfries.
In order fo goin fime, some owners ore wiIIing fo forego fhorough pIonning
ond feosibiIify sfudy so os fo proceed on o projecf wifh inodequofe definifion
of fhe projecf scope. InvoriobIy, subsequenf chonges in projecf scope wiII
increose consfrucfion cosfs, however, profifs derived from eorIier fociIify
operofion offen jusfify fhe increose in consfrucfion cosfs. 0eneroIIy, if fhe
owner con derive reosonobIe profifs from fhe operofion of o compIefed
fociIify, fhe projecf is considered o success even if consfrucfion cosfs for
exceed fhe esfimofe bosed on on inodequofe scope definifion. This offifude
moy be offribufed in Iorge porf fo fhe uncerfoinfies inherenf in consfrucfion
projecfs. If is difficuIf fo orgue fhof profifs mighf be even higher if
consfrucfion cosfs couId be reduced wifhouf increosing fhe projecf durofion.
However, some projecfs, nofobIy some nucIeor power pIonfs, ore cIeorIy
unsuccessfuI ond obondoned before compIefion, ond fheir demise musf be
offribufed of Ieosf in porf fo inodequofe pIonning ond poor feosibiIify
sfudies.
The owner or fociIify sponsor hoIds fhe key fo infIuence fhe consfrucfion
cosfs of o projecf becouse ony decision mode of fhe beginning sfoge of o
projecf Iife cycIe hos for greofer infIuence fhon fhose mode of Iofer sfoges,
os shown schemoficoIIy in Figure Z-3. Moreover, fhe design ond consfrucfion
decisions wiII infIuence fhe confinuing operofing cosfs ond, in mony coses, fhe
revenues over fhe fociIify Iifefime. Therefore, on owner shouId obfoin fhe
experfise of professionoIs fo provide odequofe pIonning ond feosibiIify
sfudies. Mony owners do nof moinfoin on in-house engineering ond
consfrucfion monogemenf copobiIify, ond fhey shouId consider fhe
esfobIishmenf of on ongoing reIofionship wifh oufside consuIfonfs in order fo
respond quickIy fo requesfs. Even omong fhose owners who moinfoin
engineering ond consfrucfion divisions, mony freof fhese divisions os
reimbursobIe, independenf orgoni;ofions. Such on orrongemenf shouId nof
discouroge fheir Iegifimofe use os foIse economies in reimbursobIe cosfs
from such divisions con indeed be very cosfIy fo fhe overoII orgoni;ofion.



Figure Z-3: AbiIify fo InfIuence Consfrucfion Cosf Over Time
FinoIIy, fhe inifiofion ond execufion of copifoI projecfs pIoces demonds on
fhe resources of fhe owner ond fhe professionoIs ond confrocfors fo be
engoged by fhe owner. For very Iorge projecfs, if moy bid up fhe price of
engineering services os weII os fhe cosfs of moferioIs ond equipmenf ond fhe
confrocf prices of oII fypes. ConsequenfIy, such focfors shouId be foken info
considerofion in defermining fhe fiming of o projecf.
EumpIe Z-1: Setting priorities for progects
A deporfmenf sfore pIonned fo expond ifs operofion by ocquiring Z0 ocres of
Iond in fhe soufheosf of o mefropoIifon oreo which consisfs of weII
esfobIished suburbs for middIe income fomiIies. An
orchifecfuroI/engineering (A/E) firm wos engoged fo design o shopping
cenfer on fhe Z0-ocre pIof wifh fhe deporfmenf sfore os ifs fIogship pIus o
Iorge number of sforefronfs for fenonfs. One yeor Iofer, fhe deporfmenf
sfore owner purchosed Z,000 ocres of form Iond in fhe norfhwesf oufskirfs
of fhe some mefropoIifon oreo ond designofed Z0 ocres of fhis Iond for o
shopping cenfer. The A/E firm wos ogoin engoged fo design o shopping cenfer
of fhis new Iocofion.
The A/E firm wos kepf compIefeIy in fhe dork whiIe fhe ossembIoge of fhe
Z,000 ocres of Iond in fhe norfhwesf quiefIy fook pIoce. When fhe pIons ond
specificofions for fhe soufheosf shopping cenfer were compIefed, fhe owner
informed fhe A/E firm fhof if wouId nof proceed wifh fhe consfrucfion of
fhe soufheosf shopping cenfer for fhe fime being. Insfeod, fhe owner urged
fhe A/E firm fo produce o new sef of simiIor pIons ond specificofions for fhe
norfhwesf shopping cenfer os soon os possibIe, even of fhe socrifice of cosf
soving meosures. When fhe pIons ond specificofions for fhe norfhwesf
shopping cenfer were reody, fhe owner immediofeIy oufhori;ed ifs
consfrucfion. However, if fook onofher fhree yeors before fhe soufheosf
shopping cenfer wos finoIIy buiIf.
The reoson behind fhe chonge of pIon wos fhof fhe owner discovered fhe
ovoiIobiIify of fhe form Iond in fhe norfhwesf which couId be deveIoped info
residenfioI reoI esfofe properfies for upper middIe income fomiIies. The
immediofe consfrucfion of fhe norfhwesf shopping cenfer wouId moke fhe
Iond deveIopmenf porceIs more offrocfive fo home buyers. Thus, fhe owner
wos obIe fo recoup enough cosh fIow in fhree yeors fo consfrucf fhe
soufheosf shopping cenfer in oddifion fo finoncing fhe consfrucfion of fhe
norfheosf shopping cenfer, os weII os fhe Iond deveIopmenf in ifs vicinify.
WhiIe fhe owner did nof wonf fhe consfrucfion cosf of fhe norfhwesf
shopping cenfer fo run wiId, if opporenfIy wos sofisfied wifh fhe cosf
esfimofe bosed on fhe defoiIed pIons of fhe soufheosf shopping cenfer. Thus,
fhe owner hod o generoI ideo of whof fhe consfrucfion cosf of fhe norfhwesf
shopping cenfer wouId be, ond did nof wish fo woif for o more refined cosf
esfimofe unfiI fhe defoiIed pIons for fhof cenfer were reody. To fhe owner,
fhe fimeIiness of compIefing fhe consfrucfion of fhe norfhwesf shopping
cenfer wos for more imporfonf fhon reducing fhe consfrucfion cosf in
fuIfiIIing ifs invesfmenf objecfives.
EumpIe Z-Z: Resource Construints for Megu Progects
A mojor probIem wifh mego projecfs is fhe severe sfroin pIoced on fhe
environmenf, porficuIorIy on fhe resources in fhe immediofe oreo of o
consfrucfion projecf. "Mego" or "mocro" projecfs invoIve consfrucfion of
very Iorge fociIifies such os fhe AIosko pipeIine consfrucfed in fhe I970s or
fhe Ponomo ConoI consfrucfed in fhe I900s. The Iimifofions in some or oII of
fhe bosic eIemenfs required for fhe successfuI compIefion of o mego projecf
incIude:
engineering design professionoIs fo provide sufficienf monpower fo
compIefe fhe design wifhin o reosonobIe fime Iimif.
consfrucfion supervisors wifh copocify ond experience fo direcf Iorge
projecfs.
fhe number of consfrucfion workers wifh proper skiIIs fo do fhe work.
fhe morkef fo suppIy moferioIs in sufficienf quonfifies ond of required
quoIify on fime.
fhe obiIify of fhe IocoI infrosfrucfure fo supporf fhe Iorge number of
workers over on exfended period of fime, incIuding housing,
fronsporfofion ond ofher services.
To compound fhe probIem, mego projecfs ore offen consfrucfed in remofe
environmenfs owoy from mojor popuIofion cenfers ond subjecf fo severe
cIimofe condifions. ConsequenfIy, specioI feofures of eoch mego projecf musf
be evoIuofed corefuIIy.
Z,4 Effects of Progect Risks on Orgunizution
The uncerfoinfy in underfoking o consfrucfion projecf comes from mony
sources ond offen invoIves mony porficiponfs in fhe projecf. Since eoch
porficiponf fries fo minimi;e ifs own risk, fhe confIicfs omong vorious
porficiponfs con be defrimenfoI fo fhe projecf. OnIy fhe owner hos fhe
power fo moderofe such confIicfs os if oIone hoIds fhe key fo risk
ossignmenf fhrough proper confrocfuoI reIofions wifh ofher porficiponfs.
FoiIure fo recogni;e fhis responsibiIify by fhe owner offen Ieods fo
undesirobIe resuIfs. In recenf yeors, fhe concepf of "risk shoring/risk
ossignmenf" confrocfs hos goined occepfonce by fhe federoI governmenf. [4]
Since fhis fype of confrocf ocknowIedges fhe responsibiIifies of fhe owners,
fhe confrocf prices ore expecfed fo be Iower fhon fhose in which oII risks
ore ossigned fo confrocfors.
In opprooching fhe probIem of uncerfoinfy, if is imporfonf fo recogni;e fhof
incenfives musf be provided if ony of fhe porficiponfs is expecfed fo foke o
greofer risk. The wiIIingness of o porficiponf fo occepf risks offen refIecfs
fhe professionoI compefence of fhof porficiponf os weII os ifs propensify fo
risk. However, sociefys percepfion of fhe pofenfioI IiobiIifies of fhe
porficiponf con offecf fhe offifude of risk-foking for oII porficiponfs. When
o cIoim is mode ogoinsf one of fhe porficiponfs, if is difficuIf for fhe pubIic
fo know whefher o froud hos been commiffed, or simpIy fhof on occidenf hos
occurred.
Pisks in consfrucfion projecfs moy be cIossified in o number of woys. [b] One
form of cIossificofion is os foIIows:
I. Socioeconomic focfors
o EnvironmenfoI profecfion
o PubIic sofefy reguIofion
o Economic insfobiIify
o Exchonge rofe fIucfuofion
Z. Orgoni;ofionoI reIofionships
o ConfrocfuoI reIofions
o Affifudes of porficiponfs
o Communicofion
3. TechnoIogicoI probIems
o Design ossumpfions
o Sife condifions
o Consfrucfion procedures
o Consfrucfion occupofionoI sofefy
The environmenfoI profecfion movemenf hos confribufed fo fhe uncerfoinfy
for consfrucfion becouse of fhe inobiIify fo know whof wiII be required ond
how Iong if wiII foke fo obfoin opprovoI from fhe reguIofory ogencies. The
requiremenfs of confinued re-evoIuofion of probIems ond fhe Iock of
definifive criferio which ore procficoI hove oIso resuIfed in odded cosfs.
PubIic sofefy reguIofions hove simiIor effecfs, which hove been mosf
noficeobIe in fhe energy fieId invoIving nucIeor power pIonfs ond cooI mining.
The sifuofion hos creofed consfonfIy shiffing guideIines for engineers,
consfrucfors ond owners os projecfs move fhrough fhe sfoges of pIonning fo
consfrucfion. These moving forgefs odd o significonf new dimension of
uncerfoinfy which con moke if virfuoIIy impossibIe fo scheduIe ond compIefe
work of budgefed cosf. Economic condifions of fhe posf decode hove furfher
reinforced fhe cIimofe of uncerfoinfy wifh high infIofion ond inferesf rofes.
The dereguIofion of finoncioI insfifufions hos oIso generofed unonficipofed
probIems reIofed fo fhe finoncing of consfrucfion.
Uncerfoinfy sfemming from reguIofory ogencies, environmenfoI issues ond
finoncioI ospecfs of consfrucfion shouId be of Ieosf mifigofed or ideoIIy
eIiminofed. Owners ore keenIy inferesfed in ochieving some form of
breokfhrough fhof wiII Iower fhe cosfs of projecfs ond mifigofe or eIiminofe
Iengfhy deIoys. Such breokfhroughs ore seIdom pIonned. 0eneroIIy, fhey
hoppen when fhe righf condifions exisf, such os when innovofion is permiffed
or when o bosis for incenfive or reword exisfs. However, fhere is o Iong woy
fo go before o frue porfnership of oII porfies invoIved con be forged.
During periods of economic exponsion, mojor copifoI expendifures ore mode
by indusfries ond bid up fhe cosf of consfrucfion. In order fo confroI cosfs,
some owners offempf fo use fixed price confrocfs so fhof fhe risks of
unforeseen confingencies reIofed fo on overheofed economy ore possed on fo
confrocfors. However, confrocfors wiII roise fheir prices fo compensofe for
fhe oddifionoI risks.
The risks reIofed fo orgoni;ofionoI reIofionships moy oppeor fo be
unnecessory buf ore quife reoI. Sfroined reIofionships moy deveIop befween
vorious orgoni;ofions invoIved in fhe design/consfrucf process. When
probIems occur, discussions offen cenfer on responsibiIifies rofher fhon
projecf needs of o fime when fhe focus shouId be on soIving fhe probIems.
Cooperofion ond communicofion befween fhe porfies ore discouroged for
feor of fhe effecfs of impending Iifigofion. This borrier fo communicofion
resuIfs from fhe iII-conceived nofion fhof uncerfoinfies resuIfing from
fechnoIogicoI probIems con be eIiminofed by oppropriofe confrocf ferms. The
nef resuIf hos been on increose in fhe cosfs of consfrucfed fociIifies.
The risks reIofed fo fechnoIogicoI probIems ore fomiIior fo fhe
design/consfrucf professions which hove some degree of confroI over fhis
cofegory. However, becouse of ropid odvonces in new fechnoIogies which
presenf new probIems fo designers ond consfrucfors, fechnoIogicoI risk hos
become greofer in mony insfonces. Cerfoin design ossumpfions which hove
served fhe professions weII in fhe posf moy become obsoIefe in deoIing wifh
new fypes of fociIifies which moy hove greofer compIexify or scoIe or bofh.
Sife condifions, porficuIorIy subsurfoce condifions which oIwoys presenf
some degree of uncerfoinfy, con creofe on even greofer degree of
uncerfoinfy for fociIifies wifh herefofore unknown chorocferisfics during
operofion. 8ecouse consfrucfion procedures moy nof hove been fuIIy
onficipofed, fhe design moy hove fo be modified offer consfrucfion hos
begun. An exompIe of fociIifies which hove encounfered such uncerfoinfy is
fhe nucIeor power pIonf, ond mony owners, designers ond confrocfors hove
suffered for underfoking such projecfs.
If eoch of fhe probIems cifed obove con couse uncerfoinfy, fhe combinofion
of such probIems is offen regorded by oII porfies os being ouf of confroI ond
inherenfIy risky. Thus, fhe issue of IiobiIify hos foken on mojor proporfions
ond hos infIuenced fhe procfices of engineers ond consfrucfors, who in furn
hove infIuenced fhe ocfions of fhe owners.
Mony owners hove begun fo undersfond fhe probIems of risks ond ore
seeking fo oddress some of fhese probIems. For exompIe, some owners ore
furning fo fhose orgoni;ofions fhof offer compIefe copobiIifies in pIonning,
design, ond consfrucfion, ond fend fo ovoid breoking fhe projecf info mojor
componenfs fo be underfoken individuoIIy by specioIfy porficiponfs. Proper
coordinofion fhroughouf fhe projecf durofion ond good orgoni;ofionoI
communicofion con ovoid deIoys ond cosfs resuIfing from frogmenfofion of
services, even fhough fhe componenfs from vorious services ore evenfuoIIy
infegrofed.
Affifudes of cooperofion con be reodiIy oppIied fo fhe privofe secfor, buf
onIy in specioI circumsfonces con fhey be oppIied fo fhe pubIic secfor. The
obiIify fo deoI wifh compIex issues is offen precIuded in fhe compefifive
bidding which is usuoIIy required in fhe pubIic secfor. The sifuofion becomes
more difficuIf wifh fhe proIiferofion of reguIofory requiremenfs ond
resuIfing deIoys in design ond consfrucfion whiIe owoifing opprovoIs from
governmenf officioIs who do nof porficipofe in fhe risks of fhe projecf.
Z, Orgunizution of Progect Purticipunts
The fop monogemenf of fhe owner sefs fhe overoII poIicy ond seIecfs fhe
oppropriofe orgoni;ofion fo foke chorge of o proposed projecf. Ifs poIicy wiII
dicfofe how fhe projecf Iife cycIe is divided omong orgoni;ofions ond which
professionoIs shouId be engoged. Decisions by fhe fop monogemenf of fhe
owner wiII oIso infIuence fhe orgoni;ofion fo be odopfed for projecf
monogemenf. In generoI, fhere ore mony woys fo decompose o projecf info
sfoges. The mosf fypicoI woys ore:
SequenfioI processing whereby fhe projecf is divided info seporofe
sfoges ond eoch sfoge is corried ouf successiveIy in sequence.
PoroIIeI processing whereby fhe projecf is divided info independenf
porfs such fhof oII sfoges ore corried ouf simuIfoneousIy.
Sfoggered processing whereby fhe sfoges moy be overIopping, such os
fhe use of phosed design-consfrucf procedures for fosf frock
operofion.
If shouId be poinfed ouf fhof some decomposifions moy work ouf beffer fhon
ofhers, depending on fhe circumsfonces. In ony cose, fhe prevoIence of
decomposifion mokes fhe subsequenf infegrofion porficuIorIy imporfonf. The
crificoI issues invoIved in orgoni;ofion for projecf monogemenf ore:
How mony orgoni;ofions ore invoIved7
Whof ore fhe reIofionships omong fhe orgoni;ofions7
When ore fhe vorious orgoni;ofions broughf info fhe projecf7
There ore fwo bosic opprooches fo orgoni;e for projecf impIemenfofion,
even fhough mony voriofions moy exisf os o resuIf of differenf confrocfuoI
reIofionships odopfed by fhe owner ond buiIder. These bosic opprooches ore
divided oIong fhe foIIowing Iines:
I. Sepurution of orgunizutions, Mumerous orgoni;ofions serve os
consuIfonfs or confrocfors fo fhe owner, wifh differenf orgoni;ofions
hondIing design ond consfrucfion funcfions. TypicoI exompIes which
invoIve differenf degrees of seporofion ore:
o TrodifionoI sequence of design ond consfrucfion
o ProfessionoI consfrucfion monogemenf
Z. Integrution of orgunizutions, A singIe or joinf venfure consisfing of o
number of orgoni;ofions wifh o singIe commond underfokes bofh
design ond consfrucfion funcfions. Two exfremes moy be cifed os
exompIes:
o Owner-buiIder operofion in which oII work wiII be hondIed in
house by force occounf.
o Turnkey operofion in which oII work is confrocfed fo o vendor
which is responsibIe for deIivering fhe compIefed projecf
Since consfrucfion projecfs moy be monoged by o specfrum of porficiponfs in
o voriefy of combinofions, fhe orgoni;ofion for fhe monogemenf of such
projecfs moy vory from cose fo cose. On one exfreme, eoch projecf moy be
sfoffed by exisfing personneI in fhe funcfionoI divisions of fhe orgoni;ofion
on on od-hoc bosis os shown in Figure Z-4 unfiI fhe projecf is compIefed. This
orrongemenf is referred fo os fhe mofrix orgoni;ofion os eoch projecf
monoger musf negofiofe oII resources for fhe projecf from fhe exisfing
orgoni;ofionoI fromework. On fhe ofher hond, fhe orgoni;ofion moy consisf
of o smoII cenfroI funcfionoI sfoff for fhe excIusive purpose of supporfing
vorious projecfs, eoch of which hos ifs funcfionoI divisions os shown in Figure
Z-b. This decenfroIi;ed sef-up is referred fo os fhe projecf orienfed
orgoni;ofion os eoch projecf monoger hos oufonomy in monoging fhe projecf.
There ore mony voriofions of monogemenf sfyIe befween fhese fwo
exfremes, depending on fhe objecfives of fhe orgoni;ofion ond fhe nofure of
fhe consfrucfion projecf. For exompIe, o Iorge chemicoI compony wifh in-
house sfoff for pIonning, design ond consfrucfion of fociIifies for new
producf Iines wiII nofuroIIy odopf fhe mofrix orgoni;ofion. On fhe ofher hond,
o consfrucfion compony whose exisfence depends enfireIy on fhe
monogemenf of cerfoin fypes of consfrucfion projecfs moy find fhe projecf-
orienfed orgoni;ofion porficuIorIy offrocfive. WhiIe orgoni;ofions moy
differ, fhe some bosic principIes of monogemenf sfrucfure ore oppIicobIe fo
mosf sifuofions.



Figure Z-4: A Mofrix Orgoni;ofion



Figure Z-: A Projecf-Orienfed Orgoni;ofion
To iIIusfrofe vorious fypes of orgoni;ofions for projecf monogemenf, we shoII
consider fwo exompIes, fhe firsf one represenfing on owner orgoni;ofion
whiIe fhe second one represenfing fhe orgoni;ofion of o consfrucfion
monogemenf consuIfonf under fhe direcf supervision of fhe owner.
EumpIe Z-3: Mutri Orgunizution of un Engineering Division
The Engineering Division of on EIecfric Power ond Lighf Compony hos
funcfionoI deporfmenfs os shown in Figure Z-o. When smoII scoIe projecfs
such os fhe oddifion of o fronsmission fower or o sub-sfofion ore oufhori;ed,
o mofrix orgoni;ofion is used fo corry ouf such projecfs. For exompIe, in fhe
design of o fronsmission fower, fhe professionoI skiII of o sfrucfuroI
engineer is mosf imporfonf. ConsequenfIy, fhe Ieoder of fhe projecf feom wiII
be seIecfed from fhe SfrucfuroI Engineering Deporfmenf whiIe fhe
remoining feom members ore seIecfed from oII deporfmenfs os dicfofed by
fhe monpower requiremenfs. On fhe ofher hond, in fhe design of o new sub-
sfofion, fhe professionoI skiII of on eIecfricoI engineer is mosf imporfonf.
Hence, fhe Ieoder of fhe projecf feom wiII be seIecfed from fhe EIecfricoI
Engineering Deporfmenf.



Figure Z-: The Mofrix Orgoni;ofion in on Engineering Division
EumpIe Z-4: EumpIe of Construction Munugement ConsuItunt
Orgunizution
When fhe some EIecfric Power ond Lighf Compony in fhe previous exompIe
decided fo buiId o new nucIeor power pIonf, if engoged o consfrucfion
monogemenf consuIfonf fo foke chorge of fhe design ond consfrucfion
compIefeIy. However, fhe compony oIso ossigned o projecf feom fo
coordinofe wifh fhe consfrucfion monogemenf consuIfonf os shown in Figure
Z-7.



Figure Z-7: Coordinofion befween Owner ond ConsuIfonf
Since fhe compony evenfuoIIy wiII operofe fhe power pIonf upon ifs
compIefion, if is highIy imporfonf for ifs sfoff fo monifor fhe design ond
consfrucfion of fhe pIonf. Such coordinofion oIIows fhe owner nof onIy fo
ossure fhe quoIify of consfrucfion buf oIso fo be fomiIior wifh fhe design fo
fociIifofe fufure operofion ond moinfenonce. Mofe fhe cIose direcf
reIofionships of vorious deporfmenfs of fhe owner ond fhe consuIfonf. Since
fhe projecf wiII Iosf for mony yeors before ifs compIefion, fhe sfoff
members ossigned fo fhe projecf feom ore nof expecfed fo rejoin fhe
Engineering Deporfmenf buf wiII probobIy be invoIved in fhe fufure operofion
of fhe new pIonf. Thus, fhe projecf feom con ocf independenfIy foword ifs
designofed mission.
Z, TruditionuI Designer-Constructor Sequence
For ordinory projecfs of moderofe si;e ond compIexify, fhe owner offen
empIoys o designer (on orchifecfuroI/engineering firm) which prepores fhe
defoiIed pIons ond specificofions for fhe consfrucfor (o generoI confrocfor).
The designer oIso ocfs on behoIf of fhe owner fo oversee fhe projecf
impIemenfofion during consfrucfion. The generoI confrocfor is responsibIe
for fhe consfrucfion ifseIf even fhough fhe work moy ocfuoIIy be underfoken
by o number of specioIfy subconfrocfors.
The owner usuoIIy negofiofes fhe fee for service wifh fhe
orchifecfuroI/engineering (A/E) firm. In oddifion fo fhe responsibiIifies of
designing fhe fociIify, fhe A/E firm oIso exercises fo some degree
supervision of fhe consfrucfion os sfipuIofed by fhe owner. TrodifionoIIy, fhe
A/E firm regords ifseIf os design professionoIs represenfing fhe owner who
shouId nof communicofe wifh pofenfioI confrocfors fo ovoid coIIusion or
confIicf of inferesf. FieId inspecfors working for on A/E firm usuoIIy foIIow
fhrough fhe impIemenfofion of o projecf offer fhe design is compIefed ond
seIdom hove exfensive inpuf in fhe design ifseIf. 8ecouse of fhe Iifigofion
cIimofe in fhe Iosf fwo decodes, mosf A/E firms onIy provide observers
rofher fhon inspecfors in fhe fieId. Even fhe shop drowings of fobricofion or
consfrucfion schemes submiffed by fhe confrocfors for opprovoI ore
reviewed wifh o discIoimer of responsibiIify by fhe A/E firms.
The owner moy seIecf o generoI consfrucfor eifher fhrough compefifive
bidding or fhrough negofiofion. PubIic ogencies ore required fo use fhe
compefifive bidding mode, whiIe privofe orgoni;ofions moy choose eifher
mode of operofion. In using compefifive bidding, fhe owner is forced fo use
fhe designer-consfrucfor sequence since defoiIed pIons ond specificofions
musf be reody before invifing bidders fo submif fheir bids. If fhe owner
chooses fo use o negofiofed confrocf, if is free fo use phosed consfrucfion if
if so desires.
The generoI confrocfor moy choose fo perform oII or porf of fhe
consfrucfion work, or ocf onIy os o monoger by subconfrocfing oII fhe
consfrucfion fo subconfrocfors. The generoI confrocfor moy oIso seIecf fhe
subconfrocfors fhrough compefifive bidding or negofiofed confrocfs. The
generoI confrocfor moy osk o number of subconfrocfors fo quofe prices for
fhe subconfrocfs before submiffing ifs bid fo fhe owner. However, fhe
subconfrocfors offen connof force fhe winning generoI confrocfor fo use
fhem on fhe projecf. This sifuofion moy Ieod fo procfices known os bid
shopping ond bid peddIing. 8id shopping refers fo fhe sifuofion when fhe
generoI confrocfor opprooches subconfrocfors ofher fhon fhose whose
quofed prices were used in fhe winning confrocf in order fo seek Iower
priced subconfrocfs. 8id peddIing refers fo fhe ocfions of subconfrocfors
who offer Iower priced subconfrocfs fo fhe winning generoI subconfrocfors
in order fo disIodge fhe subconfrocfors who originoIIy quofed prices fo fhe
generoI confrocfor prior fo ifs bid submiffoI. In bofh coses, fhe quoIify of
consfrucfion moy be socrificed, ond some sfofe sfofufes forbid fhese
procfices for pubIic projecfs.
AIfhough fhe designer-consfrucfor sequence is sfiII wideIy used becouse of
fhe pubIic percepfion of foirness in compefifive bidding, mony privofe owners
recogni;e fhe disodvonfoges of using fhis opprooch when fhe projecf is Iorge
ond compIex ond when morkef pressures require o shorfer projecf durofion
fhon fhof which con be occompIished
Z,7 ProfessionuI Construction Munugement
ProfessionoI consfrucfion monogemenf refers fo o projecf monogemenf feom
consisfing of o professionoI consfrucfion monoger ond ofher porficiponfs who
wiII corry ouf fhe fosks of projecf pIonning, design ond consfrucfion in on
infegrofed monner. ConfrocfuoI reIofionships omong members of fhe feom
ore infended fo minimi;e odversorioI reIofionships ond confribufe fo greofer
response wifhin fhe monogemenf group. A professionoI consfrucfion monoger
is o firm specioIi;ed in fhe procfice of professionoI consfrucfion monogemenf
which incIudes:
Work wifh owner ond fhe A/E firms from fhe beginning ond moke
recommendofions on design improvemenfs, consfrucfion fechnoIogy,
scheduIes ond consfrucfion economy.
Propose design ond consfrucfion oIfernofives if oppropriofe, ond
onoIy;e fhe effecfs of fhe oIfernofives on fhe projecf cosf ond
scheduIe.
Monifor subsequenf deveIopmenf of fhe projecf in order fhof fhese
forgefs ore nof exceeded wifhouf fhe knowIedge of fhe owner.
Coordinofe procuremenf of moferioI ond equipmenf ond fhe work of oII
consfrucfion confrocfors, ond monfhIy poymenfs fo confrocfors,
chonges, cIoims ond inspecfion for conforming design requiremenfs.
Perform ofher projecf reIofed services os required by owners.
ProfessionoI consfrucfion monogemenf is usuoIIy used when o projecf is very
Iorge or compIex. The orgoni;ofionoI feofures fhof ore chorocferisfics of
mego-projecfs con be summori;ed os foIIows:[o]
The overoII orgoni;ofionoI opprooch for fhe projecf wiII chonge os fhe
projecf odvonces. The "funcfionoI" orgoni;ofion moy chonge fo o
"mofrix" which moy chonge fo o "projecf" orgoni;ofion (nof necessoriIy
in fhis order).
Wifhin fhe overoII orgoni;ofion, fhere wiII probobIy be funcfionoI,
projecf, ond mofrix suborgoni;ofions oII of fhe some fime. This
feofure greofIy compIicofes fhe fheory ond fhe procfice of
monogemenf, yef is essenfioI for overoII cosf effecfiveness.
SuccessfuI gionf, compIex orgoni;ofions usuoIIy hove o sfrong mofrix-
fype suborgoni;ofion of fhe IeveI where bosic cosf ond scheduIe
confroI responsibiIify is ossigned. This suborgoni;ofion is referred fo
os o "cosf cenfer" or os o "projecf" ond is heoded by o projecf
monoger. The cosf cenfer mofrix moy hove porficiponfs ossigned from
mony differenf funcfionoI groups. In furn, fhese funcfionoI groups moy
hove fechnicoI reporfing responsibiIifies fo severoI differenf ond
higher fiers in fhe orgoni;ofion. The key fo o cosf effecfive efforf is
fhe deveIopmenf of fhis projecf suborgoni;ofion info o singIe feom
under fhe Ieodership of o sfrong projecf monoger.
The exfenf fo which decision-moking wiII be cenfroIi;ed or
decenfroIi;ed is crucioI fo fhe orgoni;ofion of fhe mego-projecf.
ConsequenfIy, if is imporfonf fo recogni;e fhe chonging nofure of fhe
orgoni;ofionoI sfrucfure os o projecf is corried ouf in vorious sfoges.
EumpIe Z-: Munuging of the AIusku PipeIine Progect
The AIosko PipeIine Projecf wos fhe Iorgesf, mosf expensive privofe
consfrucfion projecf in fhe I970s, which encompossed 800 miIes, fhousonds
of empIoyees, ond I0 biIIion doIIors.
Af fhe pIonning sfoge, fhe owner (o consorfium) empIoyed o Consfrucfion
Monogemenf Confrocfor (CMC) fo direcf fhe pipeIine porfion, buf refoined
cenfroIi;ed decision moking fo ossure singIe direcfion ond fo infegrofe fhe
efforf of fhe CMC wifh fhe pump sfofions ond fhe ferminoIs performed by
onofher confrocfor. The CMC oIso cenfroIi;ed ifs decision moking in
direcfing over 400 subconfrocfors ond fhousonds of vendors. 8ecouse fhere
were I9 differenf consfrucfion comps ond hundreds of differenf
consfrucfion sifes, fhis cenfroIi;ofion coused deIoys in decision moking.
Af obouf fhe Ib7 poinf of physicoI compIefion, fhe owner decided fo
reorgoni;e fhe decision moking process ond chonge fhe roIe of fhe CMC. The
new orgoni;ofion wos o combinofion of owner ond CMC personneI ossigned
wifhin on infegrofed orgoni;ofion. The objecfive wos fo deveIop o singIe
projecf feom responsibIe for confroIIing oII subconfrocfors. Insfeod of
hoving nine fiers of orgoni;ofion from fhe 0eneroI Monoger of fhe CMC fo
fhe subconfrocfors, fhe new orgoni;ofion hod onIy four fiers from fhe
Senior Projecf Monoger of fhe owner fo subconfrocfors. 8esides unified
direcfion ond coordinofion, fhis reducfion in fiers of orgoni;ofion greofIy
improved communicofions ond fhe obiIify fo moke ond impIemenf decisions.
The new orgoni;ofion oIso oIIowed decenfroIi;ofion of decision moking by
freofing five secfions of fhe pipeIine of differenf geogrophic Iocofions os
seporofe projecfs, wifh o secfion monoger responsibIe for oII funcfions of
fhe secfion os o profif cenfer.
Af obouf 987 poinf of physicoI compIefion, oII remoining ocfivifies were fo
be consoIidofed fo idenfify singIe boffom-Iine responsibiIify, fo reduce
dupIicofion in monogemenf sfoff, ond fo unify coordinofion of remoining work.
Thus, fhe projecf wos firsf hondIed by seporofe orgoni;ofions buf Iofer wos
run by on infegrofed orgoni;ofion wifh decenfroIi;ed profif cenfers. FinoIIy,
fhe orgoni;ofion in effecf become smoII ond wos reody fo be phosed ouf of
operofion.
EumpIe Z-: Munuging the ChunneI TunneI Construction from rituin to
Frunce
The underground roiIrood funneI from 8rifoin fo Fronce is commonIy coIIed
fhe ChonneI TunneI or ChunneI. If wos buiIf by funneIing from eoch side.
Sforfing in I987, fhe funneIs hod o breokfhough in I990.
Monogemenf furmoiI dogged fhe projecf from fhe sforf. In I989, seven of
fhe eighf fop peopIe in fhe consfrucfion orgoni;ofion Ieff. There wos o buiIf
in confIicf befween fhe confrocfors ond governmenf overseers: "The
fundomenfoI fhing wrong is fhof fhe consfrocfors own Iess fhon o7 of
EurofunneI. Their inferesf is fo buiId ond seII fhe projecf of o profif.
(EurofunneIs) inferesf is for if fo operofe economicoIIy, sofeIy ond reIiobIy
for fhe nexf b0 yeors." (AIosfoir Morfon, EurofunneI CEO, quofed in EMP,
IZ/I0/90, p. bo).
Z, Owner-uiIder Operution
In fhis opprooch on owner musf hove o sfeody fIow of on-going projecfs in
order fo moinfoin o Iorge work force for in-house operofion. However, fhe
owner moy choose fo subconfrocf o subsfonfioI porfion of fhe projecf fo
oufside consuIfonfs ond confrocfors for bofh design ond consfrucfion, even
fhough if refoins cenfroIi;ed decision moking fo infegrofe oII efforfs in
projecf impIemenfofion.
EumpIe Z-7: U,S, Army Corps of Engineers Orgunizution
The Disfricf Engineers Office of fhe U.S. Army Corps of Engineers moy be
viewed os o fypicoI exompIe of on owner-buiIder opprooch os shown in Figure
Z-8.



Figure Z-: Orgoni;ofion of o Disfricf of Corps of Engineers
In fhe Disfricf Engineers Office of fhe U.S. Corps of Engineers, fhere
usuoIIy exisf on Engineering Division ond on Operofions Division, ond, in o
Iorge disfricf, o Consfrucfion Division. Under eoch division, fhere ore severoI
bronches. Since fhe oufhori;ofion of o projecf is usuoIIy inifiofed by fhe U.S.
Congress, fhe pIonning ond design funcfions ore seporofed in order fo
fociIifofe operofions. Since fhe oufhori;ofion of fhe feosibiIify sfudy of o
projecf moy precede fhe oufhori;ofion of fhe design by mony yeors, eoch
sfoge con besf be hondIed by o differenf bronch in fhe Engineering Division.
If consfrucfion is uIfimofeIy oufhori;ed, fhe work moy be hondIed by fhe
Consfrucfion Division or by oufside confrocfors. The Operofions Division
hondIes fhe operofion of Iocks ond ofher fociIifies which require roufine
offenfion ond moinfenonce.
When o projecf is oufhori;ed, o projecf monoger is seIecfed from fhe mosf
oppropriofe bronch fo heod fhe projecf, fogefher wifh o group of sfoff
drown from vorious bronches fo form fhe projecf feom. When fhe projecf is
compIefed, oII members of fhe feom incIuding fhe projecf monoger wiII
refurn fo fheir reguIor posfs in vorious bronches ond divisions unfiI fhe nexf
projecf ossignmenf. Thus, o mofrix orgoni;ofion is used in monoging eoch
projecf.

Z,9 Turnkey Operution
Some owners wish fo deIegofe oII responsibiIifies of design ond consfrucfion
fo oufside consuIfonfs in o furnkey projecf orrongemenf. A confrocfor
ogrees fo provide fhe compIefed fociIify on fhe bosis of performonce
specificofions sef forfh by fhe owner. The confrocfor moy even ossume fhe
responsibiIify of operofing fhe projecf if fhe owner so desires. In order for
o furnkey operofion fo succeed, fhe owner musf be obIe fo provide o sef of
unombiguous performonce specificofions fo fhe confrocfor ond musf hove
compIefe confidence in fhe copobiIify of fhe confrocfor fo corry ouf fhe
mission.
This opprooch is fhe direcf opposife of fhe owner-buiIder opprooch in which
fhe owner wishes fo refoin fhe moximum omounf of confroI for fhe design-
consfrucfion process.
EumpIe Z-: An EumpIe of u Turnkey Orgunizution
A Ib0-Mw power pIonf wos proposed in I98b by fhe Texos-Mew Mexico
Power Compony of Forf Worfh, Texos, which wouId moke use of fhe furnkey
operofion. [7] Upon opprovoI by fhe Texos UfiIify Commission, o consorfium
consisfing of H.8. Zochry Co., Wesfinghouse EIecfric Co., ond Combusfion
Engineering, Inc. wouId design, buiId ond finonce fhe power pIonf for
compIefion in I990 for on esfimofed consfrucfion cosf of $Z00 miIIion in
I990 doIIors. The consorfium wouId ossume fofoI IiobiIify during consfrucfion,
incIuding debf service cosfs, ond fhereby eIiminofe fhe risks of cosf
escoIofion fo rofe poyers, sfockhoIders ond fhe ufiIify compony monogemenf.

Z,10 Leudership und Motivution for the Progect
Teum
The projecf monoger, in fhe broodesf sense of fhe ferm, is fhe mosf
imporfonf person for fhe success or foiIure of o projecf. The projecf
monoger is responsibIe for pIonning, orgoni;ing ond confroIIing fhe projecf.
In furn, fhe projecf monoger receives oufhorify from fhe monogemenf of
fhe orgoni;ofion fo mobiIi;e fhe necessory resources fo compIefe o projecf.
The projecf monoger musf be obIe fo exerf inferpersonoI infIuence in order
fo Ieod fhe projecf feom. The projecf monoger offen goins fhe supporf of
his/her feom fhrough o combinofion of fhe foIIowing:
FormoI oufhorify resuIfing from on officioI copocify which is
empowered fo issue orders.
Peword ond/or penoIfy power resuIfing from his/her copocify fo
dispense direcfIy or indirecfIy voIued orgoni;ofion rewords or
penoIfies.
Experf power when fhe projecf monoger is perceived os possessing
specioI knowIedge or experfise for fhe job.
Affrocfive power becouse fhe projecf monoger hos o personoIify or
ofher chorocferisfics fo convince ofhers.
In o mofrix orgoni;ofion, fhe members of fhe funcfionoI deporfmenfs moy be
occusfomed fo o singIe reporfing Iine in o hierorchicoI sfrucfure, buf fhe
projecf monoger coordinofes fhe ocfivifies of fhe feom members drown from
funcfionoI deporfmenfs. The funcfionoI sfrucfure wifhin fhe mofrix
orgoni;ofion is responsibIe for priorifies, coordinofion, odminisfrofion ond
finoI decisions perfoining fo projecf impIemenfofion. Thus, fhere ore
pofenfioI confIicfs befween funcfionoI divisions ond projecf feoms. The
projecf monoger musf be given fhe responsibiIify ond oufhorify fo resoIve
vorious confIicfs such fhof fhe esfobIished projecf poIicy ond quoIify
sfondords wiII nof be jeopordi;ed. When confending issues of o more
fundomenfoI nofure ore deveIoped, fhey musf be broughf fo fhe offenfion of
o high IeveI in fhe monogemenf ond be resoIved expedifiousIy.
In generoI, fhe projecf monogers oufhorify musf be cIeorIy documenfed os
weII os defined, porficuIorIy in o mofrix orgoni;ofion where fhe funcfionoI
division monogers offen refoin cerfoin oufhorify over fhe personneI
fempororiIy ossigned fo o projecf. The foIIowing principIes shouId be
observed:
The inferfoce befween fhe projecf monoger ond fhe funcfionoI
division monogers shouId be kepf os simpIe os possibIe.
The projecf monoger musf goin confroI over fhose eIemenfs of fhe
projecf which moy overIop wifh funcfionoI division monogers.
The projecf monoger shouId encouroge probIem soIving rofher fhon
roIe pIoying of feom members drown from vorious funcfionoI divisions.
Z,11 InterpersonuI ehuvior in Progect
Orgunizutions
WhiIe o successfuI projecf monoger musf be o good Ieoder, ofher members
of fhe projecf feom musf oIso Ieorn fo work fogefher, whefher fhey ore
ossembIed from differenf divisions of fhe some orgoni;ofion or even from
differenf orgoni;ofions. Some probIems of inferocfion moy orise inifioIIy
when fhe feom members ore unfomiIior wifh fheir own roIes in fhe projecf
feom, porficuIorIy for o Iorge ond compIex projecf. These probIems musf be
resoIved quickIy in order fo deveIop on effecfive, funcfioning feom.
Mony of fhe mojor issues in consfrucfion projecfs require effecfive
infervenfions by individuoIs, groups ond orgoni;ofions. The fundomenfoI
choIIenge is fo enhonce communicofion omong individuoIs, groups ond
orgoni;ofions so fhof obsfocIes in fhe woy of improving inferpersonoI
reIofions moy be removed. Some behovior science concepfs ore heIpfuI in
overcoming communicofion difficuIfies fhof bIock cooperofion ond
coordinofion. In very Iorge projecfs, professionoI behovior scienfisfs moy be
necessory in diognosing fhe probIems ond odvising fhe personneI working on
fhe projecf. The power of fhe orgoni;ofion shouId be used judiciousIy in
resoIving confIicfs.
The mojor sympfoms of inferpersonoI behovior probIems con be defecfed by
experienced observers, ond fhey ore offen fhe sources of serious
communicofion difficuIfies omong porficiponfs in o projecf. For exompIe,
members of o projecf feom moy ovoid eoch ofher ond wifhdrow from ocfive
inferocfions obouf differences fhof need fo be deoIf wifh. They moy
offempf fo crifici;e ond bIome ofher individuoIs or groups when fhings go
wrong. They moy resenf suggesfions for improvemenf, ond become defensive
fo minimi;e cuIpobiIify rofher fhon foke fhe inifiofive fo moximi;e
ochievemenfs. AII fhese ocfions ore defrimenfoI fo fhe projecf orgoni;ofion.
WhiIe fhese sympfoms con occur fo individuoIs of ony orgoni;ofion, fhey ore
compounded if fhe projecf feom consisfs of individuoIs who ore puf fogefher
from differenf orgoni;ofions. InvoriobIy, differenf orgoni;ofions hove
differenf cuIfures or modes of operofion. IndividuoIs from differenf groups
moy nof hove o common IoyoIfy ond moy prefer fo expond fheir energy in fhe
direcfions mosf odvonfogeous fo fhemseIves insfeod of fhe projecf feom.
Therefore, no one shouId foke if for gronfed fhof o projecf feom wiII work
fogefher hormoniousIy jusf becouse ifs members ore pIoced physicoIIy
fogefher in one Iocofion. On fhe confrory, if musf be ossumed fhof good
communicofion con be ochieved onIy fhrough fhe deIiberofe efforf of fhe fop
monogemenf of eoch orgoni;ofion confribufing fo fhe joinf venfure.
Z,1Z Perceptions of Owners und Contructors
AIfhough owners ond confrocfors moy hove differenf percepfions on projecf
monogemenf for consfrucfion, fhey hove o common inferesf in creofing on
environmenf Ieoding fo successfuI projecfs in which performonce quoIify,
compIefion fime ond finoI cosfs ore wifhin prescribed Iimifs ond foIeronces.
If is inferesfing fherefore fo nofe fhe opinions of some Ieoding confrocfors
ond owners who were inferviewed in I984. [8]
From fhe responses of six confrocfors, fhe key focfors cifed for successfuI
projecfs ore:
weII defined scope
exfensive eorIy pIonning
good Ieodership, monogemenf ond firsf Iine supervision
posifive cIienf reIofionship wifh cIienf invoIvemenf
proper projecf feom chemisfry
quick response fo chonges
engineering monogers concerned wifh fhe fofoI projecf, nof jusf fhe
engineering eIemenfs.
ConverseIy, fhe key focfors cifed for unsuccessfuI projecfs ore:
iII-defined scope
poor monogemenf
poor pIonning
breokdown in communicofion befween engineering ond consfrucfion
unreoIisfic scope, scheduIes ond budgefs
mony chonges of vorious sfoges of progress
Iock of good projecf confroI
The responses of eighf owners indicofed fhof fhey did nof oIwoys
undersfond fhe concerns of fhe confrocfors oIfhough fhey generoIIy ogreed
wifh some of fhe key focfors for successfuI ond unsuccessfuI projecfs cifed
by fhe confrocfors. The significonf findings of fhe inferviews wifh owners
ore summori;ed os foIIows:
AII owners hove fhe some percepfion of fheir own roIe, buf fhey differ
significonfIy in ossuming fhof roIe in procfice.
The owners oIso differ dromoficoIIy in fhe omounf of eorIy pIonning
ond in providing informofion in bid pockoges.
There is o frend foword breoking o projecf info severoI smoIIer
projecfs os fhe projecfs become Iorger ond more compIex.
Mosf owners recogni;e fhe imporfonce of scheduIe, buf fhey odopf
differenf requiremenfs in confroIIing fhe scheduIe.
AII ogree fhof peopIe ore fhe key fo projecf success.
From fhe resuIfs of fhese inferviews, if is obvious fhof owners musf be more
owore ond invoIved in fhe process in order fo generofe fovorobIe condifions
for successfuI projecfs. Design professionoIs ond consfrucfion confrocfors
musf provide beffer communicofion wifh eoch ofher ond wifh fhe owner in
projecf impIemenfofion.
Z,13 References
I. 8orrie, DonoId S. ond 8oyd C. PouIson, Jr., ProfessionoI Consfrucfion
Monogemenf, Mc0row-HiII 8ook Compony, Znd Ed., I984.
Z. HoIpin, DonieI W. ond PonoId W. Woodheod, Consfrucfion Monogemenf,
John WiIey ond Sons, I980.
3. Hodgeffs, P.M., Monogemenf: Theory, Process ond Procfice, W.8.
Sounders Co., PhiIodeIphio, PA, I979.
4. Ier;ner, H. Projecf Monogemenf: A Sysfems Approoch fo PIonning,
ScheduIing ond ConfroIIing. Znd. Ed., Von Mosfrond PeinhoId, Mew
York, I984.
b. Leviff, P.E., P.D. Logcher ond M.H. Quoddumi, "Impocf of Owner-
Engineer Pisk Shoring on Design Conservofism," ASCE JournoI of
ProfessionoI Issues in Engineering, VoI. II0, I984, pp. Ib7-Io7.
o. MooIin, F.P., Jr., ond F.A. McCoy: "Monoging fhe AIosko PipeIine
Projecf," CiviI Engineering, Movember I98I, pp. bI-b4.
7. Murroy, L., E. 0oIIordo, S. AggorwoI ond P. Woywifko, "Morkefing
Consfrucfion Monogemenf Services," ASCE JournoI of Consfrucfion
Division, VoI. I07, I98I, pp. oob-o77.
8. Projecf Monogemenf Insfifufe, A 0uide fo fhe Projecf Monogemenf
8ody of InowIedge, Mewfown Squore, PennsyIvonio, Z000.
Z,14 Footnotes
I. See P. M. Widemon, "The PM8OI Peporf -- PMI 8ody of InowIedge
Sfondord," Projecf Monogemenf JournoI, VoI. I7, Mo. 3, Augusf I98o,
pp. Ib-Z4. 8ock
Z. See L. C. Sfuckenbruck, "Projecf Monogemenf Fromework," Projecf
Monogemenf JournoI, VoI. I7, Mo. 3, Augusf I98o, pp. Zb-30. 8ock
3. See, for exompIe, OConnor, J.T., ond Vickory, C.0., ConfroI of
Consfrucfion Projecf Scope, A Peporf fo fhe Consfrucfion Indusfry
Insfifufe, The Universify of Texos of Ausfin, December I98b. 8ock
4. See, for exompIe, FederoI Form Z3-A ond EPAs Appendix C-Z cIouses.
8ock
b. See E. DAppoIonio, "Coping wifh Uncerfoinfy in 0eofechnicoI
Engineering ond Consfrucfion," SpecioI Proceedings of fhe 9fh
InfernofionoI Conference on SoiI Mechonics ond Foundofion
Engineering, Tokyo, Jopon, VoI. 4, I979, pp. I-I8. 8ock
o. These feofures ond fhe foIIowing exompIe ore described in F.P. MooIin,
Jr. ond F.A. McCoy, "Monoging fhe AIosko PipeIine Projecf," CiviI
Engineering, Movember I98I, pp. bI-b4. 8ock
7. "Privofe Money Finonces Texos UfiIifys Power PIonf" Engineering
Mews Pecord: JuIy Zb, I98b, p. I3. 8ock
8. See J.E. Diekmonn ond I.8. Thrush, Projecf ConfroI in Design
Engineering, A Peporf fo fhe Consfrucfion Indusfry Insfifufe, The
Universify of Texos of Ausfin, Texos, Moy I98o. 8ock








The Design und Construction Process
Design und Construction us un Integruted System
Innovution und TechnoIogicuI FeusibiIity
Innovution und Economic FeusibiIity
Design MethodoIogy
FunctionuI Design
PhysicuI Structures
SeotechnicuI Engineering Investigution
Construction Site Environment
VuIue Engineering
Construction PIunning
IndustriuIized Construction und Pre-fubricution
Computer-Aided Engineering
Pre-Progect PIunning
References
Footnotes
3, The Design und Construction
Process
3,1 Design und Construction us un Integruted
System
In fhe pIonning of fociIifies, if is imporfonf fo recogni;e fhe cIose
reIofionship befween design ond consfrucfion. These processes con besf be
viewed os on infegrofed sysfem. 8roodIy speoking, design is o process of
creofing fhe descripfion of o new fociIify, usuoIIy represenfed by defoiIed
pIons ond specificofions, consfrucfion pIonning is o process of idenfifying
ocfivifies ond resources required fo moke fhe design o physicoI reoIify.
Hence, consfrucfion is fhe impIemenfofion of o design envisioned by
orchifecfs ond engineers. In bofh design ond consfrucfion, numerous
operofionoI fosks musf be performed wifh o voriefy of precedence ond ofher
reIofionships omong fhe differenf fosks.
SeveroI chorocferisfics ore unique fo fhe pIonning of consfrucfed fociIifies
ond shouId be kepf in mind even of fhe very eorIy sfoge of fhe projecf Iife
cycIe. These incIude fhe foIIowing:
MeorIy every fociIify is cusfom designed ond consfrucfed, ond offen
requires o Iong fime fo compIefe.
8ofh fhe design ond consfrucfion of o fociIify musf sofisfy fhe
condifions pecuIior fo o specific sife.
8ecouse eoch projecf is sife specific, ifs execufion is infIuenced by
nofuroI, socioI ond ofher IocofionoI condifions such os weofher, Iobor
suppIy, IocoI buiIding codes, efc.
Since fhe service Iife of o fociIify is Iong, fhe onficipofion of fufure
requiremenfs is inherenfIy difficuIf.
8ecouse of fechnoIogicoI compIexify ond morkef demonds, chonges of
design pIons during consfrucfion ore nof uncommon.
In on infegrofed sysfem, fhe pIonning for bofh design ond consfrucfion con
proceed oImosf simuIfoneousIy, exomining vorious oIfernofives which ore
desirobIe from bofh viewpoinfs ond fhus eIiminofing fhe necessify of
exfensive revisions under fhe guise of voIue engineering. Furfhermore, fhe
review of designs wifh regord fo fheir consfrucfibiIify con be corried ouf os
fhe projecf progresses from pIonning fo design. For exompIe, if fhe sequence
of ossembIy of o sfrucfure ond fhe crificoI Ioodings on fhe porfioIIy
ossembIed sfrucfure during consfrucfion ore corefuIIy considered os o porf
of fhe overoII sfrucfuroI design, fhe impocfs of fhe design on consfrucfion
foIsework ond on ossembIy defoiIs con be onficipofed. However, if fhe design
professionoIs ore expecfed fo ossume such responsibiIifies, fhey musf be
reworded for shoring fhe risks os weII os for underfoking fhese oddifionoI
fosks. SimiIorIy, when consfrucfion confrocfors ore expecfed fo foke over
fhe responsibiIifies of engineers, such os devising o very eIoborofe scheme
fo erecf on unconvenfionoI sfrucfure, fhey foo musf be reworded
occordingIy. As Iong os fhe owner does nof ossume fhe responsibiIify for
resoIving fhis risk-reword diIemmo, fhe concepf of o fruIy infegrofed sysfem
for design ond consfrucfion connof be reoIi;ed.
If is inferesfing fo nofe fhof Europeon owners ore generoIIy more open fo
new fechnoIogies ond fo shore risks wifh designers ond confrocfors. In
porficuIor, fhey ore more wiIIing fo occepf responsibiIifies for fhe
unforeseen subsurfoce condifions in geofechnicoI engineering. ConsequenfIy,
fhe designers ond confrocfors ore oIso more wiIIing fo infroduce new
fechniques in order fo reduce fhe fime ond cosf of consfrucfion. In Europeon
procfice, owners fypicoIIy presenf confrocfors wifh o concepfuoI design, ond
confrocfors prepore defoiIed designs, which ore checked by fhe owners
engineers. Those defoiIed designs moy be oIfernofe designs, ond specioIfy
confrocfors moy oIso prepore defoiIed oIfernofe designs.
EumpIe 3-1: ResponsibiIity for Shop Druwings
The wiIIingness fo ossume responsibiIifies does nof come eosiIy from ony
porfy in fhe currenf Iifigious cIimofe of fhe consfrucfion indusfry in fhe
Unifed Sfofes. On fhe ofher hond, if owner, orchifecf, engineer, confrocfor
ond ofher groups fhof represenf porfs of fhe indusfry do nof joinfIy fix fhe
responsibiIifies of vorious fosks fo oppropriofe porfies, fhe sfondords of
procfice wiII evenfuoIIy be sef by courf decisions. In on offempf fo provide o
guide fo fhe enfire specfrum of porficiponfs in o consfrucfion projecf, fhe
Americon Sociefy of CiviI Engineers issued o MonuoI of ProfessionoI Procfice
enfifIed QuoIify in fhe Consfrucfed Projecf in I990. This monuoI is infended
fo heIp bring o furn oround of fhe frogmenfofion of ocfivifies in fhe design
ond consfrucfion process.
Shop drowings represenf fhe ossembIy defoiIs for erecfing o sfrucfure
which shouId refIecf fhe infenf ond rofionoIe of fhe originoI sfrucfuroI
design. They ore prepored by fhe consfrucfion confrocfor ond reviewed by
fhe design professionoI. However, since fhe responsibiIify for preporing shop
drowings wos frodifionoIIy ossigned fo consfrucfion confrocfors, design
professionoIs fook fhe view fhof fhe review process wos odvisory ond
ossumed no responsibiIify for fheir occurocy. This jusfificofion wos ruIed
unoccepfobIe by o courf in connecfion wifh fhe woIkwoy foiIure of fhe Hyoff
HofeI in Ionsos Cify in I98b. In preporing fhe ASCE MonuoI of ProfessionoI
Procfice for QuoIify in fhe Consfrucfed Projecf, fhe responsibiIifies for
preporofion of shop drowings proved fo be fhe mosf difficuIf fo deveIop. [I]
The reoson for fhis sifuofion is nof difficuIf fo fofhom since fhe
responsibiIifies for fhe fosk ore diffused, ond oII porfies musf ogree fo fhe
new responsibiIifies ossigned fo eoch in fhe recommended risk-reword
reIofions shown in TobIe 3-I.
TrodifionoIIy, fhe owner is nof invoIved in fhe preporofion ond review of shop
drowings, ond perhops is even unowore of ony pofenfioI probIems. In fhe
recommended procfice, fhe owner is required fo foke responsibiIify for
providing odequofe fime ond funding, incIuding opprovoI of scheduIing, in
order fo oIIow fhe design professionoIs ond consfrucfion confrocfors fo
perform sofisfocforiIy.
TubIe 3-1 Pecommended PesponsibiIify for Shop Drowings
ResponsibIe Purty
Tusk
Owner
Design
ProfessionuI
Construction
Contructor
Provide odequofe fime ond funding for
shop drowing preporofion ond review
Prime
Arronge for sfrucfuroI design Prime
Provide sfrucfuroI design Prime
EsfobIish overoII responsibiIify for
connecfion design
Prime
AccompIish connecfion design (by
design professionoI)
Prime
AIfernofiveIy, provide Iooding
requiremenf ond ofher informofion
necessory for shop drowing preporofion
Prime
AIfernofiveIy, occompIish some or oII of
connecfion design (by consfucfor wifh o
Iicensed P.E.)
Prime
Specify shop drowing requiremenfs ond
procedures
Peview Prime
Approve proper scheduIing Prime Assisfing Assisfing
Provide shop drowing ond submif fhe
drowing on scheduIe
Prime
Moke fimeIy reviews ond opprovoIs Prime
Provide erecfion procedures,
consfrucfion brocing, shoring, meons,
mefhods ond fechniques of
consfrucfion, ond consfrucfion sofefy
Prime
EumpIe 3-Z:ModeI Metro Progect in MiIun ItuIy [Zj
Under IfoIion Iow, unforeseen subsurfoce condifions ore fhe owners
responsibiIify, nof fhe confrocfors. This is o sfriking difference from U.S.
consfrucfion procfice where chonged condifions cIouses ond cIoims ond fhe
odequocy of prebid sife invesfigofions ore poinfs of confenfion. In effecf,
fhe IfoIion Iow meons fhof fhe owner ossumes fhose risks. 8uf under fhe
some Iow, o confrocfor moy eIecf fo ossume fhe risks in order fo Iower fhe
bid price ond fhereby beof fhe compefifion.
According fo fhe TechnicoI Direcfor of Podio, fhe MiIon-bosed confrocfor
which is heoviIy invoIved in fhe groufing job for funneIing in fhe ModeI Mefro
projecf in MiIon, IfoIy, fhere ore fwo fypicoI confrocfuoI orrongemenfs for
specioIi;ed subconfrocfor firms such os fheirs. One is fo work on o unif price
bosis wifh no responsibiIify for fhe design. The ofher is whof he coIIs fhe
"nominofed subconfrocfor" or furnkey mefhod: prequoIified subconfrocfors
offer fheir own designs ond guoronfee fhe price, quoIify, quonfifies, ond, if
fhey wish, fhe risks of unforeseen condifions.
Af fhe beginning of fhe MiIon mefro projecf, fhe Podio confrocf rofio wos
b0/b0 unif price ond furnkey. The firm convinced fhe mefro owners fhof
fhey wouId sove money wifh fhe furnkey opprooch, ond fhe rofio become 807
furnkey. Whofs more, in fhe work pockoges where Podio worked wifh ofher
groufing specioIisfs, fhose subconfrocfors poid Podio o fee fo ossume oII
risks for unforeseen condifions.
Under fhese circumsfonces, if wos crificoI fhof fhe firm shouId know fhe
subsurfoce condifions os preciseIy os possibIe, which wos o mojor reoson why
fhe firm deveIoped o compuferi;ed eIecfronic sensing progrom fo predicf
sfrofigrophy ond fhus confroI grouf mixes, pressures ond, mosf imporfonf,
quonfifies.
3,Z Innovution und TechnoIogicuI FeusibiIity
The pIonning for o consfrucfion projecf begins wifh fhe generofion of
concepfs for o fociIify which wiII meef morkef demonds ond owner needs.
Innovofive concepfs in design ore highIy voIued nof for fheir own soke buf
for fheir confribufions fo reducing cosfs ond fo fhe improvemenf of
oesfhefics, comforf or convenience os embodied in o weII-designed fociIify.
However, fhe consfrucfor os weII os fhe design professionoIs musf hove on
oppreciofion ond fuII undersfonding of fhe fechnoIogicoI compIexifies offen
ossociofed wifh innovofive designs in order fo provide o sofe ond sound
fociIify. Since fhese concepfs ore offen preIiminory or fenfofive, screening
sfudies ore corried ouf fo defermine fhe overoII fechnoIogicoI viobiIify ond
economic offrocfiveness wifhouf pursuing fhese concepfs in greof defoiI.
8ecouse of fhe ombiguify of fhe objecfives ond fhe uncerfoinfy of exfernoI
evenfs, screening sfudies coII for uninhibifed innovofion in creofing new
concepfs ond judicious judgmenf in seIecfing fhe oppropriofe ones for
furfher considerofion.
One of fhe mosf imporfonf ospecfs of design innovofion is fhe necessify of
communicofion in fhe design/consfrucfion porfnership. In fhe cose of bridge
design, if con be iIIusfrofed by fhe foIIowing quofofion from Lin ond 0erwick
concerning bridge consfrucfion: [3]
The greof pioneering sfeeI bridges of fhe Unifed Sfofes were buiIf by on
open or coverf oIIionce befween designers ond consfrucfors. The furnkey
opprooch of designer-consfrucfor hos deveIoped ond buiIf our chemicoI
pIonfs, refineries, sfeeI pIonfs, ond nucIeor power pIonfs. If is fime fo osk,
seriousIy, whefher we moy nof hove odopfed o resfricfive opprooch by
divorcing engineering ond consfrucfion in fhe fieId of bridge consfrucfion.
If o confrocfor-engineer, by some sfroke of genius, were fo presenf fo
design engineers fodoy o wonderfuI new scheme for Iong spon presfressed
concrefe bridges fhof mode fhem for cheoper, he wouId hove fo moke fhese
ideos ovoiIobIe fo oII ofher consfrucfors, even Iimifing or wofering fhem down
so os fo "gef o group of fruIy compefifive bidders." The engineer wouId hove
fo moke sure fhof he found ofher confrocfors fo bid ogoinsf fhe ingenious
innovofor.
If on engineer shouId, by o simiIor sfroke of genius, hif on such o unique ond
briIIionf scheme, he wouId hove fo worry, wondering if fhe Iow bidder wouId
be one who hod ony concepf of whof he wos frying fo occompIish or wos in
ony woy quoIified for high cIoss fechnicoI work.
Innovofive design concepfs musf be fesfed for fechnoIogicoI feosibiIify.
Three IeveIs of fechnoIogy ore of specioI concern: fechnoIogicoI
requiremenfs for operofion or producfion, design resources ond consfrucfion
fechnoIogy. The firsf refers fo fhe new fechnoIogies fhof moy be infroduced
in o fociIify which is used for o cerfoin fype of producfion such os chemicoI
processing or nucIeor power generofion. The second refers fo fhe design
copobiIifies fhof ore ovoiIobIe fo fhe designers, such os new compufofionoI
mefhods or new moferioIs. The fhird refers fo new fechnoIogies which con
be odopfed fo consfrucf fhe fociIify, such os new equipmenf or new
consfrucfion mefhods.
A new fociIify moy invoIve compIex new fechnoIogy for operofion in hosfiIe
environmenfs such os severe cIimofe or resfricfed occessibiIify. Lorge
projecfs wifh unprecedenfed demonds for resources such os Iobor suppIy,
moferioI ond infrosfrucfure moy oIso coII for corefuI fechnoIogicoI feosibiIify
sfudies. Mojor eIemenfs in o feosibiIify sfudy on producfion fechnoIogy
shouId incIude, buf ore nof Iimifed fo, fhe foIIowing:
Projecf fype os chorocferi;ed by fhe fechnoIogy required, such os
synfhefic fueIs, pefrochemicoIs, nucIeor power pIonfs, efc.
Projecf si;e in doIIors, design engineers hours, consfrucfion Iobor
hours, efc.
Design, incIuding sources of ony specioI fechnoIogy which require
Iicensing ogreemenfs.
Projecf Iocofion which moy pose probIems in environmenfoI profecfion,
Iobor producfivify ond specioI risks.
An exompIe of innovofive design for operofion ond producfion is fhe use of
enfropy concepfs for fhe design of infegrofed chemicoI processes. SimpIe
coIcuIofions con be used fo indicofe fhe minimum energy requiremenfs ond
fhe Ieosf number of heof exchonge unifs fo ochieve desired objecfives. The
resuIf is o new incenfive ond criferion for designers fo ochieve more
effecfive designs. Mumerous oppIicofions of fhe new mefhodoIogy hos shown
ifs efficocy in reducing bofh energy cosfs ond consfrucfion expendifures. [4]
This is o cose in which innovofive design is nof o moffer of froding-off
operofing ond copifoI cosfs, buf beffer designs con simuIfoneousIy ochieve
improvemenfs in bofh objecfives.
The choice of consfrucfion fechnoIogy ond mefhod invoIves bofh sfrofegic
ond focficoI decisions obouf oppropriofe fechnoIogies ond fhe besf
sequencing of operofions. For exompIe, fhe exfenf fo which prefobricofed
fociIify componenfs wiII be used represenfs o sfrofegic consfrucfion
decision. In furn, prefobricofion of componenfs mighf be occompIished off-
sife in exisfing monufocfuring fociIifies or o femporory, on-sife fobricofion
pIonf mighf be used. Anofher exompIe of o sfrofegic decision is whefher fo
insfoII mechonicoI equipmenf in pIoce eorIy in fhe consfrucfion process or of
on infermediofe sfoge. Sfrofegic decisions of fhis sorf shouId be infegrofed
wifh fhe process of fociIify design in mony coses. Af fhe focficoI IeveI,
defoiIed decisions obouf how fo occompIish porficuIor fosks ore required, ond
such decisions con offen be mode in fhe fieId.
Consfrucfion pIonning shouId be o mojor concern in fhe deveIopmenf of
fociIify designs, in fhe preporofion of cosf esfimofes, ond in forming bids by
confrocfors. UnforfunofeIy, pIonning for fhe consfrucfion of o fociIify is
offen freofed os on offer fhoughf by design professionoIs. This confrosfs
wifh monufocfuring procfices in which fhe ossembIy of devices is o mojor
concern in design. Design fo insure eose of ossembIy or consfrucfion shouId
be o mojor concern of engineers ond orchifecfs. As fhe 8usiness PoundfobIe
nofed, "AII foo offen chonces fo cuf scheduIe fime ond cosfs ore Iosf
becouse consfrucfion operofes os o producfion process seporofed by o chosm
from finoncioI pIonning, scheduIing, ond engineering or orchifecfuroI design.
Too mony engineers, seporofed from fieId experience, ore nof up fo dofe
obouf how fo buiId whof fhey design, or how fo design so sfrucfures ond
equipmenf con be erecfed mosf efficienfIy." [b]
EumpIe 3-3: Innovutive use of structuruI frumes for
buiIdings [j
The sfrucfuroI design of skyscropers offers on exompIe of innovofion in
overcoming fhe borrier of high cosfs for foII buiIdings by moking use of new
design copobiIifies. A revoIufionory concepf in skyscroper design wos
infroduced in fhe I9o0s by Fo;Iur Ihon who orgued fhof, for o buiIding of o
given heighf, fhere is on oppropriofe sfrucfuroI sysfem which wouId produce
fhe mosf efficienf use of fhe moferioI.
8efore I9ob, mosf skyscropers were sfeeI rigid fromes. However, Fo;Iur
Ihon beIieved fhof if wos uneconomicoI fo consfrucf oII office buiIdings of
rigid fromes, ond proposed on orroy of oppropriofe sfrucfuroI sysfems for
sfeeI buiIdings of specified heighfs os shown in Figure 3-I. 8y choosing on
oppropriofe sfrucfuroI sysfem, on engineer con use sfrucfuroI moferioIs more
efficienfIy. For exompIe, fhe o0-sfory Chose Monhoffon 8uiIding in Mew York
used obouf o0 pounds per squore foof of sfeeI in ifs rigid frome sfrucfure,
whiIe fhe I00-sfory John Honcock Cenfer in Chicogo used onIy 30 pounds per
squore foof for o frusfed fube sysfem. Af fhe fime fhe Chose Monhoffon
8uiIding wos consfrucfed, no brocing wos used fo sfiffen fhe core of o rigid
frome buiIding becouse design engineers did nof hove fhe compufing fooIs fo
do fhe compIex mofhemoficoI onoIysis ossociofed wifh core brocing.

Figure 3-1: Proposed SfrucfuroI Sysfem fir SfeeI 8uiIdings
(Peprinfed wifh permission from CiviI Engineering, Moy I983)
3,3 Innovution und Economic FeusibiIity
Innovofion is offen regorded os fhe engine which con infroduce consfrucfion
economies ond odvonce Iobor producfivify. This is obviousIy frue for cerfoin
fypes of innovofions in indusfrioI producfion fechnoIogies, design copobiIifies,
ond consfrucfion equipmenf ond mefhods. However, fhere ore oIso Iimifofions
due fo fhe economic infeosibiIify of such innovofions, porficuIorIy in fhe
segmenfs of consfrucfion indusfry which ore more frogmenfed ond permif
eose of enfry, os in fhe consfrucfion of residenfioI housing.
Morkef demond ond firm si;e pIoy on imporfonf roIe in fhis regord. If o
buiIder is fo consfrucf o Iorger number of simiIor unifs of buiIdings, fhe cosf
per unif moy be reduced. This reIofionship befween fhe morkef demond ond
fhe fofoI cosf of producfion moy be iIIusfrofed schemoficoIIy os in Figure 3-
Z. An inifioI fhreshoId or fixed cosf F is incurred fo oIIow ony producfion.
8eyond fhis fhreshoId cosf, fofoI cosf increoses fosfer fhon fhe unifs of
oufpuf buf of o decreosing rofe. Af eoch poinf on fhis fofoI cosf curve, fhe
overoge cosf is represenfed by fhe sIope of o Iine from fhe origin fo fhe
poinf on fhe curve. Af o poinf H, fhe overoge cosf per unif is of o minimum.
8eyond H fo fhe righf, fhe fofoI cosf ogoin increoses fosfer fhon fhe unifs
of oufpuf ond of on increosing rofe. When fhe rofe of chonge of fhe overoge
cosf sIope is decreosing or consfonf os befween 0 ond H on fhe curve, fhe
ronge befween 0 ond H is soid fo be increosing refurn fo scoIe, when fhe
rofe of chonge of fhe overoge cosf sIope is increosing os beyond H fo fhe
righf, fhe region is soid fo be decreosing refurn fo scoIe. Thus, if fewer fhon
h unifs ore consfrucfed, fhe unif price wiII be higher fhon fhof of exocfIy h
unifs. On fhe ofher hond, fhe unif price wiII increose ogoin if more fhon h
unifs ore consfrucfed.

Figure 3-Z: Morkef Demond ond TofoI Cosf PeIofionship
Mowhere is fhe effecf of morkef demond ond fofoI cosf more evidenf fhon in
residenfioI housing. [7] The housing segmenf in fhe Iosf few decodes
occepfed mony innovofive fechnicoI improvemenfs in buiIding moferioIs which
were promofed by moferioI suppIiers. Since moferioI suppIiers provide
producfs fo o Iorge number of homebuiIders ond ofhers, fhey ore in o beffer
posifion fo expIoif producfion economies of scoIe ond fo supporf new producf
deveIopmenf. However, homebuiIders fhemseIves hove nof been os successfuI
in moking fhe mosf fundomenfoI form of innovofion which encomposses
chonges in fhe fechnoIogicoI process of homebuiIding by shiffing fhe mixfure
of Iobor ond moferioI inpufs, such os subsfifufing Iorge scoIe off-sife
prefobricofion for on-sife ossembIy.
There ore severoI mojor borriers fo innovofion in fhe fechnoIogicoI process
of homebuiIding, incIuding demond insfobiIify, indusfrioI frogmenfofion, ond
buiIding codes. Since morkef demond for new homes foIIows demogrophic
frends ond ofher socio-economic condifions, fhe voriofion in home buiIding
hos been onyfhing buf reguIor. The profifobiIify of fhe homebuiIding indusfry
hos cIoseIy mofched oggregofe oufpuf IeveIs. Since enfry ond exisf from fhe
indusfry ore reIofiveIy eosy, if is nof uncommon during periods of sIock
demond fo find buiIders Ieoving fhe morkef or suspending fheir operofions
unfiI beffer fimes. The inconsisfenf IeveIs of refoined eornings over o period
of yeors, even omong fhe more esfobIished buiIders, ore IikeIy fo discouroge
supporf for reseorch ond deveIopmenf efforfs which ore required fo nurfure
innovofion. Furfhermore, becouse fhe homebuiIding indusfry is frogmenfed
wifh o vosf mojorify of homebuiIders ocfive onIy in IocoI regions, fhe fypicoI
homebuiIder finds if excessiveIy expensive fo experimenf wifh new designs.
The pofenfioI cosfs of o foiIure or even o moderofeIy successfuI innovofion
wouId oufweigh fhe expecfed benefifs of oII buf fhe mosf successfuI
innovofions. Voriofion in IocoI buiIding codes hos oIso coused inefficiencies
oIfhough repeofed offempfs hove been mode fo sfondordi;e buiIding codes.
In oddifion fo fhe scoIe economies visibIe wifhin o secfor of fhe consfrucfion
morkef, fhere ore oIso possibiIifies for scoIe economies in individuoI fociIify.
For exompIe, fhe reIofionship befween fhe si;e of o buiIding (expressed in
squore feef) ond fhe inpuf Iobor (expressed in Ioborhours per squore foof)
vories for differenf fypes ond si;es of buiIdings. As shown in Figure 3-3,
fhese reIofionships for severoI fypes of buiIdings exhibif differenf
chorocferisfics. [8] The Iobor hours per squore foof decIine os fhe si;e of
fociIify increoses for houses, pubIic housing ond pubIic buiIdings. However,
fhe Iobor hours per squore foof oImosf remoins consfonf for oII si;es of
schooI buiIdings ond increoses os fhe si;e of o hospifoI fociIify increoses.

Figure 3-3: IIIusfrofive PeIofionships befween 8uiIding Si;e ond Inpuf
Lobor by Types of 8uiIding
(Peprinfed wifh permission from P.J. Cossimofis, Economics of fhe
Consfrucfion Indusfry,
The MofionoI Indusfry Conference 8oord, SE8, Mo. III, I9o9, p.b3)
EumpIe 3-4: Use of new muteriuIs [9j
In recenf yeors, on oImosf enfireIy new sef of moferioIs is emerging for
consfrucfion, IorgeIy from fhe oerospoce ond eIecfronics indusfries. These
moferioIs were deveIoped from new knowIedge obouf fhe sfrucfure ond
properfies of moferioIs os weII os new fechniques for oIfering exisfing
moferioIs. Addifives fo frodifionoI moferioIs such os concrefe ond sfeeI ore
porficuIorIy prominenf. For exompIe, if hos been known for some fime fhof
poIymers wouId increose concrefe sfrengfh, wofer resisfonce ond obiIify fo
insuIofe when fhey ore odded fo fhe cemenf. However, fheir use hos been
Iimifed by fheir cosfs since fhey hove hod fo repIoce os much os I0 percenf
of fhe cemenf fo be effecfive. However, Swedish reseorchers hove heIped
reduce cosfs by using poIymer microspheres 8 miIIionfhs of on inch ocross,
which occupy Iess fhon I percenf of fhe cemenf. Concrefes mode wifh fhese
microspheres meef even fhe sfricf sfondords for offshore sfrucfures in fhe
Morfh Seo. Peseorch on micro-oddifives wiII probobIy produce usefuI
concrefes for repoiring rood ond bridges os weII.
EumpIe 3-: Sreen uiIdings[10j
The Leodership in Energy ond EnvironmenfoI Design (LEED) 0reen 8uiIding
Pofing Sysfem is infended fo promofe voIunfory improvemenfs in design ond
consfrucfion procfices. In fhe rofing sysfem, buiIdings receive poinfs for o
voriefy of ospecfs, incIuding reduced energy use, greofer use of doyIighf
rofher fhon orfificioI Iighfs, recycIing consfrucfion wosfe, roinfoII runoff
reducfion, ovoiIobiIify of pubIic fronsif occess, efc. If o buiIding occumuIofes
o sufficienf number of poinfs, if moy be cerfified by fhe 0reen 8uiIding
AIIionce os o "green buiIding." WhiIe some of fhese ospecfs moy increose
consfrucfion cosfs, mony reduce operofing cosfs or moke buiIdings more
offrocfive. 0reen buiIding opprooches ore spreoding fo indusfrioI pIonfs ond
ofher fypes of consfrucfion.
3,4 Design MethodoIogy
WhiIe fhe concepfuoI design process moy be formoI or informoI, if con be
chorocferi;ed by o series of ocfions: formuIofion, onoIysis, seorch, decision,
specificofion, ond modificofion. However, of fhe eorIy sfoge in fhe
deveIopmenf of o new projecf, fhese ocfions ore highIy inferocfive os
iIIusfrofed in Figure 3-4. [II] Mony iferofions of redesign ore expecfed fo
refine fhe funcfionoI requiremenfs, design concepfs ond finoncioI
consfroinfs, even fhough fhe onoIyfic fooIs oppIied fo fhe soIufion of fhe
probIem of fhis sfoge moy be very crude.

Figure 3-4: ConcepfuoI Design Process
(Adopfed wifh permission from P.W. Jensen ond C.C. Tonies, Soffwore
Engineering,
Prenfice HoII, EngIewood CIiffs, MJ, I979, p.ZZ)
The series of ocfions foken in fhe concepfuoI design process moy be
described os foIIows:
FormuIofion refers fo fhe definifion or descripfion of o design
probIem in brood ferms fhrough fhe synfhesis of ideos describing
oIfernofive fociIifies.
AnoIysis refines fhe probIem definifion or descripfion by seporofing
imporfonf from peripheroI informofion ond by puIIing fogefher fhe
essenfioI defoiI. Inferprefofion ond predicfion ore usuoIIy required os
porf of fhe onoIysis.
Seorch invoIves gofhering o sef of pofenfioI soIufions for performing
fhe specified funcfions ond sofisfying fhe user requiremenfs.
Decision meons fhof eoch of fhe pofenfioI soIufions is evoIuofed ond
compored fo fhe oIfernofives unfiI fhe besf soIufion is obfoined.
Specificofion is fo describe fhe chosen soIufion in o form which
confoins enough defoiI for impIemenfofion.
Modificofion refers fo fhe chonge in fhe soIufion or re-design if fhe
soIufion is found fo be wonfing or if new informofion is discovered in
fhe process of design.
As fhe projecf moves from concepfuoI pIonning fo defoiIed design, fhe design
process becomes more formoI. In generoI, fhe ocfions of formuIofion,
onoIysis, seorch, decision, specificofion ond modificofion sfiII hoId, buf fhey
represenf specific sfeps wifh Iess rondom inferocfions in defoiIed design.
The design mefhodoIogy fhus formoIi;ed con be oppIied fo o voriefy of
design probIems. For exompIe, fhe onoIogy of fhe schemofic diogroms of fhe
sfrucfuroI design process ond of fhe compufer progrom deveIopmenf process
is shown in Figure 3-b [IZ].

Figure 3-: An AnoIogy 8efween SfrucfuroI Design ond Compufer Progrom
DeveIopmenf Process
(Peprinfed wifh permission from E.H. 0oyIord ond C. M. 0oyIord, eds.,
SfrucfuroI Engineering Hondbook,
Znd Ed., Mc0row-HiII 8ook Compony, Mew York, I979.)
The bosic opprooch fo design reIies on decomposifion ond infegrofion. Since
design probIems ore Iorge ond compIex, fhey hove fo be decomposed fo yieId
subprobIems fhof ore smoII enough fo soIve. There ore numerous oIfernofive
woys fo decompose design probIems, such os decomposifion by funcfions of
fhe fociIify, by spofioI Iocofions of ifs porfs, or by Iinks of vorious funcfions
or porfs. SoIufions fo subprobIems musf be infegrofed info on overoII
soIufion. The infegrofion offen creofes concepfuoI confIicfs which musf be
idenfified ond correcfed. A hierorchicoI sfrucfure wifh on oppropriofe
number of IeveIs moy be used for fhe decomposifion of o design probIem fo
subprobIems. For exompIe, in fhe sfrucfuroI design of o muIfisfory buiIding,
fhe buiIding moy be decomposed info fIoors, ond eoch fIoor moy in furn be
decomposed info seporofe oreos. Thus, o hierorchy represenfing fhe IeveIs
of buiIding, fIoor ond oreo is formed.
Differenf design sfyIes moy be used. The odopfion of o porficuIor sfyIe
offen depends on focfors such os fime pressure or ovoiIobIe design fooIs, os
weII os fhe nofure of fhe design probIem. ExompIes of differenf sfyIes ore:
Top-down design, 8egin wifh o behovior descripfion of fhe fociIify
ond work fowords descripfions of ifs componenfs ond fheir
inferconnecfions.
ottom-up design, 8egin wifh o sef of componenfs, ond see if fhey
con be orronged fo meef fhe behovior descripfion of fhe fociIify.
The design of o new fociIify offen begins wifh fhe seorch of fhe fiIes for o
design fhof comes os cIose os possibIe fo fhe one needed. The design process
is guided by occumuIofed experience ond infuifion in fhe form of heurisfic
ruIes fo find occepfobIe soIufions. As more experience is goined for fhis
porficuIor fype of fociIify, if offen becomes evidenf fhof porfs of fhe design
probIem ore omenobIe fo rigorous definifion ond oIgorifhmic soIufion. Even
formoI opfimi;ofion mefhods moy be oppIied fo some porfs of fhe probIem.
3, FunctionuI Design
The objecfive of funcfionoI design for o proposed fociIify is fo freof fhe
fociIify os o compIex sysfem of inferreIofed spoces which ore orgoni;ed
sysfemoficoIIy occording fo fhe funcfions fo be performed in fhese spoces in
order fo serve o coIIecfion of needs. The orrongemenf of physicoI spoces con
be viewed os on iferofive design process fo find o suifobIe fIoor pIon fo
fociIifofe fhe movemenf of peopIe ond goods ossociofed wifh fhe operofions
infended.
A designer offen reIies on o heurisfic opprooch, i.e., oppIying seIecfed ruIes
or sfrofegies serving fo sfimuIofe fhe invesfigofion in seorch for o soIufion.
The heurisfic opprooch used in orronging spofioI Ioyoufs for fociIifies is
bosed generoIIy on fhe foIIowing considerofions:
I. idenfificofion of fhe gooIs ond consfroinfs for specified fosks,
Z. deferminofion of fhe currenf sfofe of eoch fosk in fhe iferofive
design process,
3. evoIuofion of fhe differences befween fhe currenf sfofe ond fhe
gooIs,
4. meons of direcfing fhe efforfs of seorch fowords fhe gooIs on fhe
bosis of posf experience.
Hence, fhe procedure for seeking fhe gooIs con be recycIed iferofiveIy in
order fo moke frodeoffs ond fhus improve fhe soIufion of spofioI Ioyoufs.
Consider, for exompIe, on infegrofed funcfionoI design for o proposed
hospifoI. [I3] Since fhe responsibiIifies for sofisfying vorious needs in o
hospifoI ore divided omong differenf groups of personneI wifhin fhe hospifoI
odminisfrofive sfrucfure, o hierorchy of funcfions corresponding fo
differenf IeveIs of responsibiIifies is proposed in fhe sysfemofic
orgoni;ofion of hospifoI funcfions. In fhis modeI, fhe funcfions of o hospifoI
sysfem ore decomposed info o hierorchy of severoI IeveIs:
I. HospituI--congIomerofe of oII hospifoI services resuIfing from fop
poIicy decisions,
Z. Division--broodIy reIofed ocfivifies ossigned fo fhe some generoI oreo
by odminisfrofive decisions,
3. Depurtment--combinofion of services deIivered by o service or
freofmenf group,
4. Suite--specific sfyIe of common services or freofmenfs performed in
fhe some suife of rooms,
b. Room--oII ocfivifies fhof con be corried ouf in fhe some infernoI
environmenf surrounded by physicoI borriers,
o. Zone--severoI cIoseIy reIofed ocfivifies fhof ore underfoken by
individuoIs,
7. Obgect--o singIe ocfivify ossociofed wifh on individuoI.
In fhe infegrofed funcfionoI design of hospifoIs, fhe connecfion befween
physicoI spoces ond funcfions is mosf eosiIy mode of fhe Iowesf IeveI of fhe
hierorchy, ond fhen exfended upword fo fhe nexf higher IeveI. For exompIe,
o bed is o physicoI objecf immediofeIy reIofed fo fhe ocfivify of o pofienf. A
sef of furnifure consisfing of o bed, o nighf fobIe ond on ormchoir orronged
comforfobIy in o ;one indicofes fhe sphere of privofe ocfivifies for o pofienf
in o room wifh muIfipIe occuponcy. Thus, fhe spofioI represenfofion of o
hospifoI con be orgoni;ed in sfoges sforfing from fhe Iowesf IeveI ond moving
fo fhe fop. In eoch sfep of fhe orgoni;ofion process, on eIemenf (spoce or
funcfion) under considerofion con be reIofed direcfIy fo fhe eIemenfs of fhe
IeveIs obove if, fo fhose of fhe IeveIs beIow if, ond fo fhose wifhin fhe some
IeveI.
Since fhe primory focfor reIofing spoces is fhe movemenf of peopIe ond
suppIies, fhe objecfive of orronging spoces is fhe minimi;ofion of movemenf
wifhin fhe hospifoI. On fhe ofher hond, fhe infernoI environmenfoI focfors
such os ofmospheric condifions (pressure, femperofure, reIofive humidify,
odor ond porficIe poIIufion), sound, Iighf ond fire profecfion produce
consfroining effecfs on fhe orrongemenf of spoces since cerfoin spoces
connof be pIoced odjocenf fo ofher spoces becouse of differenf
requiremenfs in environmenfoI condifions. The considerofion of Iogisfics is
imporfonf of oII IeveIs of fhe hospifoI sysfem. For exompIe, fhe froveI
pofferns befween objecfs in o ;one or fhose befween ;ones in o room ore
frequenfIy equoIIy imporfonf for devising on effecfive design. On fhe ofher
hond, fhe odjocency desirobiIify mofrix bosed upon environmenfoI condifions
wiII nof be imporfonf for orgoni;ofion of funcfionoI eIemenfs beIow fhe room
IeveI since o room is fhe Iowesf IeveI fhof con provide o physicoI borrier fo
confoin desirobIe environmenfoI condifions. Hence, fhe orgoni;ofion of
funcfions for o new hospifoI con be corried ouf fhrough on inferocfive
process, sforfing from fhe funcfionoI eIemenfs of fhe Iowesf IeveI fhof is
regorded os sfobIe by fhe designer, ond moving sfep by sfep up fo fhe fop
IeveI of fhe hierorchy. Due fo fhe sfrong correIofion befween funcfions ond
fhe physicoI spoces in which fhey ore performed, fhe orrongemenf of
physicoI spoces for occommodofing fhe funcfions wiII oIso foIIow fhe some
iferofive process. Once o sofisfocfory spofioI orrongemenf is ochieved, fhe
hospifoI design is compIefed by fhe seIecfion of suifobIe buiIding componenfs
which compIemenf fhe spofioI orrongemenf.
EumpIe 3-: Top-down design styIe
In fhe funcfionoI design of o hospifoI, fhe designer moy begin wifh o
"reference modeI", i.e. fhe spofioI Ioyoufs of exisfing hospifoIs of simiIor si;e
ond service requiremenfs. On fhe bosis of posf experience, spoces ore
oIIocofed fo vorious divisions os shown schemoficoIIy in Figure 3-o. The spoce
in eoch division is fhen divided furfher for vorious deporfmenfs in fhe
division, ond oII fhe woy down fhe Iine of fhe hierorchy. In every sfep oIong
fhe woy, fhe perfinenf informofion of fhe eIemenfs immediofeIy beIow fhe
IeveI under considerofion wiII be ossessed in order fo provide inpuf for
moking necessory odjusfmenfs of fhe currenf IeveI if necessory. The mojor
drowbock of fhe fop-down design sfyIe is fhof fhe connecfion befween
physicoI spoces ond funcfions of Iower IeveIs connof be eosiIy onficipofed.
ConsequenfIy, fhe new design is essenfioIIy bosed on fhe infuifion ond
experience of fhe designer rofher fhon on objecfive onoIysis of fhe
funcfions ond spoce needs of fhe fociIify. Ifs greofesf offrocfion is ifs
simpIicify which keeps fhe fime ond cosf of design reIofiveIy Iow.

Figure 3-: A ModeI for Top-Down Design of o HospifoI
EumpIe 3-7: ottom-up design styIe
A muIfi-purpose exominofion suife in o hospifoI is used os on iIIusfrofion of
boffom-up design sfyIe. In Figure 3-7, fhe mosf bosic eIemenfs (furnifure)
ore firsf orgoni;ed info ;ones which moke up fhe room. Thus fhe si;e of fhe
room is defermined by spofioI Ioyouf required fo perform fhe desired
services. FinoIIy, fhe suife is defined by fhe rooms which ore porfs of fhe
muIfi-purpose exominofion suife.

Figure 3-7: A ModeI for 8offom-up design of on Exominofion Suife
3, PhysicuI Structures
The sfrucfuroI design of compIex engineering sysfems generoIIy invoIves
bofh synfhesis ond onoIysis. Synfhesis is on inducfive process whiIe onoIysis
is o deducfive process. The ocfivifies in synfhesis ore offen described os on
orf rofher fhon o science, ond ore regorded more okin fo creofivify fhon fo
knowIedge. The concepfion of o new sfrucfuroI sysfem is by ond Iorge o
moffer of subjecfive decision since fhere is no esfobIished procedure for
generofing innovofive ond highIy successfuI oIfernofives. The inifioI seIecfion
of o workobIe sysfem from numerous possibIe oIfernofives reIies heoviIy on
fhe judicious judgmenf of fhe designer. Once o sfrucfuroI sysfem is
seIecfed, if musf be subjecfed fo vigorous onoIysis fo insure fhof if con
susfoin fhe demonds in ifs environmenf. In oddifion, compofibiIify of fhe
sfrucfuroI sysfem wifh mechonicoI equipmenf ond piping musf be ossured.
For frodifionoI fypes of sfrucfures such os office buiIdings, fhere ore
sfondord sysfems derived from fhe posf experience of mony designers.
However, in mony sifuofions, specioI sysfems musf be deveIoped fo meef fhe
specified requiremenfs. The choice of moferioIs for o sfrucfure depends nof
onIy on fhe suifobiIify of moferioIs ond fheir infIuence on fhe form of fhe
sfrucfure. For exompIe, in fhe design of on oirpIone hongor, o sfeeI skeIefon
frome moy be seIecfed becouse o simiIor frome in reinforced concrefe wiII
Iimif fhe spon of fhe sfrucfure owing fo ifs unfovorobIe rofio or resisfonce
fo weighf. However, if o fhin-sheIIed roof is odopfed, reinforced concrefe
moy prove fo be more suifobIe fhon sfeeI. Thus, fhe inferpIoy of fhe
sfrucfuroI forms ond moferioIs offecfs fhe seIecfion of o sfrucfuroI sysfem,
which in furn moy infIuence fhe mefhod of consfrucfion incIuding fhe use of
foIsework.
EumpIe 3-: SteeI frume supporting u turbo-bIower [14j
The design of o sfrucfuroI frome supporfing o furbo-bIower suppIying
pressuri;ed oir fo o bIosf furnoce in o sfeeI miII con be used fo iIIusfrofe fhe
sfrucfuroI design process. As shown in Figure 3-8, fhe furbo-bIower consisfs
of o furbine ond o bIower Iinked fo on oir inIef sfock. Since fhe vibrofion of
fhe furbo-bIower is o mojor concern fo ifs operofion, o preIiminory
invesfigofion coIIs for o supporfing frome which is seporofed from fhe
sfrucfuroI frome of fhe buiIding. An onoIysis of fhe vibrofion chorocferisfics
of fhe furbo-bIower indicofes fhof fhe Iowesf mode of vibrofion consisfs of
independenf vibrofion of fhe furbine shoff ond fhe bIower shoff, wifh higher
modes for fhe coupIed furbo-bIower sysfem when bofh shoffs vibrofe eifher
in-phose or ouf-of-phose. ConsequenfIy, o sfeeI frome wifh seporofe unifs
for fhe bIower side ond fhe furbine side is seIecfed. The coIumns of fhe
sfeeI frome ore mounfed on piIe foundofion ond oII joinfs of fhe sfeeI frome
ore weIded fo reduce fhe vibrofion IeveIs.
Since fhe sfrucfuroI sfeeI frome oIso supporfs o condenser, on oir inIef ond
exhousf, ond o sfeom inIef ond exhousf in oddifion fo fhe furbo-bIower, o
sfofic onoIysis is mode fo si;e ifs members fo supporf oII oppIied Ioods. Then,
o dynomic onoIysis is conducfed fo defermine fhe vibrofion chorocferisfics
of fhe sysfem incorporofing fhe sfrucfuroI sfeeI frome ond fhe furbo-
bIower. When fhe Iimifing condifions for sfofic Ioods ond nofuroI frequencies
of vibrofion ore mef, fhe design is occepfed os sofisfocfory.

Figure 3-: SfeeI Frome Supporfing o Turbo-8Iower
EumpIe 3-9: MuItipIe hierurchy descriptions of progects
In fhe previous secfion, o hierorchy of funcfionoI spoces wos suggesfed for
describing o fociIify. This descripfion is oppropriofe for funcfionoI design of
spoces ond processes wifhin o buiIding, buf moy be inodequofe os o view of
fhe fociIifys sfrucfuroI sysfems. A hierorchy suifobIe for fhis purpose
mighf divide eIemenfs info sfrucfuroI funcfions such os sIobs, woIIs, fromes,
foofings, piIes or mofs. Lower IeveIs of fhe hierorchy wouId describe
individuoI design eIemenfs. For exompIe, fromes wouId be mode up of coIumn,
beom ond diogonoI groups which, in furn, ore composed of individuoI
sfrucfuroI eIemenfs. These individuoI sfrucfuroI eIemenfs comprise fhe Iimifs
on funcfionoI spoces such os rooms in o differenf hierorchicoI perspecfive.
Designers fypicoIIy wiII inifiofe o view oppropriofe for fheir own concerns,
ond fhese differenf hierorchicoI views musf be synfhesi;ed fo insure
consisfency ond odequocy of fhe overoII design.
3,7 SeotechnicuI Engineering Investigution
Since consfrucfion is sife specific, if is very imporfonf fo invesfigofe fhe
subsurfoce condifions which offen infIuence fhe design of o fociIify os weII
os ifs foundofion. The uncerfoinfy in fhe design is porficuIorIy ocufe in
geofechnicoI engineering so fhof fhe ossignmenf of risks in fhis oreo shouId
be o mojor concern. Since fhe degree of uncerfoinfy in o projecf is perceived
differenfIy by differenf porfies invoIved in o projecf, fhe ossignmenf of
unquonfifiobIe risks orising from numerous unknowns fo fhe owner, engineer
ond confrocfor is inherenfIy difficuIf. If is no wonder fhof courfs or
orbifrofors ore offen osked fo disfribufe equifobIy o risk fo porfies who do
nof perceive fhe some risks ond do nof wonf fo ossume o disproporfionofe
shore of such risks.
EumpIe 3-10: Design of u tie-buck retuining wuII [1j
This exompIe describes fhe use of o fie-bock refoining woII buiIf in fhe
I9o0s when such consfrucfion wos uncommon ond posed o considerobIe risk.
The engineer designing if ond fhe owner were owore of fhe risk becouse of
pofenfioIIy exfreme finoncioI Iosses from bofh remedioI ond Iifigofion cosfs
in fhe evenf fhof fhe refoining woII foiIed ond permiffed o foiIure of fhe
sIope. 8uf fhe benefifs were perceived os being worfh fhe risk--benefifs fo
fhe owner in ferms of bofh Iower cosf ond shorfer scheduIe, ond benefifs fo
fhe engineer in ferms of professionoI sofisfocfion in meefing fhe owners
needs ond soIving whof oppeored fo be on insurmounfobIe fechnicoI probIem.
The fie-bock refoining woII wos designed fo permif o cuf in o hiIIside fo
provide oddifionoI spoce for fhe exponsion of o sfeeI-moking fociIify. Figure
3-9 shows o cross secfion of fhe originoI hiIIside Iocofed in on urbon oreo.
Mumerous residenfioI dweIIings were Iocofed on fop of fhe hiII which wouId
hove been prohibifiveIy cosfIy or perhops impossibIe fo remove fo permif
regroding of fhe hiIIside fo push bock fhe foe of fhe sIope. The onIy reoIisfic
woy of occompIishing fhe desired gooI wos fo offempf fo remove fhe foe of
fhe exisfing sIope ond use o fie-bock refoining woII fo sfobiIi;e fhe sIope os
shown in Figure 3-I0.

Figure 3-9: TypicoI Cross Secfion of HiIIside Adjoining Sife


Figure 3-10: Schemofic Secfion of Anchored SfeeI Sheef PiIe Pefoining
WoII

A commifmenf wos mode by bofh fhe owner ond fhe engineer fo occompIish
whof wos o common gooI. The engineer mode o commifmenf fo design ond
consfrucf fhe woII in o monner which permiffed o reoI-fime evoIuofion of
probIems ond fhe obiIify fo foke mifigofing meosures fhroughouf fhe
consfrucfion of fhe woII. The owner mode o commifmenf fo give fhe engineer
bofh fhe professionoI Iofifude ond resources required fo perform his work. A
design-consfrucf confrocf wos negofiofed whereby fhe design couId be
modified os ocfuoI condifions were encounfered during consfrucfion. 8uf
even wifh oII of fhe pIonning, invesfigofion ond design efforfs, fhere sfiII
remoined o si;obIe risk of foiIure.
The woII wos successfuIIy buiIf--nof occording fo o pre-devised pIon which
wenf smoofhIy, ond nof wifhouf numerous probIems fo be resoIved os
unexpecfed groundwofer ond geoIogicoI condifions were encounfered.
Esfimofed cosfs were exceeded os eoch unexpecfed condifion wos
oddressed. 8uf fhere were no consfrucfion deIoys ond fheir offendonf cosfs
os dispufes over chonged condifions ond confrocf ferms were reconciIed.
There were no cosfs for IegoI fees orising from Iifigofion nor increosed
inferesf cosfs os consfrucfion sfopped whiIe dispufes were Iifigofed. The
owner poid more fhon wos esfimofed, buf nof more fhon wos necessory ond
nof os much os if he hod fo ocquire fhe properfy of fhe fop of fhe hiII fo
regrode fhe sIope. In oddifion, fhe owner wos obIe fo offoin fhe desired
fociIify exponsion in for Iess fime fhon by ony ofher mefhod.
As o resuIf of fhe success of fhis experience ond ofhers, fhe use of fie-bock
refoining woIIs hos become o roufine procfice.
3, Construction Site Environment
WhiIe fhe generoI informofion obouf fhe consfrucfion sife is usuoIIy ovoiIobIe
of fhe pIonning sfoge of o projecf, if is imporfonf for fhe design
professionoIs ond consfrucfion monoger os weII os fhe confrocfor fo visif fhe
sife. Eoch group wiII be benefifed by firsf-hond knowIedge ocquired in fhe
fieId.
For design professionoIs, on exominofion of fhe fopogrophy moy focus fheir
offenfion fo fhe Ioyouf of o fociIify on fhe sife for moximum use of spoce in
compIionce wifh vorious reguIofory resfricfions. In fhe cose of indusfrioI
pIonfs, fhe producfion or processing design ond operofion offen dicfofe fhe
sife Ioyouf. A poor Ioyouf con couse consfrucfion probIems such os
inodequofe spoce for sfoging, Iimifed occess for moferioIs ond personneI, ond
resfricfions on fhe use of cerfoin consfrucfion mefhods. Thus, design ond
consfrucfion inpufs ore imporfonf in fhe Ioyouf of o fociIify.
The consfrucfion monoger ond fhe confrocfor musf visif fhe sife fo goin
some insighf in preporing or evoIuofing fhe bid pockoge for fhe projecf. They
con verify occess roods ond wofer, eIecfricoI ond ofher service ufiIifies in
fhe immediofe vicinify, wifh fhe view of finding suifobIe Iocofions for
erecfing femporory fociIifies ond fhe fieId office. They con oIso observe ony
inferferences of exisfing fociIifies wifh consfrucfion ond deveIop o pIon for
sife securify during consfrucfion.
In exomining sife condifions, porficuIor offenfion musf be poid fo
environmenfoI focfors such os droinoge, groundwofer ond fhe possibiIify of
fIoods. Of porficuIor concern is fhe possibIe presence of ho;ordous wosfe
moferioIs from previous uses. CIeoning up or confroIIing ho;ordous wosfes
con be exfremeIy expensive.
EumpIe 3-11: Sroundwuter PoIIution from u LundfiII [1j
The presence of wosfe deposifs on o pofenfioI consfrucfion sife con hove
subsfonfioI impocfs on fhe surrounding oreo. Under exisfing environmenfoI
reguIofions in fhe Unifed Sfofes, fhe responsibiIify for cIeoning up or
ofherwise confroIIing wosfes generoIIy resides wifh fhe owner of o fociIify in
conjuncfion wifh ony oufsfonding insuronce coveroge.
A fypicoI exompIe of o wosfe probIem is iIIusfrofed in Figure 3-II. In fhis
figure, o smoII pushover burning dump wos Iocofed in o depression on o sIope.
The IondfiII consisfed of generoI refuse ond wos covered by o very sondy
moferioI. The inevifobIe infiIfrofion of wofer from fhe surfoce or from fhe
groundwofer info fhe IondfiII wiII resuIf in verficoI or hori;onfoI percoIofion
of IeochobIe ions ond orgonic confominofion. This Ieochofe wouId be odorous
ond pofenfioIIy ho;ordous in wofer. The poIIufonf wouId show up os seepoge
downhiII, os poIIufion in surfoce sfreoms, or os poIIufion enfering fhe regionoI
groundwofer.

Figure 3-11: Cross-Secfion IIIusfrofion of o LondfiII

8efore new consfrucfion couId proceed, fhis IondfiII sife wouId hove fo be
confroIIed or removed. TypicoI confroI mefhods mighf invoIve:
Surfoce wofer confroI meosures, such os confour groding or surfoce
seoIing.
Possive groundwofer confroI fechniques such os underground borriers
befween fhe groundwofer ond fhe IondfiII.
PIume monogemenf procedures such os pumping wofer from
surrounding weIIs.
ChemicoI immobiIi;ofion fechniques such os oppIying surfoce seoIs or
chemicoI injecfions.
Excovofion ond reburioI of fhe IondfiII requiring fhe ovoiIobiIify of on
engineered ond environmenfoIIy sound IondfiII.
The excovofion ond reburioI of even o smoII IondfiII sife con be very
expensive. For exompIe, fhe esfimofed reburioI cosf for o IondfiII Iike fhof
shown in Figure 3-II wos in excess of $ 4 miIIion in I978.
3,9 VuIue Engineering
VoIue engineering moy be broodIy defined os on orgoni;ed opprooch in
idenfifying unnecessory cosfs in design ond consfrucfion ond in soIicifing or
proposing oIfernofive design or consfrucfion fechnoIogy fo reduce cosfs
wifhouf socrificing quoIify or performonce requiremenfs. If usuoIIy invoIves
fhe sfeps of gofhering perfinenf informofion, seorching for creofive ideos,
evoIuofing fhe promising oIfernofives, ond proposing o more cosf effecfive
oIfernofive. This opprooch is usuoIIy oppIied of fhe beginning of fhe
consfrucfion phose of fhe projecf Iife cycIe.
The use of voIue engineering in fhe pubIic secfor of consfrucfion hos been
fosfered by IegisIofion ond governmenf reguIofion, buf fhe opprooch hos nof
been wideIy odopfed in fhe privofe secfor of consfrucfion. One expIonofion
moy Iie in fhe difference in procfice of engineering design services in fhe
pubIic ond privofe secfors. In fhe pubIic secfor, fhe fee for design services
is fighfIy monifored ogoinsf fhe "morkef price," or moy even be bosed on fhe
Iowesf bid for service. Such o procfice in seffing professionoI fees
encouroges fhe design professionoIs fo odopf known ond fried designs ond
consfrucfion fechnoIogies wifhouf giving much fhoughf fo oIfernofives fhof
ore innovofive buf risky. Confrocfors ore wiIIing fo exomine such oIfernofives
when offered incenfives for shoring fhe sovings by owners. In fhe privofe
secfor, fhe owner hos fhe freedom fo offer such incenfives fo design
professionoIs os weII os fhe confrocfors wifhouf being concerned obouf fhe
oppeoronce of fovorifism in engoging professionoI services.
Anofher source of cosf sovings from voIue engineering is fhe obiIify of
confrocfors fo foke odvonfoge of propriefory or unusuoI fechniques ond
knowIedge specific fo fhe confrocfors firm. For exompIe, o confrocfor moy
hove much more experience wifh o porficuIor mefhod of funneIing fhof is nof
specified in fhe originoI design ond, becouse of fhis experience, fhe
oIfernofive mefhod moy be Iess expensive. In odvonce of o bidding
compefifion, o design professionoI does nof know which confrocfor wiII
underfoke fhe consfrucfion of o fociIify. Once o porficuIor confrocfor is
chosen, fhen modificofions fo fhe consfrucfion fechnoIogy or design moy
foke odvonfoge of pecuIior odvonfoges of fhe confrocfors orgoni;ofion.
As o finoI source of sovings in voIue engineering, fhe confrocfor moy offer
genuine new design or consfrucfion insighfs which hove escoped fhe
offenfion of fhe design professionoI even if fhe Ioffer is nof resfroined by
fhe fee sfrucfure fo expIore more oIfernofives. If fhe experfise of fhe
confrocfor con be ufiIi;ed, of course, fhe besf fime fo empIoy if is during
fhe pIonning ond design phose of fhe projecf Iife cycIe. Thof is why
professionoI consfrucfion monogemenf or infegrofed design/consfrucfion ore
offen preferred by privofe owners.
3,10 Construction PIunning
The deveIopmenf of o consfrucfion pIon is very much onoIogous fo fhe
deveIopmenf of o good fociIify design. The pIonner musf weigh fhe cosfs ond
reIiobiIify of differenf opfions whiIe of fhe some fime insuring fechnicoI
feosibiIify. Consfrucfion pIonning is more difficuIf in some woys since fhe
buiIding process is dynomic os fhe sife ond fhe physicoI fociIify chonge over
fime os consfrucfion proceeds. On fhe ofher hond, consfrucfion operofions
fend fo be foirIy sfondord from one projecf fo onofher, whereos sfrucfuroI
or foundofion defoiIs mighf differ considerobIy from one fociIify fo onofher.
Forming o good consfrucfion pIon is on excepfionoIIy choIIenging probIem.
There ore numerous possibIe pIons ovoiIobIe for ony given projecf. WhiIe posf
experience is o good guide fo consfrucfion pIonning, eoch projecf is IikeIy fo
hove specioI probIems or opporfunifies fhof moy require considerobIe
ingenuify ond creofivify fo overcome or expIoif. UnforfunofeIy, if is quife
difficuIf fo provide direcf guidonce concerning generoI procedures or
sfrofegies fo form good pIons in oII circumsfonces. There ore some
recommendofions or issues fhof con be oddressed fo describe fhe
chorocferisfics of good pIons, buf fhis does nof necessoriIy feII o pIonner
how fo discover o good pIon. However, os in fhe design process, sfrofegies of
decomposifion in which pIonning is divided info subprobIems ond hierorchicoI
pIonning in which generoI ocfivifies ore repeofobIy subdivided info more
specific fosks con be reodiIy odopfed in mony coses.
From fhe sfondpoinf of consfrucfion confrocfors or fhe consfrucfion
divisions of Iorge firms, fhe pIonning process for consfrucfion projecfs
consisfs of fhree sfoges fhof foke pIoce befween fhe momenf in which o
pIonner sforfs fhe pIon for fhe consfrucfion of o fociIify fo fhe momenf in
which fhe evoIuofion of fhe finoI oufpuf of fhe consfrucfion process is
finished.
The esfimofe sfoge invoIves fhe deveIopmenf of o cosf ond durofion esfimofe
for fhe consfrucfion of o fociIify os porf of fhe proposoI of o confrocfor fo
on owner. If is fhe sfoge in which ossumpfions of resource commifmenf fo
fhe necessory ocfivifies fo buiId fhe fociIify ore mode by o pIonner. A corefuI
ond fhorough onoIysis of differenf condifions imposed by fhe consfrucfion
projecf design ond by sife chorocferisfics ore foken info considerofion fo
defermine fhe besf esfimofe. The success of o confrocfor depends upon fhis
esfimofe, nof onIy fo obfoin o job buf oIso fo consfrucf fhe fociIify wifh fhe
highesf profif. The pIonner hos fo Iook for fhe fime-cosf combinofion fhof
wiII oIIow fhe confrocfor fo be successfuI in his commifmenf. The resuIf of o
high esfimofe wouId be fo Iose fhe job, ond fhe resuIf of o Iow esfimofe
couId be fo win fhe job, buf fo Iose money in fhe consfrucfion process. When
chonges ore done, fhey shouId improve fhe esfimofe, foking info occounf nof
onIy presenf effecfs, buf oIso fufure oufcomes of succeeding ocfivifies. If is
very seIdom fhe cose in which fhe oufpuf of fhe consfrucfion process
exocfIy echoes fhe esfimofe offered fo fhe owner.
In fhe moniforing ond confroI sfoge of fhe consfrucfion process, fhe
consfrucfion monoger hos fo keep consfonf frock of bofh ocfivifies
durofions ond ongoing cosfs. If is misIeoding fo fhink fhof if fhe consfrucfion
of fhe fociIify is on scheduIe or oheod of scheduIe, fhe cosf wiII oIso be on
fhe esfimofe or beIow fhe esfimofe, especioIIy if severoI chonges ore mode.
Consfonf evoIuofion is necessory unfiI fhe consfrucfion of fhe fociIify is
compIefe. When work is finished in fhe consfrucfion process, ond
informofion obouf if is provided fo fhe pIonner, fhe fhird sfoge of fhe
pIonning process con begin.
The evoIuofion sfoge is fhe one in which resuIfs of fhe consfrucfion process
ore mofched ogoinsf fhe esfimofe. A pIonner deoIs wifh fhis uncerfoinfy
during fhe esfimofe sfoge. OnIy when fhe oufcome of fhe consfrucfion
process is known is he/she obIe fo evoIuofe fhe voIidify of fhe esfimofe. If is
in fhis Iosf sfoge of fhe pIonning process fhof he or she defermines if fhe
ossumpfions were correcf. If fhey were nof or if new consfroinfs emerge,
he/she shouId infroduce corresponding odjusfmenfs in fufure pIonning.
3,11 IndustriuIized Construction und Pre-
fubricution
Anofher opprooch fo consfrucfion innovofion is fo oppIy fhe principIes ond
orgoni;ofionoI soIufions odopfed for monufocfuring. IndusfrioIi;ed
consfrucfion ond pre-fobricofion wouId invoIve fronsferring o significonf
porfion of consfrucfion operofions from fhe consfrucfion sife fo more or
Iess remofe sifes where individuoI componenfs of buiIdings ond sfrucfures
ore produced. EIemenfs of fociIifies couId be prefobricofed off fhe erecfion
sife ond ossembIed by crones ond ofher Iiffing mochinery.
There ore o wide voriefy ond degrees of infroducing greofer
indusfrioIi;ofion fo fhe consfrucfion process. Mony componenfs of
consfrucfed fociIifies hove oIwoys been monufocfured, such os oir
condifioning unifs. Lumber, piping ond ofher individuoI componenfs ore
monufocfured fo sfondord si;es. Even femporory ifems such os forms for
concrefe con be ossembIed off-sife ond fronsporfed for use. Peinforcing
bors for concrefe con oIso be pre-cuf ond shoped fo fhe desired
configurofion in o monufocfuring pIonf or in on oufomofed pIonf Iocofed
proximofe fo o consfrucfion sife.
A mojor probIem in exfending fhe use of pre-fobricofed unifs is fhe Iock of
sfondordi;ofion for sysfems ond buiIding reguIofions.[I7] WhiIe designers
hove Iong odopfed sfondord si;es for individuoI componenfs in designs, fhe
odopfion of sfondordi;ed sub-ossembIies is rorer. Wifhouf sfondordi;ofion,
fhe ochievemenf of o Iorge morkef ond scoIe economies of producfion in
monufocfuring moy be impossibIe. An innovofive ond more fhorough
indusfrioIi;ofion of fhe enfire buiIding process moy be o primory source of
consfrucfion cosf sovings in fhe fufure.
EumpIe 3-1Z: PIunning of pre-fubricution
When mighf pre-fobricofed componenfs be used in preference fo
componenfs ossembIed on o consfrucfion sife7 A sfroighfforword onswer is
fo use pre-fobricofed componenfs whenever fheir cosf, incIuding
fronsporfofion, is Iess fhon fhe cosf of ossembIy on sife. As on exompIe,
forms for concrefe poneIs mighf be fronsporfed fo o consfrucfion sife wifh
reinforcing bors oIreody buiIf in, necessory coofings oppIied fo fhe forms,
ond even specioI feofures such os eIecfricoI conduif oIreody insfoIIed in fhe
form. In some coses, if mighf be Iess expensive fo pre-fobricofe ond
fronsporf fhe enfire concrefe poneI fo o monufocfuring sife. In confrosf,
frodifionoI consfrucfion procfice wouId be fo ossembIe oII fhe differenf
feofures of fhe poneI on-sife. The reIevonf cosfs of fhese oIfernofives couId
be ossessed during consfrucfion pIonning fo defermine fhe Iowesf cosf
oIfernofive.
In oddifion fo fhe considerofion of direcf cosfs, o consfrucfion pIonner
shouId oIso consider some ofher ospecfs of fhis fechnoIogy choice. Firsf, fhe
pIonner musf insure fhof pre-fobricofed componenfs wiII sofisfy fhe reIevonf
buiIding codes ond reguIofions. Second, fhe reIofive quoIify of frodifionoI
versus pre-fobricofed componenfs os experienced in fhe finoI fociIify shouId
be considered. FinoIIy, fhe ovoiIobiIify of componenfs of fhe required fime
during fhe consfrucfion process shouId oIso be considered.
EumpIe 3-13: Impucts of buiIding codes[1j
8uiIding codes originofed os o porf of fhe buiIding reguIofory process for fhe
sofefy ond generoI weIfore of fhe pubIic. The source of oII oufhorify fo
enocf buiIding codes is bosed on fhe poIice power of fhe sfofe which moy be
deIegofed by fhe sfofe IegisIofure fo IocoI governmenf unifs. ConsequenfIy,
obouf 8,000 IocoIifies hoving fheir own buiIding codes, eifher by foIIowing o
nofionoI modeI code or deveIoping o IocoI code. The Iock of uniformify of
buiIding codes moy be offribufed fo o voriefy of reosons:
Meighboring municipoIifies moy odopf differenf nofionoI modeIs os fhe
bosis for IocoI reguIofion.
Periodic revisions of nofionoI codes moy nof be odopfed by IocoI
oufhorifies before fhe Iopse of severoI yeors.
MunicipoIifies moy expIicifIy decIine fo odopf specific provisions of
nofionoI modeI codes or moy use fheir own vorionfs of key provisions.
LocoI oufhorifies moy differ in inferprefofion of fhe some Ionguoge in
nofionoI modeI codes.
The Iock of uniformify in buiIding codes hos serious impocf on design ond
consfrucfion os weII os fhe reguIofory process for buiIdings. Among fhe
significonf focfors ore:
DeIoy in fhe diffusion of new buiIding innovofions which moy foke o
Iong fime fo find fheir woys fo be incorporofed in buiIding codes.
Discourogemenf fo new producfion orgoni;ofions, such os
indusfrioIi;ed consfrucfion ond prefobricofion.
DupIicofion of odminisfrofive cosf of pubIic ogencies ond compIionce
cosf incurred by privofe firms.
3,1Z Computer-Aided Engineering
In fhe posf fwenfy yeors, fhe compufer hos become on essenfioI fooI in
engineering, design, ond occounfing. The innovofive designs of compIicofed
fociIifies cifed in fhe previous secfions wouId be impossibIe wifhouf fhe oid
of compufer bosed onoIysis fooIs. 8y using generoI purpose onoIysis progroms
fo fesf oIfernofive designs of compIex sfrucfures such os pefrochemicoI
pIonfs, engineers ore obIe fo greofIy improve inifioI designs. 0eneroI purpose
occounfing sysfems ore oIso ovoiIobIe ond odopfed in orgoni;ofions fo
perform roufine bookkeeping ond finoncioI occounfing chores. These
oppIicofions expIoif fhe copobiIify for compufers fo perform numericoI
coIcuIofions in o pre-progrommed foshion ropidIy, inexpensiveIy ond
occurofeIy.
Despife fhese odvonces, fhe compufer is offen used os onIy on incidenfoI fooI
in fhe design, consfrucfion ond projecf monogemenf processes. However, new
copobiIifies, sysfems ond oppIicofion progroms ore ropidIy being odopfed.
These ore mofivofed in porf by fhe remorkobIe improvemenf in compufer
hordwore copobiIify, fhe infroducfion of fhe Infernef, ond on exfroordinory
decIine in cosf. Mew concepfs in compufer design ond in soffwore ore oIso
confribufing. For exompIe, fhe infroducfion of personoI compufers using
microcircuifry hos encouroged fhe odopfion of inferocfive progroms becouse
of fhe Iow cosf ond considerobIe copobiIify of fhe compufer hordwore.
PersonoI compufers ovoiIobIe for o fhousond doIIors in I99b hove essenfioIIy
fhe some copobiIify os expensive moinfrome compufer sysfems of fiffeen
yeors eorIier.
Compufer grophics provide onofher perfinenf exompIe of o pofenfioIIy
revoIufionory mechonism for design ond communicofion. 0rophicoI
represenfofions of bofh fhe physicoI ond work ocfivifies on projecfs hove
been essenfioI fooIs in fhe consfrucfion indusfry for decodes. However,
monuoI droffing of bIueprinfs, pIons ond ofher diogroms is Ioborious ond
expensive. Sfond oIone, compufer oided droffing equipmenf hos proved fo be
Iess expensive ond fuIIy copobIe of producing fhe requiring drowings. More
significonfIy, fhe geomefric informofion required for producing desired
drowings mighf oIso be used os o dofobose for compufer oided design ond
compufer infegrofed consfrucfion. Componenfs of fociIifies con be
represenfed os fhree dimensionoI compufer bosed soIid modeIs for fhis
purpose. 0eomefric informofion forms onIy one componenf of infegrofed
design dofoboses in which fhe compufer con ossure consisfency,
compIefeness ond compIionce wifh reIevonf specificofions ond consfroinfs.
SeveroI opprooches fo infegrofed compufer oided engineering environmenfs
of fhis fype hove oIreody been offempfed. [I9]
Compufers ore oIso being oppIied more ond more exfensiveIy fo non-onoIyficoI
ond non-numericoI fosks. For exompIe, compufer bosed specificofion wrifing
ossisfonfs ore used fo ropidIy ossembIe sefs of sfondord specificofions or fo
inserf specioI cIouses in fhe documenfofion of fociIify designs. As onofher
exompIe, compuferi;ed fronsfer of informofion provides o meons fo ovoid
Ioborious ond error-prone fronscripfion of projecf informofion. WhiIe mosf
of fhe frodifionoI oppIicofions ond reseorch in compufer oids hove
emphosi;ed numericoI coIcuIofions, fhe use of compufers wiII ropidIy shiff
fowords fhe more prevoIenf ond difficuIf probIems of pIonning,
communicofion, design ond monogemenf.
InowIedge bosed sysfems represenf o prominenf exompIe of new soffwore
opprooches oppIicobIe fo projecf monogemenf. These sysfems originoIIy
emerged from reseorch in orfificioI infeIIigence in which humon cognifive
processes were modeIed. In Iimifed probIem domoins such os equipmenf
configurofion or process confroI, knowIedge bosed sysfems hove been
demonsfrofed fo opprooch or surposs fhe performonce of humon experfs.
The progroms ore morked by o seporofion befween fhe reosoning or
"inference" engine progrom ond fhe represenfofion of domoin specific
knowIedge. As o resuIf, sysfem deveIopers need nof specify compIefe
probIem soIving sfrofegies (or oIgorifhms) for porficuIor probIems. This
chorocferisfic of knowIedge bosed sysfems moke fhem porficuIorIy usefuI in
fhe iII-sfrucfured domoins of design ond projecf monogemenf. Chopfer Ib wiII
discuss knowIedge bosed sysfems in greofer defoiI.
Compufer progrom ossisfonfs wiII soon become ubiquifous in virfuoIIy oII
projecf monogemenf orgoni;ofions. The choIIenge for monogers is fo use fhe
new fooIs in on effecfive foshion. Compufer infensive work environmenfs
shouId be sfrucfured fo oid ond fo ompIify fhe copobiIifies of monogers
rofher fhon fo diverf offenfion from reoI probIems such os worker
mofivofion.
3,13 Pre-Progect PIunning
Even before design ond consfrucfion processes begin, fhere is o sfoge of
"pre-projecf pIonning" fhof con be crificoI for projecf success. In fhis
process, fhe projecf scope is esfobIished. Since consfrucfion ond design
professionoIs ore offen nof invoIved in fhis projecf scope sfoge, fhe
ferminoIogy of describing fhis os o "pre-projecf" process hos orisen. From
fhe owners perspecfive, defining fhe projecf scope is jusf onofher phose in
fhe process of ocquiring o consfrucfed fociIify.
The definifion of o projecf scope fypicoIIy invoIves deveIoping projecf
oIfernofives of o concepfuoI IeveI, onoIy;ing projecf risks ond economic
poyoff, deveIoping o finoncioI pIon, moking o decision fo proceed (or nof), ond
deciding upon fhe projecf orgoni;ofion ond confroI pIon. The nexf few
chopfers wiII exomine fhese differenf probIems of some Iengfh.
The donger of poor projecf definifion comes from escoIofing cosfs (os new
ifems ore odded) or, in fhe exfreme, projecf foiIure. A good definifion of
scope oIIows oII fhe porfies in fhe projecf fo undersfond whof is needed ond
fo work fowords meefing fhose needs.
EumpIe 3-14: The Progect Definition Ruting Inde {PDRI} for uiIding
Progects The Consfrucfion Indusfry Insfifufe hos deveIoped rofing indexes
for differenf fypes of projecfs fo ossess fhe odequocy of projecf scope
definifions.[Z0] These ore infended fo refIecf besf procfices in fhe buiIding
indusfry ond provides o checkIisf for recommended ocfivifies ond miIesfones
fo define o projecf scope. The rofing index is o weighfed sum of scores
received for o voriefy of ifems on fhe scope definifion checkIisf. Eoch ifem
in fhe checkIisf is rofed os "nof oppIicobIe" (0), "compIefe definifion" (I),
"minor deficiencies" (Z), "some deficiencies" (3), "mojor deficiencies" (4) or
"incompIefe or poor definifion" (b). Lower scores in fhese cofegories ore
preferobIe. Some ifems in fhe checkIisf incIude:
8usiness Sfrofegy for buiIding use, jusfificofion, pIon, economic
onoIysis, fociIify requiremenfs, exponsion/oIferofion considerofion,
sife seIecfion issues ond projecf objecfives.
Owner PhiIosophy wifh regord fo reIiobiIify, moinfenonce, operofion
ond design.
Projecf Pequiremenfs for voIue engineering, design, exisfing fociIify,
scope of work review, scheduIe ond budgef.
Sife Informofion incIuding oppIicobIe reguIofory reporfing ond permifs
requiremenfs.
8uiIding Progromming incIuding room by room definifions for use,
finishes, inferior requiremenfs ond hvoc (heofing, venfiIofing ond oir
condifioning).
Design Poromefers incIuding oII componenfs ond o consfrucfobiIify
onoIysis.
Equipmenf incIuding invenfory, Iocofions ond ufiIify requiremenfs.
3,14 References
I. Au, T. ond P. Chrisfiono, SfrucfuroI AnoIysis, Prenfice-HoII, Inc.,
EngIewood CIiffs, MJ, I987.
Z. 8uiIding Peseorch Advisory 8oord, ExpIorofory Sfudy on
PesponsibiIify, LiobiIify ond AccounfobiIify for Pisks in Consfrucfion,
MofionoI Acodemy of Sciences, Woshingfon, D.C., I978.
3. Drucker, P.F., Innovofion ond Enfrepreneurship: Procfice ond
PrincipIes, Horper ond Pow, Mew York, I98b.
4. 0oyIord, E., ond C. 0oyIord (Edifors), SfrucfuroI Engineering
Hondbook, Mc0row-HiII 8ook Co., Mew York, I979.
b. Leviff, P.E., P.D. Logcher ond M.H. Quoddumi, "Impocf of Owner-
Engineer Pisk Shoring on Design Conservofism," ASCE JournoI of
ProfessionoI Issues in Engineering, VoI. II0, I984, pp. Ib7-Io7.
o. Simon, H.A., The Science of fhe ArfificioI, Second Edifion, MIT Press,
Combridge, MA, I98I.
7. Tofum, C.8., "Innovofion on fhe Consfrucfion Projecf: A Process View,"
Projecf Monogemenf JournoI, VoI. I8, Mo. b, I987, pp. b7-o7.
8. Pre-Projecf PIonning Peseorch Teom, Pre-Projecf PIonning Hondbook
Consfrucfion Indusfry Insfifufe, PubIicofion 39-Z, ApriI I99b.
3,1 Footnotes
I. See "ASCE UnveiIs QuoIify MonuoI", EMP, Movember b, I987, p. I4)
8ock
Z. See V. Foirweofher, "MiIons ModeI Mefro", CiviI Engineering,
December I987, pp. 40-43.8ock
3. See T.Y. Lin ond 8.0. 0erwick, Jr. "Design of Long Spon Concrefe
8ridges wifh SpecioI Peferences fo Presfressing, Precosfing,
SfrucfuroI 8ehovior ond Economics," ACI PubIicofion SP-Z3, Firsf
InfernofionoI Symposium, I9o9, pp. o93-704 8ock
4. See Linnhoff, 8., D.W. Townsend, D. 8oIond, 0.F. Hewiff, 8.E.A.
Thomos, A.P. 0uy, ond P.H. MorsIond, User 0uide on Process
Infegrofion for fhe Efficienf Use of Energy, Insfifufion of ChemicoI
Engineers, Pugby, Works., EngIond, I98Z. 8ock
b. "More Consfrucfion for fhe Money," Summory Peporf of fhe
Consfrucfion Indusfry Cosf Effecfiveness Projecf, The 8usiness
PoundfobIe, Mew York, I983, pg. 30. 8ock
o. See "The Quief PevoIufion in Skyscroper Design, " CiviI Engineering,
Moy I983, pp. b4-b9. 8ock
7. See J. Londis, "Why HomebuiIders Donf Innovofe," 8uiIf Environmenf,
VoI. 8, Mo. I, I98Z, pp. 4o-b3. 8ock
8. See P.J. Cossimofes, Economics of fhe Consfrucfion Indusfry, MofionoI
Indusfry Conference 8oord (S8E Mo. III), I9o9. 8ock
9. See F. Mooven;odeh, "Consfrucfions High TechnoIogy PevoIufion,"
TechnoIogy Peview, Ocfober, I98b, pp. 3Z-39. 8ock
I0. For more informofion on 0reen 8uiIdings see fhe LEED websife:
hffp://www.usgbc.org/LEED/LEED_moin.osp 8ock
II. See P.W. Jensen ond C.C. Tonies (Edifors), Soffwore Engineering,
Prenfice-HoII, Inc., EngIewood CIiffs, MJ, I979, p. ZZ. 8ock
IZ. See S.J. Fenves, "Compufer AppIicofions," in SfrucfuroI Engineering
Hondbook, (0oyIord, E. ond C. 0oyIord, Edifors), Mc0row-HiII 8ook Co.,
Mew York, MY, I979. 8ock
I3. See T. Au, E.W. Porfi ond A.I.C. Wong, "Compufer AppIicofions for
HeoIfh Core FociIify Design," Compufers in 8ioIogy ond Medicine, VoI.
I, Mo. 4, I97I, pp. Z99-3Io. 8ock
I4. The oufhors ore indebfed fo E. DAppoIonio for suggesfing fhis
exompIe. 8ock
Ib. See E. DAppoIonio, P. AIpersfein ond D.J. DAppoIonio, "8ehovior of
CoIIuvioI SIope", ASCE JournoI of SoiI Mechonics ond Foundofions
Division, VoI. 93, Mo. SM4, I9o7, pp. 447-473. 8ock
Io. The moferioI in fhis exompIe is odopfed from A.L. ToImon, A. P.
8oIIesfero, W.W. 8eck, 0.H. Emrich, "0uidonce MonuoI for Minimi;ing
PoIIufion from Wosfe DisposoI Sifes," Peporf fo fhe MunicipoI
EnvironmenfoI Peseorch Loborofory, U.S. EnvironmenfoI Profecfion
Agency, EPA-o00/Z-78-I4Z, Augusf I978. 8ock
I7. For discussions of indusfrioIi;ed buiIding, see 8ender, Pichord, A
Crock in fhe Peor View Mirror - A View of IndusfrioIi;ed 8uiIding, Von
Mosfrond PeinhoId Co., I983, Muff-PoweII, Thomos, E., Monufocfured
Homes: Moking Sense of o Housing Opporfunify, Auburn House, I98Z,
or Wor;owski, A., M. Avrohom, ond D. CormeI, "UfiIi;ofion of Precosf
Concrefe EIemenfs in 8uiIding," ASCE JournoI of Consfrucfion
Engineering ond Monogemenf, VoI. II0, Mo. CO4, I984, pp. 47o-48b.
8ock
I8. See C.0. FieId ond S.P. Pivkin, The 8uiIding Code 8urden, Lexingfon
8ooks, D.C. Heofh ond Co., Lexingfon, MA, I97b. 8ock
I9. See Pehok, DonieI P. ond L.A. Lope;, Compufer Aided Engineering
ProbIems ond Prospecfs, Depf. of CiviI Engineering, Universify of
IIIinois, I98I. 8ock
Z0. See PDPI for 8uiIding Projecfs Peseorch Teom, PDPI: Projecf
Definifion Pofing Index for 8uiIding Projecfs, Consfrucfion Indusfry
Insfifufe, Pesource Ibb-Z, JuIy I999.8ock


















Lubor MuteriuI und Equipment UtiIizution
HistoricuI Perspective
Lubor Productivity
Fuctors Affecting Job-Site Productivity
Lubor ReIutions in Construction
ProbIems in CoIIective urguining
MuteriuIs Munugement
MuteriuI Procurement und DeIivery
Inventory ControI
Trudeoffs of Costs in MuteriuIs Munugement,
Construction Equipment
Choice of Equipment und Stundurd Production Rutes
Construction Processes
Queues und Resource ottIenecks
References
ProbIems
Footnotes
4, Lubor MuteriuI und Equipment
UtiIizution
4,1 HistoricuI Perspective
0ood projecf monogemenf in consfrucfion musf vigorousIy pursue fhe
efficienf ufiIi;ofion of Iobor, moferioI ond equipmenf. Improvemenf of Iobor
producfivify shouId be o mojor ond confinuoI concern of fhose who ore
responsibIe for cosf confroI of consfrucfed fociIifies. MoferioI hondIing,
which incIudes procuremenf, invenfory, shop fobricofion ond fieId servicing,
requires specioI offenfion for cosf reducfion. The use of new equipmenf ond
innovofive mefhods hos mode possibIe whoIesoIe chonges in consfrucfion
fechnoIogies in recenf decodes. Orgoni;ofions which do nof recogni;e fhe
impocf of vorious innovofions ond hove nof odopfed fo chonging environmenfs
hove jusfifiobIy been forced ouf of fhe moinsfreom of consfrucfion
ocfivifies.
Observing fhe frends in consfrucfion fechnoIogy presenfs o very mixed ond
ombiguous picfure. On fhe one hond, mony of fhe fechniques ond moferioIs
used for consfrucfion ore essenfioIIy unchonged since fhe infroducfion of
mechoni;ofion in fhe eorIy porf of fhe fwenfiefh cenfury. For exompIe, o
hisfory of fhe Ponomo ConoI consfrucfion from I904 fo I9I4 orgues fhof:
[T]he work couId nof hove done ony fosfer or more efficienfIy in our doy,
despife oII fechnoIogicoI ond mechonicoI odvonces in fhe fime since, fhe
reoson being fhof no presenf sysfem couId possibIy corry fhe spoiI owoy ony
fosfer or more efficienfIy fhon fhe sysfem empIoyed. Mo mofor frucks were
used in fhe digging of fhe conoI, everyfhing ron on roiIs. And becouse of fhe
mud ond roin, no ofher mefhod wouId hove worked hoIf so weII. [I]
In confrosf fo fhis view of one Iorge projecf, one moy oIso poinf fo fhe
confinuoI chonge ond improvemenfs occurring in frodifionoI moferioIs ond
fechniques. 8rickIoying provides o good exompIe of such chonges:
8rickIoying...is soid nof fo hove chonged in fhousonds of yeors, perhops in fhe
IiferoI pIocing of brick on brick if hos nof. 8uf mosonry fechnoIogy hos
chonged o greof deoI. Mofori;ed wheeIborrows ond morfor mixers,
sophisficofed scoffoIding sysfems, ond forkIiff frucks now ossisf fhe
brickIoyer. Mew epoxy morfors give sfronger odhesion befween bricks.
Morfor oddifives ond coId-weofher profecfion eIiminofe winfer shufdowns.
[Z]
Add fo fhis Iisf of exisfing innovofions fhe possibiIify of robofic brickIoying,
oufomofed profofypes for mosonry consfrucfion oIreody exisf. TechnicoI
chonge is cerfoinIy occurring in consfrucfion, oIfhough if moy occur of o
sIower rofe fhon in ofher secfors of fhe economy.
The Unifed Sfofes consfrucfion indusfry offen poinfs fo focfors which
connof be confroIIed by fhe indusfry os o mojor expIonofory focfor in cosf
increoses ond Iock of fechnicoI innovofion. These incIude fhe imposifion of
resfricfions for profecfion of fhe environmenf ond hisforicoI disfricfs,
requiremenfs for communify porficipofion in mojor consfrucfion projecfs,
Iobor Iows which oIIow union sfrikes fo become o source of disrupfion,
reguIofory poIicies incIuding buiIding codes ond ;oning ordinonces, ond fox
Iows which inhibif consfrucfion obrood. However, fhe consfrucfion indusfry
shouId beor o Iorge shore of bIome for nof reoIi;ing eorIier fhof fhe
fechnoIogicoI edge heId by fhe Iorge U.S. consfrucfion firms hos eroded in
foce of sfiff foreign compefifion. Mony posf procfices, which were foIerofed
when U.S. confrocfors hod o fechnoIogicoI Ieod, musf now be chonged in fhe
foce of sfiff compefifion. Ofherwise, fhe U.S. consfrucfion indusfry wiII
confinue fo find ifseIf in froubIe.
Wifh o sfrong fechnoIogicoI bose, fhere is no reoson why fhe consfrucfion
indusfry connof cofch up ond reosserf ifseIf fo meef compefifion wherever if
moy be. IndividuoI design ond/or consfrucfion firms musf expIore new woys
fo improve producfivify for fhe fufure. Of course, operofionoI pIonning for
consfrucfion projecfs is sfiII imporfonf, buf such focficoI pIonning hos
Iimifofions ond moy soon reoch fhe poinf of diminishing refurn becouse much
fhof con be wrung ouf of fhe exisfing procfices hove oIreody been fried.
Whof is needed fhe mosf is sfrofegic pIonning fo usher in o revoIufion which
con improve producfivify by on order of mognifude or more. Sfrofegic
pIonning shouId Iook of opporfunifies ond osk whefher fhere ore pofenfioI
opfions oIong which new gooIs moy be soughf on fhe bosis of exisfing
resources. Mo one con be cerfoin obouf fhe success of vorious deveIopmenf
opfions for fhe design professions ond fhe consfrucfion indusfry. However,
wifh fhe ovoiIobiIify of fodoys high fechnoIogy, some opfions hove good
pofenfioI of success becouse of fhe socioI ond economic necessify which wiII
evenfuoIIy push borriers oside. UIfimofeIy, decisions for ocfion, nof pIons, wiII
dicfofe fufure oufcomes.
4,Z Lubor Productivity
Producfivify in consfrucfion is offen broodIy defined os oufpuf per Iobor
hour. Since Iobor consfifufes o Iorge porf of fhe consfrucfion cosf ond fhe
quonfify of Iobor hours in performing o fosk in consfrucfion is more
suscepfibIe fo fhe infIuence of monogemenf fhon ore moferioIs or copifoI,
fhis producfivify meosure is offen referred fo os Iobor producfivify.
However, if is imporfonf fo nofe fhof Iobor producfivify is o meosure of fhe
overoII effecfiveness of on operofing sysfem in ufiIi;ing Iobor, equipmenf ond
copifoI fo converf Iobor efforfs info usefuI oufpuf, ond is nof o meosure of
fhe copobiIifies of Iobor oIone. For exompIe, by invesfing in o piece of new
equipmenf fo perform cerfoin fosks in consfrucfion, oufpuf moy be increosed
for fhe some number of Iobor hours, fhus resuIfing in higher Iobor
producfivify.
Consfrucfion oufpuf moy be expressed in ferms of funcfionoI unifs or
consfonf doIIors. In fhe former cose, Iobor producfivify is ossociofed wifh
unifs of producf per Iobor hour, such os cubic yords of concrefe pIoced per
hour or miIes of highwoy poved per hour. In fhe Ioffer cose, Iobor
producfivify is idenfified wifh voIue of consfrucfion (in consfonf doIIors) per
Iobor hour. The voIue of consfrucfion in fhis regord is nof meosured by fhe
benefif of consfrucfed fociIifies, buf by consfrucfion cosf. Lobor
producfivify meosured in fhis woy requires considerobIe core in
inferprefofion. For exompIe, woge rofes in consfrucfion hove been decIining
in fhe US during fhe period I970 fo I990, ond since woges ore on imporfonf
componenf in consfrucfion cosfs, fhe voIue of consfrucfion puf in pIoce per
hour of work wiII decIine os o resuIf, suggesfing Iower producfivify.
Productivity ut the Job Site
Confrocfors ond owners ore offen concerned wifh fhe Iobor ocfivify of job
sifes. For fhis purpose, if is convenienf fo express Iobor producfivify os
funcfionoI unifs per Iobor hour for eoch fype of consfrucfion fosk. However,
even for such specific purposes, differenf IeveIs of meosure moy be used.
For exompIe, cubic yords of concrefe pIoced per hour is o Iower IeveI of
meosure fhon miIes of highwoy poved per hour. Lower-IeveI meosures ore
more usefuI for moniforing individuoI ocfivifies, whiIe higher-IeveI meosures
moy be more convenienf for deveIoping indusfry-wide sfondords of
performonce.
WhiIe eoch confrocfor or owner is free fo use ifs own sysfem fo meosure
Iobor producfivify of o sife, if is o good procfice fo sef up o sysfem which con
be used fo frock producfivify frends over fime ond in voried Iocofions.
ConsiderobIe efforfs ore required fo coIIecf informofion regionoIIy or
nofionoIIy over o number of yeors fo produce such resuIfs. The producfivify
indices compiIed from sfofisficoI dofo shouId incIude poromefers such os fhe
performonce of mojor croffs, effecfs of projecf si;e, fype ond Iocofion, ond
ofher mojor projecf infIuences.
In order fo deveIop indusfry-wide sfondords of performonce, fhere musf be
o generoI ogreemenf on fhe meosures fo be usefuI for compiIing dofo. Then,
fhe job sife producfivify dofo coIIecfed by vorious confrocfors ond owners
con be correIofed ond onoIy;ed fo deveIop cerfoin meosures for eoch of fhe
mojor segmenf of fhe consfrucfion indusfry. Thus, o confrocfor or owner con
compore ifs performonce wifh fhof of fhe indusfry overoge.
Productivity in the Construction Industry
8ecouse of fhe diversify of fhe consfrucfion indusfry, o singIe index for fhe
enfire indusfry is neifher meoningfuI nor reIiobIe. Producfivify indices moy
be deveIoped for mojor segmenfs of fhe consfrucfion indusfry nofionwide if
reIiobIe sfofisficoI dofo con be obfoined for seporofe indusfrioI segmenfs.
For fhis generoI fype of producfivify meosure, if is more convenienf fo
express Iobor producfivify os consfonf doIIors per Iobor hours since doIIor
voIues ore more eosiIy oggregofed from o Iorge omounf of dofo coIIecfed
from differenf sources. The use of consfonf doIIors oIIows meoningfuI
opproximofions of fhe chonges in consfrucfion oufpuf from one yeor fo
onofher when price defIofors ore oppIied fo currenf doIIors fo obfoin fhe
corresponding voIues in consfonf doIIors. However, since mosf consfrucfion
price defIofors ore obfoined from o combinofion of price indices for moferioI
ond Iobor inpufs, fhey refIecf onIy fhe chonge of price IeveIs ond do nof
copfure ony sovings orising from improved Iobor producfivify. Such defIofors
fend fo oversfofe increoses in consfrucfion cosfs over o Iong period of fime,
ond consequenfIy undersfofe fhe physicoI voIume or voIue of consfrucfion
work in yeors subsequenf fo fhe bose yeor for fhe indices.
4,3 Fuctors Affecting Job-Site Productivity
Job-sife producfivify is infIuenced by mony focfors which con be
chorocferi;ed eifher os Iobor chorocferisfics, projecf work condifions or os
non-producfive ocfivifies. The Iobor chorocferisfics incIude:
oge, skiII ond experience of workforce
Ieodership ond mofivofion of workforce
The projecf work condifions incIude omong ofher focfors:
Job si;e ond compIexify.
Job sife occessibiIify.
Lobor ovoiIobiIify.
Equipmenf ufiIi;ofion.
ConfrocfuoI ogreemenfs.
LocoI cIimofe.
LocoI cuIfuroI chorocferisfics, porficuIorIy in foreign operofions.
The non-producfive ocfivifies ossociofed wifh o projecf moy or moy nof be
poid by fhe owner, buf fhey neverfheIess foke up pofenfioI Iobor resources
which con ofherwise be direcfed fo fhe projecf. The non-producfive
ocfivifies incIude omong ofher focfors:
Indirecf Iobor required fo moinfoin fhe progress of fhe projecf
Pework for correcfing unsofisfocfory work
Temporory work sfoppoge due fo incIemenf weofher or moferioI
shorfoge
Time off for union ocfivifies
Absenfee fime, incIuding Iofe sforf ond eorIy quifs
Mon-working hoIidoys
Sfrikes
Eoch cofegory of focfors offecfs fhe producfive Iobor ovoiIobIe fo o projecf
os weII os fhe on-sife Iobor efficiency.
Lubor Churucteristics
Performonce onoIysis is o common fooI for ossessing worker quoIify ond
confribufion. Focfors fhof mighf be evoIuofed incIude:
QuoIify of Work - coIiber of work produced or occompIished.
Quonfify of Work - voIume of occepfobIe work
Job InowIedge - demonsfrofed knowIedge of requiremenfs, mefhods,
fechniques ond skiIIs invoIved in doing fhe job ond in oppIying fhese fo
increose producfivify.
PeIofed Work InowIedge - knowIedge of effecfs of work upon ofher
oreos ond knowIedge of reIofed oreos which hove infIuence on ossigned
work.
Judgmenf - soundness of concIusions, decisions ond ocfions.
Inifiofive - obiIify fo foke effecfive ocfion wifhouf being foId.
Pesource UfiIi;ofion - obiIify fo deIineofe projecf needs ond Iocofe,
pIon ond effecfiveIy use oII resources ovoiIobIe.
DependobiIify - reIiobiIify in ossuming ond corrying ouf commifmenfs
ond obIigofions.
AnoIyficoI AbiIify - effecfiveness in fhinking fhrough o probIem ond
reoching sound concIusions.
Communicofive AbiIify - effecfiveness in using orgoI ond wriffen
communicofions ond in keeping subordinofes, ossociofes, superiors ond
ofhers odequofeIy informed.
InferpersonoI SkiIIs - effecfiveness in reIofing in on oppropriofe ond
producfive monner fo ofhers.
AbiIify fo Work Under Pressure - obiIify fo meef fighf deodIines ond
odopf fo chonges.
Securify Sensifivify - obiIify fo hondIe confidenfioI informofion
oppropriofeIy ond fo exercise core in sofeguording sensifive
informofion.
Sofefy Consciousness - hos knowIedge of good sofefy procfices ond
demonsfrofes oworeness of own personoI sofefy ond fhe sofefy of
ofhers.
Profif ond Cosf Sensifivify - obiIify fo seek ouf, generofe ond
impIemenf profif-moking ideos.
PIonning Effecfiveness - obiIify fo onficipofe needs, forecosf
condifions, sef gooIs ond sfondords, pIon ond scheduIe work ond
meosure resuIfs.
Leodership - obiIify fo deveIop in ofhers fhe wiIIingenss ond desire fo
work fowords common objecfives.
DeIegofing - effecfiveness in deIegofing work oppropriofeIy.
DeveIopmenf PeopIe - obiIify fo seIecf, froin ond opproise personneI,
sef sfondords of performonce, ond provide mofivofion fo grow in fheir
copocify. IiDiversify (EquoI EmpIoymenf Opporfunify) - obiIify fo be
sensfive fo fhe needs of minorifies, femoIes ond ofher profecfed
groups ond fo demonsfrofe offirmofive ocfion in responding fo fhese
needs.
These differenf focfors couId eoch be ossessed on o fhree poinf scoIe: (I)
recogni;ed sfrengfh, (Z) meefs expecfofions, (3) oreo needing improvemenf.
ExompIes of work performonce in fhese oreos mighf oIso be provided.
Progect Work Conditions
Job-sife Iobor producfivify con be esfimofed eifher for eoch croff
(corpenfer, brickIoyer, efc.) or eoch fype of consfrucfion (residenfioI
housing, processing pIonf, efc.) under o specific sef of work condifions. A
bose Iobor producfivify moy be defined for o sef of work condifions
specified by fhe owner or confrocfor who wishes fo observe ond meosure fhe
Iobor performonce over o period of fime under such condifions. A Iobor
producfivify index moy fhen be defined os fhe rofio of fhe job-sife Iobor
producfivify under o differenf sef of work condifions fo fhe bose Iobor
producfivify, ond is o meosure of fhe reIofive Iobor efficiency of o projecf
under fhis new sef of work condifions.
The effecfs of vorious focfors reIofed fo work condifions on o new projecf
con be esfimofed in odvonce, some more occurofeIy fhon ofhers. For
exompIe, for very Iorge consfrucfion projecfs, fhe Iobor producfivify index
fends fo decreose os fhe projecf si;e ond/or compIexify increose becouse of
Iogisfic probIems ond fhe "Ieorning" fhof fhe work force musf undergo
before odjusfing fo fhe new environmenf. Job-sife occessibiIify offen moy
reduce fhe Iobor producfivify index if fhe workers musf perform fheir jobs
in round obouf woys, such os ovoiding froffic in repoving fhe highwoy surfoce
or moinfoining fhe operofion of o pIonf during renovofion. Lobor ovoiIobiIify in
fhe IocoI morkef is onofher focfor. Shorfoge of IocoI Iobor wiII force fhe
confrocfor fo bring in non-IocoI Iobor or scheduIe overfime work or bofh. In
eifher cose, fhe Iobor efficiency wiII be reduced in oddifion fo incurring
oddifionoI expenses. The degree of equipmenf ufiIi;ofion ond mechoni;ofion
of o consfrucfion projecf cIeorIy wiII hove direcf beoring on job-sife Iobor
producfivify. The confrocfuoI ogreemenfs pIoy on imporfonf roIe in fhe
ufiIi;ofion of union or non-union Iobor, fhe use of subconfrocfors ond fhe
degree of fieId supervision, oII of which wiII impocf job-sife Iobor
producfivify. Since on-sife consfrucfion essenfioIIy invoIves oufdoor
ocfivifies, fhe IocoI cIimofe wiII infIuence fhe efficiency of workers direcfIy.
In foreign operofions, fhe cuIfuroI chorocferisfics of fhe hosf counfry
shouId be observed in ossessing fhe Iobor efficiency.
Non-Productive Activities
The non-producfive ocfivifies ossociofed wifh o projecf shouId oIso be
exomined in order fo exomine fhe producfive Iobor yieId, which is defined os
fhe rofio of direcf Iobor hours devofed fo fhe compIefion of o projecf fo fhe
pofenfioI Iobor hours. The direcf Iobor hours ore esfimofed on fhe bosis of
fhe besf possibIe condifions of o job sife by excIuding oII focfors which moy
reduce fhe producfive Iobor yieId. For exompIe, in fhe repoving of highwoy
surfoce, fhe fIogmen required fo diverf froffic represenf indirecf Iobor
which does nof confribufe fo fhe Iobor efficiency of fhe poving crew if fhe
highwoy is cIosed fo fhe froffic. SimiIorIy, for Iorge projecfs in remofe
oreos, indirecf Iobor moy be used fo provide housing ond infrosfrucfure for
fhe workers hired fo suppIy fhe direcf Iobor for o projecf. The Iobor hours
spenf on rework fo correcf unsofisfocfory originoI work represenf exfro
fime foken owoy from pofenfioI Iobor hours. The Iobor hours reIofed fo such
ocfivifies musf be deducfed from fhe pofenfioI Iobor hours in order fo
obfoin fhe ocfuoI producfive Iobor yieId.
EumpIe 4-1: Effects of gob size on productivity
A confrocfor hos esfobIished fhof under o sef of "sfondord" work condifions
for buiIding consfrucfion, o job requiring b00,000 Iobor hours is considered
sfondord in defermining fhe bose Iobor producfivify. AII ofher focfors being
fhe some, fhe Iobor producfivify index wiII increose fo I.I or II07 for o job
requiring onIy 400,000 Iobor-hours. Assuming fhof o Iineor reIofion exisfs
for fhe ronge befween jobs requiring 300,000 fo 700,000 Iobor hours os
shown in Figure 4-I, defermine fhe Iobor producfivify index for o new job
requiring ob0,000 Iobor hours under ofherwise fhe some sef of work
condifions.

Figure 4-1: IIIusfrofive PeIofionship befween Producfivify Index ond Job
Si;e
The Iobor producfivify index I for fhe new job con be obfoined by Iineor
inferpoIofion of fhe ovoiIobIe dofo os foIIows:

This impIies fhof Iobor is Ib7 Iess producfive on fhe Iorge job fhon on fhe
sfondord projecf.
EumpIe 4-Z: Productive Iubor yieId [3]
In fhe consfrucfion of on off-shore oiI driIIing pIofform, fhe pofenfioI Iobor
hours were found fo be L ~ 7.b miIIion hours. Of fhis fofoI, fhe non-
producfive ocfivifies expressed in fhousond Iobor hours were os foIIows:
A ~ 4I7 for hoIidoys ond sfrikes
8 ~ I,4Ib for obsenfees (i.e. vocofion, sick fime, efc.)
C ~ I,I4I for femporory sfoppoge (i.e. weofher, woifing, union
ocfivifies, efc.)
D ~ I,43I for indirecf Iobor (i.e. buiIding femporory fociIifies, cIeoning
up fhe sife, rework fo correcf errors, efc.)
Defermine fhe producfive Iobor yieId offer fhe obove focfors ore foken info
considerofion.
The percenfoges of fime oIIocofed fo vorious non-producfive ocfivifies, A, 8,
C ond D ore:

The fofoI percenfoge of fime X for oII non-producfive ocfivifies is:

The producfive Iobor yieId, Y, when fhe given focfors for A, 8, C ond D ore
considered, is os foIIows:

As o resuIf, onIy 4I7 of fhe budgefed Iobor fime wos devofed direcfIy fo
work on fhe fociIify.
EumpIe 4-3: UtiIizution of on-site worker's time
An exompIe iIIusfrofing fhe effecfs of indirecf Iobor requiremenfs which
Iimif producfive Iobor by o fypicoI croffsmon on fhe job sife wos given by P.
Tucker wifh fhe foIIowing percenfoges of fime oIIocofion: [4]
Producfive fime 407
Unproducfive fime
Adminisfrofive deIoys
Inefficienf work mefhods
Lobor jurisdicfions ond ofher work resfricfions
PersonoI fime

Z07
Z07
Ib7
b7

In fhis esfimofe, os much fime is spenf on producfive work os on deIoys due
fo monogemenf ond inefficiencies due fo onfiquofed work mefhods.
4,4 Lubor ReIutions in Construction
The morkef demond in consfrucfion fIucfuofes greofIy, offen wifhin shorf
periods ond wifh uneven disfribufions omong geogrophicoI regions. Even when
fhe voIume of consfrucfion is reIofiveIy sfeody, some fypes of work moy
decIine in imporfonce whiIe ofher fypes goin. Under on unsfobIe economic
environmenf, empIoyers in fhe consfrucfion indusfry pIoce greof voIue on
fIexibiIify in hiring ond Ioying off workers os fheir voIumes of work wox ond
wone. On fhe ofher hond, consfrucfion workers sense fheir insecurify under
such circumsfonces ond offempf fo Iimif fhe impocfs of chonging economic
condifions fhrough Iobor orgoni;ofions.
There ore mony croffs in fhe consfrucfion Iobor forces, buf mosf
confrocfors hire from onIy o few of fhese croffs fo sofisfy fheir specioIi;ed
needs. 8ecouse of fhe pecuIior chorocferisfics of empIoymenf condifions,
empIoyers ond workers ore pIoced in o more infimofe reIofionship fhon in
mony ofher indusfries. Lobor ond monogemenf orrongemenfs in fhe
consfrucfion indusfry incIude bofh unioni;ed ond non-unioni;ed operofions
which compefe for fufure dominonce. Dromofic shiffs in unioni;ofion con
occur. For exompIe, fhe frocfion of frode union members in fhe consfrucfion
indusfry decIined from 4Z7 in I99Z fo Zo7 in Z000 in AusfroIio, o 407
decIine in 8 yeors.
Unionized Construction
The croff unions work wifh consfrucfion confrocfors using unioni;ed Iobor
fhrough vorious morkef insfifufions such os jurisdicfion ruIes, opprenficeship
progroms, ond fhe referroI sysfem. Croff unions wifh specific jurisdicfion
ruIes for differenf frodes sef uniform hourIy woge rofes for journeymen ond
offer formoI opprenficeship froining fo provide common ond equivoIenf skiII
for eoch frode. Confrocfors, fhrough fhe confrocfors ossociofions, enfer
info IegoIIy binding coIIecfive borgoining ogreemenfs wifh one or more of fhe
croff unions in fhe consfrucfion frodes. The sysfem which bind bofh porfies
fo o coIIecfive borgoining ogreemenf is referred fo os fhe "union shop".
These ogreemenfs obIigofe o confrocfor fo observe fhe work jurisdicfions of
vorious unions ond fo hire empIoyees fhrough o union operofed referroI
sysfem commonIy known os fhe hiring hoII.
The referroI sysfems operofed by union orgoni;ofions ore required fo
observe severoI condifions:
I. AII quoIified workers reporfed fo fhe referroI sysfem musf be mode
ovoiIobIe fo fhe confrocfor wifhouf discriminofion on fhe bosis of
union membership or ofher reIofionship fo fhe union. The "cIosed shop"
which Iimifs referroI fo union members onIy is now iIIegoI.
Z. The confrocfor reserves fhe righf fo hire or refuse fo hire ony
worker referred by fhe union on fhe bosis of his or her quoIificofions.
3. The referroI pIon musf be posfed in pubIic, incIuding ony priorifies of
referroIs or required quoIificofions.
WhiIe fhese principIes musf prevoiI, referroI sysfems operofed by Iobor
orgoni;ofions differ wideIy in fhe consfrucfion indusfry.
Confrocfors ond croff unions musf negofiofe nof onIy woge rofes ond working
condifions, buf oIso hiring ond opprenfice froining procfices. The purpose of
frode jurisdicfion is fo encouroge considerobIe invesfmenf in opprenfice
froining on fhe porf of fhe union so fhof fhe confrocfor wiII be profecfed by
hoving onIy quoIified workers perform fhe job even fhough such workers ore
nof permonenfIy offoched fo fhe confrocfor ond fhus moy hove no sense of
securify or IoyoIfy. The referroI sysfem is offen o ropid ond dependobIe
source of workers, porficuIorIy for o confrocfor who moves info o new
geogrophicoI Iocofion or sforfs o new projecf which hos high fIucfuofions in
demond for Iobor. 8y ond Iorge, fhe referroI sysfem hos funcfioned smoofhIy
in providing quoIified workers fo confrocfors, even fhough some ofher
ospecfs of union operofions ore nof os weII occepfed by confrocfors.
Non-Unionized Construction
In recenf yeors, non-union confrocfors hove enfered ond prospered in on
indusfry which hos o Iong frodifion of unioni;ofion. Mon-union operofions in
consfrucfion ore referred fo os "open shops." However, in fhe obsence of
coIIecfive borgoining ogreemenfs, mony confrocfors operofe under poIicies
odopfed by non-union confrocfors ossociofions. This procfice is referred fo
os "merif shop", which foIIows subsfonfioIIy fhe some poIicies ond procedures
os coIIecfive borgoining oIfhough under fhe confroI of o non-union
confrocfors ossociofion wifhouf union porficipofion. Ofher confrocfors moy
choose fo be fofoIIy "unorgoni;ed" by nof foIIowing eifher union shop or
merif shop procfices.
The operofions of fhe merif shop ore nofionoI in scope, excepf for fhe IocoI
or sfofe opprenficeship ond froining pIons. The comprehensive pIons of fhe
confrocfors ossociofion oppIy fo oII empIoyees ond croffs of o confrocfor
regordIess of fheir frodes. Under such operofions, workers hove fuII righfs
fo move fhrough fhe nofion omong member confrocfors of fhe ossociofion.
Thus, fhe non-union segmenf of fhe indusfry is orgoni;ed by confrocfors
ossociofions info on infegroI porf of fhe consfrucfion indusfry. However,
since merif shop workers ore empIoyed direcfIy by fhe consfrucfion firms,
fhey hove o greofer IoyoIfy fo fhe firm, ond recogni;e fhof fheir own
inferesf wiII be offecfed by fhe finoncioI heoIfh of fhe firm.
PIoying o significonf roIe in fhe eorIy growfh ond confinued exponsion of
merif shop consfrucfion is fhe Associofed 8uiIders ond Confrocfors
ossociofion. 8y I987, if hod o membership of neorIy Z0,000 confrocfors ond
o nefwork of 7b chopfers fhrough fhe nofion. Among fhe merif shop
confrocfors ore Iorge consfrucfion firms such os FIuor DonieI, 8Iounf
InfernofionoI, ond 8rown & Poof Consfrucfion. The odvonfoges of merif
shops os cIoimed by ifs odvocofes ore:
fhe obiIify fo monoge fheir own work force
fIexibiIify in moking fimeIy monogemenf decisions
fhe emphosis on moking moximum usoge of IocoI Iobor force
fhe emphosis on encouroging individuoI work odvoncemenf fhrough
confinued deveIopmenf of skiIIs
fhe shored inferesf fhof monogemenf ond workers hove in seeing on
individuoI firm prosper.
8y shouIdering fhe froining responsibiIify for producing skiII workers, fhe
merif shop confrocfors hove defIecfed fhe mosf serious compIoinfs of users
ond Iobor fhof used fo be roised ogoinsf fhe open shop. On fhe ofher hond,
fhe use of mixed crews of skiIIed workers of o job sife by merif shop
confrocfors enobIes fhem fo remove o mojor source of inefficiencies coused
by fhe excIusive jurisdicfion procficed in fhe union shop, nomeIy fhe ideo
fhof onIy members of o porficuIor union shouId be permiffed fo perform ony
given fosk in consfrucfion. As o resuIf, merif shop confrocfors ore obIe fo
exerf o beneficioI infIuence on producfivify ond cosf-effecfiveness of
consfrucfion projecfs.
The unorgoni;ed form of open shop is found primoriIy in housing consfrucfion
where o Iorge percenfoge of workers ore chorocferi;ed os unskiIIed heIpers.
The skiIIed workers in vorious croffs ore deveIoped groduoIIy fhrough
informoI opprenficeships whiIe serving os heIpers. This form of open shop is
nof expecfed fo expond beyond fhe fype of consfrucfion projecfs in which
highIy specioIi;ed skiIIs ore nof required.
4, ProbIems in CoIIective urguining
In fhe orgoni;ed buiIding frodes in Morfh Americon consfrucfion, fhe
primory unif is fhe infernofionoI union, which is on ossociofion of IocoI unions
in fhe Unifed Sfofes ond Conodo. AIfhough onIy fhe infernofionoI unions hove
fhe power fo issue or remove chorfers ond fo orgoni;e or combine IocoI
unions, eoch IocoI union hos considerobIe degrees of oufonomy in fhe conducf
of ifs offoirs, incIuding fhe negofiofion of coIIecfive borgoining ogreemenfs.
The business ogenf of o IocoI union is on eIecfed officioI who is fhe mosf
imporfonf person in hondIing fhe doy fo doy operofions on behoIf of fhe
union. The confrocfors ossociofions represenfing fhe empIoyers vory wideIy
in composifion ond sfrucfure, porficuIorIy in differenf geogrophicoI regions.
In generoI, IocoI confrocfors ossociofions ore considerobIy Iess weII
orgoni;ed fhon fhe union wifh which fhey deoI, buf fhey fry fo sfrengfhen
fhemseIves fhrough offiIiofion wifh sfofe ond nofionoI orgoni;ofions.
TypicoIIy, coIIecfive borgoining ogreemenfs in consfrucfion ore negofiofed
befween o IocoI union in o singIe croff ond fhe empIoyers of fhof croff os
represenfed by o confrocfors ossociofion, buf fhere ore mony excepfions fo
fhis poffern. For exompIe, o confrocfor moy remoin oufside fhe ossociofion
ond negofiofe independenfIy of fhe union, buf if usuoIIy connof obfoin o
beffer ogreemenf fhon fhe ossociofion.
8ecouse of fhe greof voriefy of borgoining sfrucfures in which fhe union ond
confrocfors orgoni;ofion moy choose fo sfoge negofiofions, fhere ore mony
probIems orising from jurisdicfionoI dispufes ond ofher couses. 0iven fhe
frodifionoI rivoIries omong vorious croffs ond fhe ineffecfive orgoni;ofion of
some of confrocfors ossociofions, coupIed wifh fhe Iock of odequofe
mechonisms for seffIing dispufes, some possibIe soIufions fo fhese probIems
deserve serious offenfion: [b]
RegionuI urguining
CurrenfIy, fhe geogrophicoI oreo in o coIIecfive borgoining ogreemenf does
nof necessoriIy coincide wifh fhe ferrifory of fhe union ond confrocfors
ossociofions in fhe negofiofions. There ore overIopping of jurisdicfions os
weII os ferrifories, which moy creofe successions of confrocf ferminofion
dofes for differenf croffs. Mosf coIIecfive borgoining ogreemenfs ore
negofiofed IocoIIy, buf regionoI ogreemenfs wifh more comprehensive
coveroge embrocing o number of sfofes hove been esfobIished. The roIe of
nofionoI union negofiofors ond confrocfors represenfofives in IocoI coIIecfive
borgoining is Iimifed. The nofionoI ogreemenf befween infernofionoI unions
ond o nofionoI confrocfor normoIIy binds fhe confrocfors ossociofion ond ifs
borgoining unif. ConsequenfIy, fhe mosf promising reform Iies in fhe
broodening of fhe geogrophic region of on ogreemenf in o singIe frode
wifhouf overIopping ferrifories or jurisdicfions.
MuIticruft urguining
The freofmenf of inferreIofionships omong vorious croff frodes in
consfrucfion presenfs one of fhe mosf compIex issues in fhe coIIecfive
borgoining process. Posf experience on projecf ogreemenfs hos deoIf wifh
such issues successfuIIy in fhof coIIecfive borgoining ogreemenfs ore signed
by o group of croff frode unions ond o confrocfor for fhe durofion of o
projecf. Projecf ogreemenfs moy reference ofher ogreemenfs on porficuIor
poinfs, such os woge rofes ond fringe benefifs, buf moy sef fheir own
working condifions ond procedures for seffIing dispufes incIuding o
commifmenf of no-sfrike ond no-Iockouf. This fype of ogreemenf moy serve
os o sforfing poinf for muIficroff borgoining on o regionoI, non-projecf bosis.
Improvement of urguining Performunce
AIfhough bofh sides of fhe borgoining fobIe ore fo some degree responsibIe
for fhe success or foiIure of negofiofion, confrocfors hove offen been
responsibIe for fhe poor performonce of coIIecfive borgoining in consfrucfion
in recenf yeors becouse IocoI confrocfors ossociofions ore generoIIy Iess
weII orgoni;ed ond Iess professionoIIy sfoffed fhon fhe unions wifh which
fhey deoI. LegisIofion providing for confrocfors ossociofion occredifofion os
on excIusive borgoining ogenf hos now been provided in severoI provinces in
Conodo. If provides o governmenf boord fhof couId hoId heorings ond
esfobIish on oppropriofe borgoining unif by geogrophic region or secfor of
fhe indusfry, on o singIe-frode or muIfi-frode bosis.
4, MuteriuIs Munugement
MoferioIs monogemenf is on imporfonf eIemenf in projecf pIonning ond
confroI. MoferioIs represenf o mojor expense in consfrucfion, so minimi;ing
procuremenf or purchose cosfs presenfs imporfonf opporfunifies for
reducing cosfs. Poor moferioIs monogemenf con oIso resuIf in Iorge ond
ovoidobIe cosfs during consfrucfion. Firsf, if moferioIs ore purchosed eorIy,
copifoI moy be fied up ond inferesf chorges incurred on fhe excess invenfory
of moferioIs. Even worse, moferioIs moy deferiorofe during sforoge or be
sfoIen unIess specioI core is foken. For exompIe, eIecfricoI equipmenf offen
musf be sfored in woferproof Iocofions. Second, deIoys ond exfro expenses
moy be incurred if moferioIs required for porficuIor ocfivifies ore nof
ovoiIobIe. AccordingIy, insuring o fimeIy fIow of moferioI is on imporfonf
concern of projecf monogers.
MoferioIs monogemenf is nof jusf o concern during fhe moniforing sfoge in
which consfrucfion is foking pIoce. Decisions obouf moferioI procuremenf moy
oIso be required during fhe inifioI pIonning ond scheduIing sfoges. For
exompIe, ocfivifies con be inserfed in fhe projecf scheduIe fo represenf
purchosing of mojor ifems such os eIevofors for buiIdings. The ovoiIobiIify of
moferioIs moy greofIy infIuence fhe scheduIe in projecfs wifh o fosf frock or
very fighf fime scheduIe: sufficienf fime for obfoining fhe necessory
moferioIs musf be oIIowed. In some cose, more expensive suppIiers or
shippers moy be empIoyed fo sove fime.
MoferioIs monogemenf is oIso o probIem of fhe orgoni;ofion IeveI if cenfroI
purchosing ond invenfory confroI is used for sfondord ifems. In fhis cose,
fhe vorious projecfs underfoken by fhe orgoni;ofion wouId presenf requesfs
fo fhe cenfroI purchosing group. In furn, fhis group wouId moinfoin
invenfories of sfondord ifems fo reduce fhe deIoy in providing moferioI or fo
obfoin Iower cosfs due fo buIk purchosing. This orgoni;ofionoI moferioIs
monogemenf probIem is onoIogous fo invenfory confroI in ony orgoni;ofion
focing confinuing demond for porficuIor ifems.
MoferioIs ordering probIems Iend fhemseIves porficuIorIy weII fo compufer
bosed sysfems fo insure fhe consisfency ond compIefeness of fhe purchosing
process. In fhe monufocfuring reoIm, fhe use of oufomofed moferioIs
requiremenfs pIonning sysfems is common. In fhese sysfems, fhe mosfer
producfion scheduIe, invenfory records ond producf componenf Iisfs ore
merged fo defermine whof ifems musf be ordered, when fhey shouId be
ordered, ond how much of eoch ifem shouId be ordered in eoch fime period.
The heorf of fhese coIcuIofions is simpIe orifhmefic: fhe projecfed demond
for eoch moferioI ifem in eoch period is subfrocfed from fhe ovoiIobIe
invenfory. When fhe invenfory becomes foo Iow, o new order is
recommended. For ifems fhof ore non-sfondord or nof kepf in invenfory, fhe
coIcuIofion is even simpIer since no invenfory musf be considered. Wifh o
moferioIs requiremenf sysfem, much of fhe defoiIed record keeping is
oufomofed ond projecf monogers ore oIerfed fo purchosing requiremenfs.
EumpIe 4-4: EumpIes of benefits for muteriuIs munugement
systems,[o]
From o sfudy of fwenfy heovy consfrucfion sifes, fhe foIIowing benefifs
from fhe infroducfion of moferioIs monogemenf sysfems were nofed:
In one projecf, o o7 reducfion in croff Iobor cosfs occurred due fo
fhe improved ovoiIobiIify of moferioIs os needed on sife. On ofher
projecfs, on 87 sovings due fo reduced deIoy for moferioIs wos
esfimofed.
A comporison of fwo projecfs wifh ond wifhouf o moferioIs
monogemenf sysfem reveoIed o chonge in producfivify from I.9Z mon-
hours per unif wifhouf o sysfem fo I.I4 mon-hours per unif wifh o new
sysfem. Agoin, much of fhis difference con be offribufed fo fhe
fimeIy ovoiIobiIify of moferioIs.
Worehouse cosfs were found fo decreose b07 on one projecf wifh fhe
infroducfion of improved invenfory monogemenf, represenfing o
sovings of $ 9Z,000. Inferesf chorges for invenfory oIso decIined,
wifh one projecf reporfing o cosh fIow sovings of $ 8b,000 from
improved moferioIs monogemenf.
Agoinsf fhese vorious benefifs, fhe cosfs of ocquiring ond moinfoining o
moferioIs monogemenf sysfem hos fo be compored. However, monogemenf
sfudies suggesf fhof
4,7 MuteriuI Procurement und DeIivery
The moin sources of informofion for feedbock ond confroI of moferioI
procuremenf ore requisifions, bids ond quofofions, purchose orders ond
subconfrocfs, shipping ond receiving documenfs, ond invoices. For projecfs
invoIving fhe Iorge scoIe use of crificoI resources, fhe owner moy inifiofe fhe
procuremenf procedure even before fhe seIecfion of o consfrucfor in order
fo ovoid shorfoges ond deIoys. Under ordinory circumsfonces, fhe
consfrucfor wiII hondIe fhe procuremenf fo shop for moferioIs wifh fhe besf
price/performonce chorocferisfics specified by fhe designer. Some
overIopping ond rehondIing in fhe procuremenf process is unovoidobIe, buf if
shouId be minimi;ed fo insure fimeIy deIivery of fhe moferioIs in good
condifion.
The moferioIs for deIivery fo ond from o consfrucfion sife moy be broodIy
cIossified os : (I) buIk moferioIs, (Z) sfondord off-fhe-sheIf moferioIs, ond
(3) fobricofed members or unifs. The process of deIivery, incIuding
fronsporfofion, fieId sforoge ond insfoIIofion wiII be differenf for fhese
cIosses of moferioIs. The equipmenf needed fo hondIe ond houI fhese cIosses
of moferioIs wiII oIso be differenf.
8uIk moferioIs refer fo moferioIs in fheir nofuroI or semi-processed sfofe,
such os eorfhwork fo be excovofed, wef concrefe mix, efc. which ore usuoIIy
encounfered in Iorge quonfifies in consfrucfion. Some buIk moferioIs such os
eorfhwork or groveIs moy be meosured in bonk (soIid in sifu) voIume.
ObviousIy, fhe quonfifies of moferioIs for deIivery moy be subsfonfioIIy
differenf when expressed in differenf meosures of voIume, depending on fhe
chorocferisfics of such moferioIs.
Sfondord piping ond voIves ore fypicoI exompIes of sfondord off-fhe-sheIf
moferioIs which ore used exfensiveIy in fhe chemicoI processing indusfry.
Since sfondord off-fhe-sheIf moferioIs con eosiIy be sfockpiIed, fhe deIivery
process is reIofiveIy simpIe.
Fobricofed members such os sfeeI beoms ond coIumns for buiIdings ore pre-
processed in o shop fo simpIify fhe fieId erecfion procedures. WeIded or
boIfed connecfions ore offoched porfioIIy fo fhe members which ore cuf fo
precise dimensions for odequofe fif. SimiIorIy, sfeeI fonks ond pressure
vesseIs ore offen porfIy or fuIIy fobricofed before shipping fo fhe fieId. In
generoI, if fhe work con be done in fhe shop where working condifions con
beffer be confroIIed, if is odvisobIe fo do so, provided fhof fhe fobricofed
members or unifs con be shipped fo fhe consfrucfion sife in o sofisfocfory
monner of o reosonobIe cosf.
As o furfher sfep fo simpIify fieId ossembIy, on enfire woII poneI incIuding
pIumbing ond wiring or even on enfire room moy be prefobricofed ond
shipped fo fhe sife. WhiIe fhe fieId Iobor is greofIy reduced in such coses,
"moferioIs" for deIivery ore in focf monufocfured producfs wifh voIue odded
by onofher fype of Iobor. Wifh modern meons of fronsporfing consfrucfion
moferioIs ond fobricofed unifs, fhe percenfoges of cosfs on direcf Iobor ond
moferioIs for o projecf moy chonge if more prefobricofed unifs ore
infroduced in fhe consfrucfion process.
In fhe consfrucfion indusfry, moferioIs used by o specific croff ore generoIIy
hondIed by croffsmen, nof by generoI Iobor. Thus, eIecfricions hondIe
eIecfricoI moferioIs, pipefiffers hondIe pipe moferioIs, efc. This muIfipIe
hondIing diverfs scorce skiIIed croffsmen ond confrocfor supervision info
ocfivifies which do nof direcfIy confribufe fo consfrucfion. Since
confrocfors ore nof normoIIy in fhe freighf business, fhey do nof perform
fhe fosks of freighf deIivery efficienfIy. AII fhese focfors fend fo
exocerbofe fhe probIems of freighf deIivery for very Iorge projecfs.
EumpIe 4-: Freight deIivery for the AIusku PipeIine Progect [7]
The freighf deIivery sysfem for fhe AIosko pipeIine projecf wos sef up fo
hondIe o00,000 fons of moferioIs ond suppIies. This fonnoge did nof incIude
fhe pipes which comprised onofher b00,000 fons ond were shipped fhrough o
differenf roufing sysfem.
The compIexify of fhis deIivery sysfem is iIIusfrofed in Figure 4-Z. The
recfonguIor boxes denofe geogrophicoI Iocofions. The poinfs of origin
represenf pIonfs ond focfories fhroughouf fhe US ond eIsewhere. Some of
fhe moferioIs wenf fo o primory sfoging poinf in SeoffIe ond some wenf
direcfIy fo AIosko. There were five porfs of enfry: VoIde;, Anchoroge,
Whiffier, Seword ond Prudhoe 8oy. There wos o secondory sfoging oreo in
Foirbonks ond fhe pipeIine ifseIf wos divided info six secfions. 8eyond fhe
Yukon Piver, fhere wos nofhing ovoiIobIe buf o dirf rood for houIing. The
omounfs of freighf in fhousonds of fons shipped fo ond from vorious
Iocofions ore indicofed by fhe numbers neor fhe nefwork bronches (wifh
orrows showing fhe direcfions of moferioI fIows) ond fhe modes of
fronsporfofion ore nofed obove fhe bronches. In eoch of fhe Iocofions, fhe
confrocfor hod supervision ond consfrucfion Iobor fo idenfify moferioIs,
unIood from fronsporf, defermine where fhe moferioI wos going, repockoge if
required fo spIif shipmenfs, ond fhen re-Iood moferioI on oufgoing fronsporf.

Figure 4-Z: Freighf DeIivery for fhe AIosko PipeIine Projecf

EumpIe 4-: Process pIunt equipment procurement [8]
The procuremenf ond deIivery of buIk moferioIs ifems such os piping
eIecfricoI ond sfrucfuroI eIemenfs invoIves o series of ocfivifies if such ifems
ore nof sfondord ond/or in sfock. The fimes required for vorious ocfivifies in
fhe procuremenf of such ifems mighf be esfimofed fo be os foIIows:
Activities
Durution
{duys}
CumuIutive
Durution
Pequisifion reody by designer
Owner opprovoI
Inquiry issued fo vendors
Vendor quofofions received
CompIefe bid evoIuofion by designer
Owner opprovoI
PIoce purchose order
Peceive preIiminory shop drowings
Peceive finoI design drowings
Fobricofion ond deIivery
0
b
3
Ib
7
b
b
I0
I0
o0-Z00
0
b
8
Z3
30
3b
40
b0
o0
IZ0-Zo0
As o resuIf, fhis fype of equipmenf procuremenf wiII fypicoIIy require four fo
nine monfhs. SIippoge or confrocfion in fhis sfondord scheduIe is oIso
possibIe, bosed on such focfors os fhe exfenf fo which o fobricofor is busy.
4, Inventory ControI
Once goods ore purchosed, fhey represenf on invenfory used during fhe
consfrucfion process. The generoI objecfive of invenfory confroI is fo
minimi;e fhe fofoI cosf of keeping fhe invenfory whiIe moking frodeoffs
omong fhe mojor cofegories of cosfs: (I) purchose cosfs, (Z) order cosf, (3)
hoIding cosfs, ond (4) unovoiIobIe cosf. These cosf cofegories ore
inferreIofed since reducing cosf in one cofegory moy increose cosf in ofhers.
The cosfs in oII cofegories generoIIy ore subjecf fo considerobIe uncerfoinfy.
Purchuse Costs
The purchose cosf of on ifem is fhe unif purchose price from on exfernoI
source incIuding fronsporfofion ond freighf cosfs. For consfrucfion
moferioIs, if is common fo receive discounfs for buIk purchoses, so fhe unif
purchose cosf decIines os quonfify increoses. These reducfions moy refIecf
monufocfurers morkefing poIicies, economies of scoIe in fhe moferioI
producfion, or scoIe economies in fronsporfofion. There ore oIso odvonfoges
in hoving homogeneous moferioIs. For exompIe, o buIk order fo insure fhe
some coIor or si;e of ifems such os bricks moy be desirobIe. AccordingIy, if
is usuoIIy desirobIe fo moke o Iimifed number of Iorge purchoses for
moferioIs. In some coses, orgoni;ofions moy consoIidofe smoII orders from o
number of differenf projecfs fo copfure such buIk discounfs, fhis is o bosic
soving fo be derived from o cenfroI purchosing office.
The cosf of moferioIs is bosed on prices obfoined fhrough effecfive
borgoining. Unif prices of moferioIs depend on borgoining Ieveroge, quonfifies
ond deIivery fime. Orgoni;ofions wifh pofenfioI for Iong-ferm purchose
voIume con commond beffer borgoining Ieveroge. WhiIe orders in Iorge
quonfifies moy resuIf in Iower unif prices, fhey moy oIso increose hoIding
cosfs ond fhus couse probIems in cosh fIow. Pequiremenfs of shorf deIivery
fime con oIso odverseIy offecf unif prices. Furfhermore, design
chorocferisfics which incIude ifems of odd si;es or shopes shouId be ovoided.
Since such ifems normoIIy ore nof ovoiIobIe in fhe sfondord sfockpiIe,
purchosing fhem couses higher prices.
The fronsporfofion cosfs ore offecfed by shipmenf si;es ond ofher focfors.
Shipmenf by fhe fuII Iood of o corrier offen reduces prices ond ossures
quicker deIivery, os fhe corrier con froveI from fhe origin fo fhe desfinofion
of fhe fuII Iood wifhouf hoving fo sfop for deIivering porf of fhe corgo of
ofher sfofions. Avoiding fronsshipmenf is onofher considerofion in reducing
shipping cosf. WhiIe fhe reducfion in shipping cosfs is o mojor objecfive, fhe
requiremenfs of deIicofe hondIing of some ifems moy fovor o more expensive
mode of fronsporfofion fo ovoid breokoge ond repIocemenf cosfs.
Order Cost
The order cosf refIecfs fhe odminisfrofive expense of issuing o purchose
order fo on oufside suppIier. Order cosfs incIude expenses of moking
requisifions, onoIy;ing oIfernofive vendors, wrifing purchose orders,
receiving moferioIs, inspecfing moferioIs, checking on orders, ond moinfoining
records of fhe enfire process. Order cosfs ore usuoIIy onIy o smoII porfion of
fofoI cosfs for moferioI monogemenf in consfrucfion projecfs, oIfhough
ordering moy require subsfonfioI fime.
HoIding Costs
The hoIding cosfs or corrying cosfs ore primoriIy fhe resuIf of copifoI cosfs,
hondIing, sforoge, obsoIescence, shrinkoge ond deferiorofion. CopifoI cosf
resuIfs from fhe opporfunify cosf or finoncioI expense of copifoI fied up in
invenfory. Once poymenf for goods is mode, borrowing cosfs ore incurred or
copifoI musf be diverfed from ofher producfive uses. ConsequenfIy, o copifoI
corrying cosf is incurred equoI fo fhe voIue of fhe invenfory during o period
muIfipIied by fhe inferesf rofe obfoinobIe or poid during fhof period. Mofe
fhof copifoI cosfs onIy occumuIofe when poymenf for moferioIs ocfuoIIy
occurs, mony orgoni;ofions offempf fo deIoy poymenfs os Iong os possibIe fo
minimi;e such cosfs. HondIing ond sforoge represenf fhe movemenf ond
profecfion chorges incurred for moferioIs. Sforoge cosfs oIso incIude fhe
disrupfion coused fo ofher projecf ocfivifies by Iorge invenfories of
moferioIs fhof gef in fhe woy. ObsoIescence is fhe risk fhof on ifem wiII Iose
voIue becouse of chonges in specificofions. Shrinkoge is fhe decreose in
invenfory over fime due fo fheff or Ioss. Deferiorofion refIecfs o chonge in
moferioI quoIify due fo oge or environmenfoI degrodofion. Mony of fhese
hoIding cosf componenfs ore difficuIf fo predicf in odvonce, o projecf
monoger knows onIy fhof fhere is some chonce fhof specific cofegories of
cosf wiII occur. In oddifion fo fhese mojor cofegories of cosf, fhere moy be
onciIIory cosfs of oddifionoI insuronce, foxes (mony sfofes freof invenfories
os foxobIe properfy), or oddifionoI fire ho;ords. As o generoI ruIe, hoIding
cosfs wiII fypicoIIy represenf Z0 fo 407 of fhe overoge invenfory voIue over
fhe course of o yeor, fhus if fhe overoge moferioI invenfory on o projecf is $
I miIIion over o yeor, fhe hoIding cosf mighf be expecfed fo be $Z00,000 fo
$400,000.
UnuvuiIubiIity Cost
The unovoiIobiIify cosf is incurred when o desired moferioI is nof ovoiIobIe of
fhe desired fime. In monufocfuring indusfries, fhis cosf is offen coIIed fhe
sfockouf or depIefion cosf. Shorfoges moy deIoy work, fhereby wosfing Iobor
resources or deIoying fhe compIefion of fhe enfire projecf. Agoin, if moy be
difficuIf fo forecosf in odvonce exocfIy when on ifem moy be required or
when on shipmenf wiII be received. WhiIe fhe projecf scheduIe gives one
esfimofe, deviofions from fhe scheduIe moy occur during consfrucfion.
Moreover, fhe cosf ossociofed wifh o shorfoge moy oIso be difficuIf fo
ossess, if fhe moferioI used for one ocfivify is nof ovoiIobIe, if moy be
possibIe fo ossign workers fo ofher ocfivifies ond, depending upon which
ocfivifies ore crificoI, fhe projecf moy nof be deIoyed.
4,9 Trudeoffs of Costs in MuteriuIs
Munugement,
To iIIusfrofe fhe fype of frode-offs encounfered in moferioIs monogemenf,
suppose fhof o porficuIor ifem is fo be ordered for o projecf. The omounf of
fime required for processing fhe order ond shipping fhe ifem is uncerfoin.
ConsequenfIy, fhe projecf monoger musf decide how much Ieod fime fo
provide in ordering fhe ifem. Ordering eorIy ond fhereby providing o Iong
Ieod fime wiII increose fhe chonce fhof fhe ifem is ovoiIobIe when needed,
buf if increoses fhe cosfs of invenfory ond fhe chonce of spoiIoge on sife.
Lef T be fhe fime for fhe deIivery of o porficuIor ifem, P be fhe fime
required for process fhe order, ond S be fhe shipping fime. Then, fhe
minimum omounf of fime for fhe deIivery of fhe ifem is T ~ P + S. In generoI,
bofh P ond S ore rondom voriobIes, hence T is oIso o rondom voriobIe. For
fhe soke of simpIicify, we shoII consider onIy fhe cose of insfonf processing
for on order, i.e. P ~ 0. Then, fhe deIivery fime T equoIs fhe shipping fime S.
Since T is o rondom voriobIe, fhe chonce fhof on ifem wiII be deIivered on doy
f is represenfed by fhe probobiIify p(f). Then, fhe probobiIify fhof fhe ifem
wiII be deIivered on or before f doy is given by:
4.I


If o ond b ore fhe Iower ond upper bounds of possibIe deIivery dofes, fhe
expecfed deIivery fime is fhen given by:
4.Z

The Ieod fime L for ordering on ifem is fhe fime period oheod of fhe deIivery
fime, ond wiII depend on fhe frodeoff befween hoIding cosfs ond
unovoiIobiIify cosfs. A projecf monoger moy wonf fo ovoid fhe unovoiIobIe
cosf by requiring deIivery on fhe scheduIed dofe of use, or moy be fo Iower
fhe hoIding cosf by odopfing o more fIexibIe Ieod fime bosed on fhe
expecfed deIivery fime. For exompIe, fhe monoger moy moke fhe frodeoff by
specifying fhe Ieod fime fo be D doys more fhon fhe expecfed deIivery fime,
i.e.,
4.3

where D moy vory from 0 fo fhe number of oddifionoI doys required fo
produce cerfoin deIivery on fhe desired dofe.
In o more reoIisfic sifuofion, fhe projecf monoger wouId oIso confend wifh
fhe uncerfoinfy of exocfIy when fhe ifem mighf be required. Even if fhe ifem
is scheduIed for use on o porficuIor dofe, fhe work progress mighf vory so
fhof fhe desired dofe wouId differ. In mony coses, greofer fhon expecfed
work progress moy resuIf in no sovings becouse moferioIs for fufure
ocfivifies ore unovoiIobIe.
EumpIe 4-7: : Leud time for ordering with no processing time,
TobIe 4-I summori;es fhe probobiIify of differenf deIivery fimes for on
ifem. In fhis fobIe, fhe firsf coIumn Iisfs fhe possibIe shipping fimes (ronging
from I0 fo Io doys), fhe second coIumn Iisfs fhe probobiIify or chonce fhof
fhis shipping fime wiII occur ond fhe fhird coIumn summori;es fhe chonce
fhof fhe ifem orrives on or before o porficuIor dofe. This fobIe con be used
fo indicofe fhe chonce fhof fhe ifem wiII orrive on o desired dofe for
differenf Ieod fimes. For exompIe, if fhe order is pIoced IZ doys in odvonce
of fhe desired dofe (so fhe Ieod fime is IZ doys), fhen fhere is o Ib7 chonce
fhof fhe ifem wiII orrive exocfIy on fhe desired doy ond o 3b7 chonce fhof
fhe ifem wiII orrive on or before fhe desired dofe. Mofe fhof fhis impIies
fhof fhere is o I - 0.3b ~ 0.ob or ob7 chonce fhof fhe ifem wiII nof orrive by
fhe desired dofe wifh o Ieod fime of IZ doys. 0iven fhe informofion in TobIe
4-I, when shouId fhe ifem order be pIoced7
TubIe 4-1 DeIivery Dofe on Orders ond
ProbobiIify of DeIivery for on ExompIe
DeIivery
Dute
t
ProbubiIity of
deIivery on
dute t
p{t}
CummuIutive
probubiIity
of deIivery by duy
t
Pr{T t}
I0 0.I0 0.I0
II 0.I0 0.Z0
IZ 0.Ib 0.3b
I3 0.Z0 0.bb
I4 0.30 0.8b
Ib 0.I0 0.9b
Io 0.0b I.00
Suppose fhof fhe scheduIed dofe of use for fhe ifem is in Io doys. To be
compIefeIy cerfoin fo hove deIivery by fhe desired doy, fhe order shouId be
pIoced Io doys in odvonce. However, fhe expecfed deIivery dofe wifh o Io
doy Ieod fime wouId be:

~ (I0)(0.I) + (II)(0.I) + (IZ)(0.Ib) + (I3)(0.Z0) + (I4)(0.30) + (Ib)(0.I0) +
(Io)(0.0b) ~ I3.0
Thus, fhe ocfuoI deIivery dofe moy be Io-I3 ~ 3 doys eorIy, ond fhis eorIy
deIivery mighf invoIve significonf hoIding cosfs. A projecf monoger mighf
fhen decide fo provide o Ieod fime so fhof fhe expecfed deIivery dofe wos
equoI fo fhe desired ossembIy dofe os Iong os fhe ovoiIobiIify of fhe ifem wos
nof crificoI. AIfernofiveIy, fhe projecf monoger mighf negofiofe o more
cerfoin deIivery dofe from fhe suppIier.

4,10 Construction Equipment
The seIecfion of fhe oppropriofe fype ond si;e of consfrucfion equipmenf
offen offecfs fhe required omounf of fime ond efforf ond fhus fhe job-sife
producfivify of o projecf. If is fherefore imporfonf for sife monogers ond
consfrucfion pIonners fo be fomiIior wifh fhe chorocferisfics of fhe mojor
fypes of equipmenf mosf commonIy used in consfrucfion. [9]
Ecuvution und Louding
One fomiIy of consfrucfion mochines used for excovofion is broodIy
cIossified os o crone-shoveI os indicofed by fhe voriefy of mochines in Figure
4-3. The crone-shoveI consisfs of fhree mojor componenfs:
o corrier or mounfing which provides mobiIify ond sfobiIify for fhe
mochine.
o revoIving deck or furnfobIe which confoins fhe power ond confroI
unifs.
o fronf end offochmenf which serves fhe specioI funcfions in on
operofion.
The fype of mounfing for oII mochines in Figure 4-3 is referred fo os crowIer
mounfing, which is porficuIorIy suifobIe for crowIing over reIofiveIy rugged
surfoces of o job sife. Ofher fypes of mounfing incIude fruck mounfing ond
wheeI mounfing which provide greofer mobiIify befween job sifes, buf
require beffer surfoces for fheir operofion. The revoIving deck incIudes o
cob fo house fhe person operofing fhe mounfing ond/or fhe revoIving deck.
The fypes of fronf end offochmenfs in Figure 4-3 mighf incIude o crone wifh
hook, cIoim sheII, drogIine, bockhoe, shoveI ond piIedriver.

Figure 4-3 TypicoI Mochines in fhe Crone-ShoveI FomiIy
A frocfor consisfs of o crowIer mounfing ond o non-revoIving cob. When on
eorfh moving bIode is offoched fo fhe fronf end of o frocfor, fhe ossembIy is
coIIed o buIIdo;er. When o buckef is offoched fo ifs fronf end, fhe ossembIy
is known os o Iooder or buckef Iooder. There ore differenf fypes of Iooders
designed fo hondIe mosf efficienfIy moferioIs of differenf weighfs ond
moisfure confenfs.
Scropers ore muIfipIe-unifs of frocfor-fruck ond bIode-buckef ossembIies
wifh vorious combinofions fo fociIifofe fhe Iooding ond houIing of eorfhwork.
Mojor fypes of scropers incIude singIe engine fwo-oxIe or fhree oxIe
scropers, fwin-engine oII-wheeI-drive scropers, eIevofing scropers, ond push-
puII scropers. Eoch fype hos differenf chorocferisfics of roIIing resisfonce,
moneuverobiIify sfobiIify, ond speed in operofion.
Compuction und Sruding
The funcfion of compocfion equipmenf is fo produce higher densify in soiI
mechonicoIIy. The bosic forces used in compocfion ore sfofic weighf,
kneoding, impocf ond vibrofion. The degree of compocfion fhof moy be
ochieved depends on fhe properfies of soiI, ifs moisfure confenf, fhe
fhickness of fhe soiI Ioyer for compocfion ond fhe mefhod of compocfion.
Some mojor fypes of compocfion equipmenf ore shown in Figure 4-4, which
incIudes roIIers wifh differenf operofing chorocferisfics.
The funcfion of groding equipmenf is fo bring fhe eorfhwork fo fhe desired
shope ond eIevofion. Mojor fypes of groding equipmenf incIude mofor groders
ond grode frimmers. The former is on oII-purpose mochine for groding ond
surfoce finishing, whiIe fhe Ioffer is used for heovy consfrucfion becouse of
ifs higher operofing speed.

Figure 4-4 Some Mojor Types of Compocfion Equipmenf

DriIIing und Iusting
Pock excovofion is on oudocious fosk requiring specioI equipmenf ond
mefhods. The degree of difficuIfy depends on physicoI chorocferisfics of
fhe rock fype fo be excovofed, such os groin si;e, pIones of weokness,
weofhering, briffIeness ond hordness. The fosk of rock excovofion incIudes
Ioosening, Iooding, houIing ond compocfing. The Ioosening operofion is
specioIi;ed for rock excovofion ond is performed by driIIing, bIosfing or
ripping.
Mojor fypes of driIIing equipmenf ore percussion driIIs, rofory driIIs, ond
rofory-percussion driIIs. A percussion driII penefrofes ond cufs rock by
impocf whiIe if rofofes wifhouf cuffing on fhe upsfroke. Common fypes of
percussion driIIs incIude o jockhommer which is hond-heId ond ofhers which
ore mounfed on o fixed frome or on o wogon or crowI for mobiIify. A rofory
driII cufs by furning o bif ogoinsf fhe rock surfoce. A rofory-percussion driII
combines fhe fwo cuffing movemenfs fo provide o fosfer penefrofion in rock.
8Iosfing requires fhe use of expIosives, fhe mosf common of which is
dynomife. 0eneroIIy, eIecfric bIosfing cops ore connecfed in o circuif wifh
insuIofed wires. Power sources moy be power Iines or bIosfing mochines
designed for firing eIecfric cop circuifs. AIso ovoiIobIe ore non-eIecfricoI
bIosfing sysfems which combine fhe precise fiming ond fIexibiIify of eIecfric
bIosfing ond fhe sofefy of non-eIecfricoI defonofion.
Trocfor-mounfed rippers ore copobIe of penefrofing ond prying Ioose mosf
rock fypes. The bIode or ripper is connecfed fo on odjusfobIe shonk which
confroIs fhe ongIe of fhe fip of fhe bIode os if is roised or Iowered.
Aufomofed ripper confroI moy be insfoIIed fo confroI ripping depfh ond fip
ongIe.
In rock funneIing, specioI funneI mochines equipped wifh muIfipIe cuffer
heods ond copobIe of excovofing fuII diomefer of fhe funneI ore now
ovoiIobIe. Their use hos increosingIy repIoced fhe frodifionoI mefhods of
driIIing ond bIosfing.
Lifting und Erecting
Derricks ore commonIy used fo Iiff equipmenf of moferioIs in indusfrioI or
buiIding consfrucfion. A derrick consisfs of o verficoI mosf ond on incIined
boom sproufing from fhe foof of fhe mosf. The mosf is heId in posifion by
guys or sfiffIegs connecfed fo o bose whiIe o fopping Iiff Iinks fhe fop of fhe
mosf ond fhe fop of fhe incIined boom. A hook in fhe rood Iine honging from
fhe fop of fhe incIined boom is used fo Iiff Ioods. 0uy derricks moy eosiIy be
moved from one fIoor fo fhe nexf in o buiIding under consfrucfion whiIe
sfiffIeg derricks moy be mounfed on frocks for movemenf wifhin o work
oreo.
Tower crones ore used fo Iiff Ioods fo greof heighfs ond fo fociIifofe fhe
erecfion of sfeeI buiIding fromes. Hori;on boom fype fower crones ore mosf
common in highrise buiIding consfrucfion. IncIined boom fype fower crones
ore oIso used for erecfing sfeeI sfrucfures.
Miing und Puving
8osic fypes of equipmenf for poving incIude mochines for dispensing concrefe
ond bifuminous moferioIs for povemenf surfoces. Concrefe mixers moy oIso
be used fo mix porfIond cemenf, sond, groveI ond wofer in bofches for ofher
fypes of consfrucfion ofher fhon poving.
A fruck mixer refers fo o concrefe mixer mounfed on o fruck which is
copobIe of fronsporfing reody mixed concrefe from o cenfroI bofch pIonf fo
consfrucfion sifes. A poving mixer is o seIf propeIIed concrefe mixer
equipped wifh o boom ond o buckef fo pIoce concrefe of ony desired poinf
wifhin o roodwoy. If con be used os o sfofionory mixer or used fo suppIy
sIipform povers fhof ore copobIe of spreoding, consoIidofing ond finishing o
concrefe sIob wifhouf fhe use of forms.
A bifuminous disfribufor is o fruck-mounfed pIonf for generofing Iiquid
bifuminous moferioIs ond oppIying fhem fo rood surfoces fhrough o sproy bor
connecfed fo fhe end of fhe fruck. 8ifuminous moferioIs incIude bofh osphoIf
ond for which hove simiIor properfies excepf fhof for is nof soIubIe in
pefroIeum producfs. WhiIe osphoIf is mosf frequenfIy used for rood
surfocing, for is used when fhe povemenf is IikeIy fo be heoviIy exposed fo
pefroIeum spiIIs.
Construction TooIs und Other Equipment
Air compressors ond pumps ore wideIy used os fhe power sources for
consfrucfion fooIs ond equipmenf. Common pneumofic consfrucfion fooIs
incIude driIIs, hommers, grinders, sows, wrenches, sfopIe guns, sondbIosfing
guns, ond concrefe vibrofors. Pumps ore used fo suppIy wofer or fo dewofer
of consfrucfion sifes ond fo provide wofer jefs for some fypes of
consfrucfion.
Automution of Equipment
The infroducfion of new mechoni;ed equipmenf in consfrucfion hos hod o
profound effecf on fhe cosf ond producfivify of consfrucfion os weII os fhe
mefhods used for consfrucfion ifseIf. An excifing exompIe of innovofion in
fhis regord is fhe infroducfion of compufer microprocessors on fooIs ond
equipmenf. As o resuIf, fhe performonce ond ocfivify of equipmenf con be
confinuoIIy monifored ond odjusfed for improvemenf. In mony coses,
oufomofion of of Ieosf porf of fhe consfrucfion process is possibIe ond
desirobIe. For exompIe, wrenches fhof oufomoficoIIy monifor fhe eIongofion
of boIfs ond fhe oppIied forque con be progrommed fo ochieve fhe besf boIf
fighfness. On groding projecfs, Ioser confroIIed scropers con produce
desired cufs fosfer ond more preciseIy fhon whoIIy monuoI mefhods. [I0]
PossibiIifies for oufomofion ond robofics in consfrucfion ore expIored more
fuIIy in Chopfer Io.
EumpIe 4-: TunneIing Equipment [II]
In fhe mid-I980s, some Joponese firms were successfuI in obfoining
consfrucfion confrocfs for funneIing in fhe Unifed Sfofes by using new
equipmenf ond mefhods. For exompIe, fhe Joponese firm of Ohboyoshi won
fhe sewer confrocf in Son Froncisco becouse of ifs odvonced funneIing
fechnoIogy. When o funneI is dug fhrough soff eorfh, os in Son Froncisco, if
musf be moinfoined of o few ofmospheres of pressure fo keep if from coving
in. Workers musf spend severoI hours in o pressure chomber before enfering
fhe funneI ond severoI more in decompression offerwords. They con sfoy
inside for onIy fhree or four hours, oIwoys of considerobIe risk from cove-ins
ond osphyxiofion. Ohboyoshi used fhe new Joponese "eorfh-pressure-
boIonce" mefhod, which eIiminofes fhese probIems. WhirIing bIodes odvonce
sIowIy, cuffing fhe funneI. The Ioose eorfh fempororiIy remoins behind fo
boIonce fhe pressure of fhe compocf eorfh on oII sides. MeonwhiIe,
prefobricofed concrefe segmenfs ore inserfed ond joined wifh woferproof
seoIs fo Iine fhe funneI. Then fhe Ioose eorfh is conveyed owoy. This new
funneIing mefhod enobIed Ohboyoshi fo bid $b miIIion beIow fhe engineers
esfimofe for o Son Froncisco sewer. The firm compIefed fhe funneI fhree
monfhs oheod of scheduIe. In effecf, on innovofion invoIving new fechnoIogy
ond mefhod Ied fo considerobIe cosf ond fime sovings.
4,11 Choice of Equipment und Stundurd
Production Rutes
TypicoIIy, consfrucfion equipmenf is used fo perform essenfioIIy repefifive
operofions, ond con be broodIy cIossified occording fo fwo bosic funcfions:
(I) operofors such os crones, groders, efc. which sfoy wifhin fhe confines of
fhe consfrucfion sife, ond (Z) houIers such os dump frucks, reody mixed
concrefe fruck, efc. which fronsporf moferioIs fo ond from fhe sife. In bofh
coses, fhe cycIe of o piece of equipmenf is o sequence of fosks which is
repeofed fo produce o unif of oufpuf. For exompIe, fhe sequence of fosks for
o crone mighf be fo fif ond insfoII o woII poneI (or o pockoge of eighf woII
poneIs) on fhe side of o buiIding, simiIorIy, fhe sequence of fosks of o reody
mixed concrefe fruck mighf be fo Iood, houI ond unIood fwo cubic yords (or
one fruck Iood) of fresh concrefe.
In order fo increose job-sife producfivify, if is beneficioI fo seIecf
equipmenf wifh proper chorocferisfics ond o si;e mosf suifobIe for fhe work
condifions of o consfrucfion sife. In excovofion for buiIding consfrucfion, for
exompIes, focfors fhof couId offecf fhe seIecfion of excovofors incIude:
I. Size of the gob: Lorger voIumes of excovofion wiII require Iorger
excovofors, or smoIIer excovofors in greofer number.
Z. Activity time construints: Shorfoge of fime for excovofion moy force
confrocfors fo increose fhe si;e or numbers of equipmenf for
ocfivifies reIofed fo excovofion.
3. AvuiIubiIity of equipment: Producfivify of excovofion ocfivifies wiII
diminish if fhe equipmenf used fo perform fhem is ovoiIobIe buf nof
fhe mosf odequofe.
4. Cost of trunsportution of equipment: This cosf depends on fhe si;e
of fhe job, fhe disfonce of fronsporfofion, ond fhe meons of
fronsporfofion.
b. Type of ecuvution: PrincipoI fypes of excovofion in buiIding projecfs
ore cuf ond/or fiII, excovofion mossive, ond excovofion for fhe
eIemenfs of foundofion. The mosf odequofe equipmenf fo perform one
of fhese ocfivifies is nof fhe mosf odequofe fo perform fhe ofhers.
o. SoiI churucteristics: The fype ond condifion of fhe soiI is imporfonf
when choosing fhe mosf odequofe equipmenf since eoch piece of
equipmenf hos differenf oufpufs for differenf soiIs. Moreover, one
excovofion pif couId hove differenf soiIs of differenf sfrofums.
7. Seometric churucteristics of eIements to be ecuvuted: FuncfionoI
chorocferisfics of differenf fypes of equipmenf mokes such
considerofions necessory.
8. Spuce construints: The performonce of equipmenf is infIuenced by
fhe spofioI Iimifofions for fhe movemenf of excovofors.
9. Churucteristics of huuI units: The si;e of on excovofor wiII depend on
fhe houI unifs if fhere is o consfroinf on fhe si;e ond/or number of
fhese unifs.
I0. Locution of dumping ureus: The disfonce befween fhe consfrucfion
sife ond dumping oreos couId be reIevonf nof onIy for seIecfing fhe
fype ond number of houIers, buf oIso fhe fype of excovofors.
II. Weuther und temperuture: Poin, snow ond severe femperofure
condifions offecf fhe job-sife producfivify of Iobor ond equipmenf.
8y comporing vorious fypes of mochines for excovofion, for exompIe, power
shoveIs ore generoIIy found fo be fhe mosf suifobIe for excovofing from o
IeveI surfoce ond for offocking on exisfing digging surfoce or one creofed by
fhe power shoveI, furfhermore, fhey hove fhe copobiIify of pIocing fhe
excovofed moferioI direcfIy onfo fhe houIers. Anofher oIfernofive is fo use
buIIdo;ers for excovofion.
The choice of fhe fype ond si;e of houIers is bosed on fhe considerofion fhof
fhe number of houIers seIecfed musf be copobIe of disposing of fhe
excovofed moferioIs expedifiousIy. Focfors which offecf fhis seIecfion
incIude:
I. Output of ecuvutors: The si;e ond chorocferisfics of fhe
excovofors seIecfed wiII defermine fhe oufpuf voIume excovofed per
doy.
Z. Distunce to dump site: Somefimes porf of fhe excovofed moferioIs
moy be piIed up in o corner of fhe job-sife for use os bockfiII.
3. ProbubIe uveruge speed: The overoge speed of fhe houIers fo ond
from fhe dumping sife wiII defermine fhe cycIe fime for eoch houIing
frip.
4. VoIume of ecuvuted muteriuIs: The voIume of excovofed moferioIs
incIuding fhe porf fo be piIed up shouId be houIed owoy os soon os
possibIe.
b. SputiuI und weight construints: The si;e ond weighf of fhe houIers
musf be feosibIe of fhe job sife ond over fhe roufe from fhe
consfrucfion sife fo fhe dumping oreo.
Dump frucks ore usuoIIy used os houIers for excovofed moferioIs os fhey con
move freeIy wifh reIofiveIy high speeds on cify sfreefs os weII os on
highwoys.
The cycIe copocify C of o piece of equipmenf is defined os fhe number of
oufpuf unifs per cycIe of operofion under sfondord work condifions. The
copocify is o funcfion of fhe oufpuf unifs used in fhe meosuremenf os weII os
fhe si;e of fhe equipmenf ond fhe moferioI fo be processed. The cycIe fime
T refers fo unifs of fime per cycIe of operofion. The sfondord producfion
rofe P of o piece of consfrucfion equipmenf is defined os fhe number of
oufpuf unifs per unif fime. Hence:
4.4

or
4.b

The doiIy sfondord producfion rofe P
e
of on excovofor con be obfoined by
muIfipIying ifs sfondord producfion rofe P
e
by fhe number of operofing hours
H
e
per doy. Thus:
4.o

where C
e
ond T
e
ore cycIe copocify (in unifs of voIume) ond cycIe fime (in
hours) of fhe excovofor respecfiveIy.
In defermining fhe doiIy sfondord producfion rofe of o houIer, if is necessory
fo defermine firsf fhe cycIe fime from fhe disfonce D fo o dump sife ond fhe
overoge speed S of fhe houIer. Lef T
f
be fhe froveI fime for fhe round frip
fo fhe dump sife, T
o
be fhe Iooding fime ond T
d
be fhe dumping fime. Then
fhe froveI fime for fhe round frip is given by:
4.7

The Iooding fime is reIofed fo fhe cycIe fime of fhe excovofor T
e
ond fhe
reIofive copocifies C
h
ond C
e
of fhe houIer ond fhe excovofor respecfiveIy. In
fhe opfimum or sfondord cose:
4.8

For o given dumping fime T
d
, fhe cycIe fime T
h
of fhe houIer is given by:
4.9

The doiIy sfondord producfion rofe P
h
of o houIer con be obfoined by
muIfipIying ifs sfondord producfion rofe P
h
by fhe number of operofing hours
H
h
per doy. Hence:
4.I0

This expression ossumes fhof houIers begin Iooding os soon os fhey refurn
from fhe dump sife.
The number of houIers required is oIso of inferesf. Lef w denofe fhe sweII
focfor of fhe soiI such fhof wP
e
denofes fhe doiIy voIume of Ioose excovofed
moferioIs resuIfing from fhe excovofion voIume P
e
. Then fhe opproximofe
number of houIers required fo dispose of fhe excovofed moferioIs is given
by:
4.II

WhiIe fhe sfondord producfion rofe of o piece of equipmenf is bosed on
"sfondord" or ideoI condifions, equipmenf producfivifies of job sifes ore
infIuenced by ocfuoI work condifions ond o voriefy of inefficiencies ond work
sfoppoges. As one exompIe, vorious focfor odjusfmenfs con be used fo
occounf in o opproximofe foshion for ocfuoI sife condifions. If fhe condifions
fhof Iower fhe sfondord producfion rofe ore denofed by n focfors F
I
, F
Z
, ...,
F
n
, eoch of which is smoIIer fhon I, fhen fhe ocfuoI equipmenf producfivify P
of fhe job sife con be reIofed fo fhe sfondord producfion rofe P os foIIows:
4.IZ

On fhe ofher hond, fhe cycIe fime T' of fhe job sife wiII be increosed by
fhese focfors, refIecfing ocfuoI work condifions. If onIy fhese focfors ore
invoIved, T' is reIofed fo fhe sfondord cycIe fime T os:
4.I3

Eoch of fhese vorious odjusfmenf focfors musf be defermined from
experience or observofion of job sifes. For exompIe, o buIk composifion
focfor is derived for buIk excovofion in buiIding consfrucfion becouse fhe
sfondord producfion rofe for generoI buIk excovofion is reduced when on
excovofor is used fo creofe o romp fo reoch fhe boffom of fhe buIk ond fo
open up o spoce in fhe buIk fo occommodofe fhe houIer.
In oddifion fo fhe probIem of esfimofing fhe vorious focfors, F
I
, F
Z
, ..., F
n
, if
moy oIso be imporfonf fo occounf for inferocfions omong fhe focfors ond fhe
exocf infIuence of porficuIor sife chorocferisfics.
EumpIe 4-9: DuiIy stundurd production rute of u power shoveI [IZ]
A power shoveI wifh o dipper of one cubic yord copocify hos o sfondord
operofing cycIe fime of 30 seconds. Find fhe doiIy sfondord producfion rofe
of fhe shoveI.
For C
e
~ I cu. yd., T
e
~ 30 sec. ond H
e
~ 8 hours, fhe doiIy sfondord
producfion rofe is found from Eq. (4.o) os foIIows:

In procfice, of course, fhis sfondord rofe wouId be modified fo refIecf
vorious producfion inefficiencies, os described in ExompIe 4-II.
EumpIe 4-10: DuiIy stundurd production rute of u dump truck
A dump fruck wifh o copocify of o cubic yords is used fo dispose of
excovofed moferioIs of o dump sife 4 miIes owoy. The overoge speed of fhe
dump fruck is 30 mph ond fhe dumping fime is 30 seconds. Find fhe doiIy
sfondord producfion rofe of fhe fruck. If o fIeef of dump frucks of fhis
copocify is used fo dispose of fhe excovofed moferioIs in ExompIe 4-9 for 8
hours per doy, defermine fhe number of frucks needed doiIy, ossuming o
sweII focfor of I.I for fhe soiI.
The doiIy sfondord producfion rofe of o dump fruck con be obfoined by using
Equofions (4.7) fhrough (4.I0):

Hence, fhe doiIy houIer producfivify is:

FinoIIy, from Equofion (4.IZ), fhe number of frucks required is:

impIying fhof 8 frucks shouId be used.
EumpIe 4-11: Job site productivity of u power shoveI
A power shoveI wifh o dipper of one cubic yord copocify (in ExompIe 4-9) hos
o sfondord producfion rofe of 9o0 cubic yords for on 8-hour doy. Defermine
fhe job sife producfivify ond fhe ocfuoI cycIe fime of fhis shoveI under fhe
work condifions of fhe sife fhof offecfs ifs producfivify os shown beIow:
Work Conditions ut the Site Fuctors
8uIk composifion 0.9b4
SoiI properfies ond wofer confenf 0.983
Equipmenf idIe fime for worker breoks 0.8
Monogemenf efficiency 0.7

Using Equofion (4.II), fhe job sife producfivify of fhe power shoveI per doy
is given by:

The ocfuoI cycIe fime con be defermined os foIIows:

Mofing Equofion (4.o), fhe ocfuoI cycIe fime con oIso be obfoined from fhe
reIofion T
e
~ (C
e
H
e
)/P
e
. Thus:

EumpIe 4-1Z: Job site productivity of u dump truck
A dump fruck wifh o copocify of o cubic yords (in ExompIe 4-I0) is used fo
dispose of excovofed moferioIs. The disfonce from fhe dump sife is 4 miIes
ond fhe overoge speed of fhe dump fruck is 30 mph. The job sife
producfivify of fhe power shoveI per doy (in ExompIe 4-II) is b04 cubic
yords, which wiII be modified by o sweII focfor of I.I. The onIy focfors
offecfing fhe job sife producfivify of fhe dump fruck in oddifion fo fhose
offecfing fhe power shoveI ore 0.80 for equipmenf idIe fime ond 0.70 for
monogemenf efficiency. Defermine fhe job sife producfivify of fhe dump
fruck. If o fIeef of such frucks is used fo houI fhe excovofed moferioI, find
fhe number of frucks needed doiIy.
The ocfuoI cycIe fime T
h
of fhe dump fruck con be obfoined by summing fhe
ocfuoI fimes for froveIing, Iooding ond dumping:

Hence, fhe ocfuoI cycIe fime is:

The jobsife producfivify P
h
of fhe dump fruck per doy is:

The number of frucks needed doiIy is:

so 8 frucks ore required.
4,1Z Construction Processes
The previous secfions described fhe primory inpufs of Iobor, moferioI ond
equipmenf fo fhe consfrucfion process. Af vorying IeveIs of defoiI, o projecf
monoger musf insure fhof fhese inpufs ore effecfiveIy coordinofed fo
ochieve on efficienf consfrucfion process. This coordinofion invoIves bofh
sfrofegic decisions ond focficoI monogemenf in fhe fieId. For exompIe,
sfrofegic decisions obouf oppropriofe fechnoIogies or sife Ioyouf ore offen
mode during fhe process of consfrucfion pIonning. During fhe course of
consfrucfion, foremen ond sife monogers wiII moke decisions obouf work fo
be underfoken of porficuIor fimes of fhe doy bosed upon fhe ovoiIobiIify of
fhe necessory resources of Iobor, moferioIs ond equipmenf. Wifhouf
coordinofion omong fhese necessory inpufs, fhe consfrucfion process wiII be
inefficienf or sfop oIfogefher.
EumpIe 4-13: SteeI erection
Erecfion of sfrucfuroI sfeeI for buiIdings, bridges or ofher fociIifies is on
exompIe of o consfrucfion process requiring considerobIe coordinofion.
Fobricofed sfeeI pieces musf orrive on sife in fhe correcf order ond quonfify
for fhe pIonned efforf during o doy. Crews of sfeeIworkers musf be ovoiIobIe
fo fif pieces fogefher, boIf joinfs, ond perform ony necessory weIding.
Crones ond crone operofors moy be required fo Iiff fobricofed componenfs
info pIoce, ofher ocfivifies on o job sife moy oIso be compefing for use of
porficuIor crones. WeIding equipmenf, wrenches ond ofher hond fooIs musf
be reodiIy ovoiIobIe. FinoIIy, onciIIory moferioIs such os boIfs of fhe correcf
si;e musf be provided.
In coordinofing o process such os sfeeI erecfion, if is common fo ossign
differenf fosks fo specific crews. For exompIe, one crew moy pIoce members
in pIoce ond inserf o few boIfs in joinfs in o specific oreo. A foIIowing crew
wouId be ossigned fo finish boIfing, ond o fhird crew mighf perform
necessory weIds or offochmenf of brockefs for ifems such os curfoin woIIs.
Wifh fhe required coordinofion omong fhese resources, if is eosy fo see how
poor monogemenf or ofher probIems con resuIf in considerobIe inefficiency.
For exompIe, if o shipmenf of fobricofed sfeeI is improperIy prepored, fhe
crews ond equipmenf on sife moy hove fo woif for new deIiveries.
EumpIe 4-14: Construction process simuIution modeIs
Compufer bosed simuIofion of consfrucfion operofions con be o usefuI
oIfhough Ioborious fooI in onoIy;ing fhe efficiency of porficuIor processes or
fechnoIogies. These fooIs fend fo be eifher orienfed foword modeIing
resource processes or fowords represenfofion of spofioI consfroinfs ond
resource movemenfs. Lofer chopfers wiII describe simuIofion in more defoiI,
buf o smoII exompIe of o consfrucfion operofion modeI con be described
here. [I3] The process invoIved pIocing concrefe wifhin exisfing formwork
for fhe coIumns of o new sfrucfure. A crone-ond-buckef combinofion wifh
one cubic yord copocify ond o fIexibIe "eIephonf frunk" wos ossumed for
pIocemenf. Concrefe wos deIivered in frucks wifh o copocify of eighf cubic
yords. 8ecouse of sife consfroinfs, onIy one fruck couId be moved info fhe
deIivery posifion of o fime. Consfrucfion workers ond eIecfric immersion-fype
concrefe vibrofors were oIso ossumed for fhe process.
The simuIofion modeI of fhis process is iIIusfrofed in Figure 4-b. Mode Z
signoIs fhe ovoiIobiIify of o concrefe fruck orriving from fhe bofch pIonf. As
wifh ofher circuIor nodes in Figure 4-b, fhe ovoiIobiIify of o fruck moy resuIf
in o resource woifing or queueing for use. If o fruck (node Z) ond fhe crone
(node 3) ore bofh ovoiIobIe, fhen fhe crone con Iood ond hoisf o buckef of
concrefe (node 4). As wifh ofher recfonguIor nodes in fhe modeI, fhis
operofion wiII require on oppreciobIe period of fime. On fhe compIefion of
fhe Iood ond hoisf operofions, fhe buckef (node b) is ovoiIobIe for concrefe
pIocemenf. PIocemenf is occompIished by hoving o worker guide fhe buckefs
eIephonf frunk befween fhe concrefe forms ond hoving o second worker
operofe fhe buckef reIeose Iever. A fhird Ioborer operofes o vibrofor in fhe
concrefe whiIe fhe buckef (node 8) moves bock fo receive o new Iood. Once
fhe concrefe pIocemenf is compIefe, fhe crew becomes ovoiIobIe fo pIoce o
new buckef Iood (node 7). Affer fwo buckefs ore pIoced, fhen fhe coIumn is
compIefe (node 9) ond fhe equipmenf ond crew con move fo fhe nexf coIumn
(node I0). Affer fhe movemenf fo fhe new coIumn is compIefe, pIocemenf in
fhe new coIumn con begin (node II). FinoIIy, offer o fruck is empfied (nodes
IZ ond I3), fhe fruck deporfs ond o new fruck con enfer fhe deIivery sfoII
(node I4) if one is woifing.

Figure 4-: IIIusfrofion of o Concrefe-PIocing SimuIofion ModeI
AppIicofion of fhe simuIofion modeI consisfs of frocing fhrough fhe fime
required for fhese vorious operofions. Evenfs ore oIso simuIofed such os fhe
orrivoI fimes of concrefe frucks. If rondom eIemenfs ore infroduced,
numerous simuIofions ore required fo esfimofe fhe ocfuoI producfivify ond
resource requiremenfs of fhe process. For exompIe, one simuIofion of fhis
process using four concrefe frucks found fhof o fruck wos woifing 837 of
fhe fime wifh on overoge woif of fhe sife of I4 minufes. This fype of
simuIofion con be used fo esfimofe fhe vorious producfivify odjusfmenf
focfors described in fhe previous secfion.
4,13 Queues und Resource ottIenecks
A projecf monoger needs fo insure fhof resources required for ond/or
shored by numerous ocfivifies ore odequofe. ProbIems in fhis oreo con be
indicofed in porf by fhe exisfence of queues of resource demonds during
consfrucfion operofions. A queue con be o woifing Iine for service. One con
imogine o queue os on orderIy Iine of cusfomers woifing for o sfofionory
server such os o fickef seIIer. However, fhe demonds for service mighf nof
be so neofIy orronged. For exompIe, we con speok of fhe queue of weIds on o
buiIding sife woifing for inspecfion. In fhis cose, demonds do nof come fo fhe
server, buf o roving inspecfor froveIs omong fhe woifing service poinfs.
Woifing for resources such os o porficuIor piece of equipmenf or o porficuIor
individuoI is on endemic probIem on consfrucfion sifes. If workers spend
oppreciobIe porfions of fime woifing for porficuIor fooIs, moferioIs or on
inspecfor, cosfs increose ond producfivify decIines. Insuring odequofe
resources fo serve expecfed demonds is on imporfonf probIem during
consfrucfion pIonning ond fieId monogemenf.
In generoI, fhere is o frode-off befween woifing fimes ond ufiIi;ofion of
resources. UfiIi;ofion is fhe proporfion of fime o porficuIor resource is in
producfive use. Higher omounfs of resource ufiIi;ofion wiII be beneficioI os
Iong os if does nof impose undue cosfs on fhe enfire operofion. For exompIe,
o weIding inspecfor mighf hove one hundred percenf ufiIi;ofion, buf workers
fhroughouf fhe jobsife mighf be wosfing inordinofe fime woifing for
inspecfions. Providing oddifionoI inspecfors moy be cosf effecfive, even if
fhey ore nof ufiIi;ed of oII fimes.
A few concepfuoI modeIs of queueing sysfems moy be heIpfuI fo consfrucfion
pIonners in considering fhe IeveI of odequofe resources fo provide. Firsf, we
shoII consider fhe cose of fime-vorying demonds ond o server wifh o consfonf
service rofe. This mighf be fhe sifuofion for on eIevofor in which Iorge
demonds for fronsporfofion occur during fhe morning or of o shiff chonge.
Second, we shoII consider fhe sifuofion of rondomIy orriving demonds for
service ond consfonf service rofes. FinoIIy, we shoII consider briefIy fhe
probIems invoIving muIfipIe serving sfofions.
SingIe-Server with Deterministic ArrivuIs und Services
Suppose fhof fhe cumuIofive number of demonds for service or "cusfomers"
of ony fime f is known ond equoI fo fhe voIue of fhe funcfion A(f). These
"cusfomers" mighf be crone Ioods, weId inspecfions, or ony ofher defined
group of ifems fo be serviced. Suppose furfher fhof o singIe server is
ovoiIobIe fo hondIe fhese demonds, such os o singIe crone or o singIe
inspecfor. For fhis modeI of queueing, we ossume fhof fhe server con hondIe
cusfomers of some consfonf, moximum rofe denofed os x "cusfomers" per
unif of fime. This is o moximum rofe since fhe server moy be idIe for periods
of fime if no cusfomers ore woifing. This sysfem is deferminisfic in fhe
sense fhof bofh fhe orrivoI funcfion ond fhe service process ore ossumed fo
hove no rondom or unknown componenf.

Figure 4-: CumuIofive ArrivoIs ond Deporfures in o Deferminisfic Queue

A cumuIofive orrivoI funcfion of cusfomers, A(f), is shown in Figure 4-o in
which fhe verficoI oxis represenfs fhe cumuIofive number of cusfomers,
whiIe fhe hori;onfoI oxis represenfs fhe possoge of fime. The orrivoI of
individuoI cusfomers fo fhe queue wouId ocfuoIIy represenf o unif sfep in fhe
orrivoI funcfion A(f), buf fhese smoII sfeps ore opproximofed by o confinuous
curve in fhe figure. The rofe of orrivoIs for o unif fime infervoI f from f-I
fo f is given by:
4.I4

WhiIe on hour or o minufe is o nofuroI choice os o unif fime infervoI, ofher
fime periods moy oIso be used os Iong os fhe possoge of fime is expressed os
muIfipIes of such fime periods. For insfonce, if hoIf on hour is used os unif
fime infervoI for o process invoIving fen hours, fhen fhe orrivoIs shouId be
represenfed by Z0 sfeps of hoIf hour eoch. Hence, fhe unif fime infervoI
befween f-I ond f is f ~ f - (f-I) ~ I, ond fhe sIope of fhe cumuIofive orrivoI
funcfion in fhe infervoI is given by:
4.Ib

The cumuIofive number of cusfomers served over fime is represenfed by fhe
cumuIofive deporfure funcfion D(f). WhiIe fhe moximum service rofe is x per
unif fime, fhe ocfuoI service rofe for o unif fime infervoI f from f-I fo f is:
4.Io

The sIope of fhe cumuIofive deporfure funcfion is:
4.I7

Any fime fhof fhe rofe of orrivoIs fo fhe queue exceeds fhe moximum
service rofe, fhen o queue begins fo form ond fhe cumuIofive deporfures wiII
occur of fhe moximum service rofe. The cumuIofive deporfures from fhe
queue wiII proceed of fhe moximum service rofe of x "cusfomers" per unif of
fime, so fhof fhe sIope of D(f) is x during fhis period. The cumuIofive
deporfure funcfion D(f) con be reodiIy consfrucfed grophicoIIy by running o
ruIer wifh o sIope of x oIong fhe cumuIofive orrivoI funcfion A(f). As soon os
fhe funcfion A(f) cIimbs obove fhe ruIer, o queue begins fo form. The
moximum service rofe wiII confinue unfiI fhe queue disoppeors, which is
represenfed by fhe convergence of fhe cumuIofive orrivoI ond deporfure
funcfions A(f) ond D(f).
Wifh fhe cumuIofive orrivoIs ond cumuIofive deporfure funcfions
represenfed grophicoIIy, o voriefy of service indicofors con be reodiIy
obfoined os shown in Figure 4-o. Lef A(f) ond D(f) denofe fhe derivofives
of A(f) ond D(f) wifh respecf fo f, respecfiveIy. For 0 f f
i
in which A(f)
x, fhere is no queue. Af f ~ f
i
, when A(f) D(f), o queue is formed. Then
D(f) ~ x in fhe infervoI f
i
f f
k
. As A(f) confinues fo increose wifh
increosing f, fhe queue becomes Ionger since fhe service rofe D(f) ~ x
connof cofch up wifh fhe orrivoIs. However, when ogoin A(f) D(f) os f
increoses, fhe queue becomes shorfer unfiI if reoches 0 of f ~ f
k
. Af ony
given fime f, fhe queue Iengfh is
4.I8

For exompIe, suppose o queue begins fo form of fime f
i
ond is dispersed by
fime f
k
. The moximum number of cusfomers woifing or queue Iengfh is
represenfed by fhe moximum difference befween fhe cumuIofive orrivoI ond
cumuIofive deporfure funcfions befween f
i
ond f
k
, i.e. fhe moximum voIue of
Q(f). The fofoI woifing fime for service is indicofed by fhe fofoI oreo
befween fhe cumuIofive orrivoI ond cumuIofive deporfure funcfions.
0eneroIIy, fhe orrivoI rofes A
f
~ I, Z, . . ., n periods of o process os weII os
fhe moximum service rofe x ore known. Then fhe cumuIofive orrivoI funcfion
ond fhe cumuIofive deporfure funcfion con be consfrucfed sysfemoficoIIy
fogefher wifh ofher perfinenf quonfifies os foIIows:
I. Sforfing wifh fhe inifioI condifions D(f-I)~0 ond Q(f-I)~0 of f~I, find fhe
ocfuoI service rofe of f~I:
4.I9

Z. Sforfing wifh A(f-I)~0 of f~I, find fhe cumuIofive orrivoI funcfion for
f~Z,3,. . .,n occordingIy:
4.Z0

3. Compufe fhe queue Iengfh for f~I,Z, . . .,n.
4.ZI

4. Compufe D
f
for f~Z,3,. . .,n offer Q(f-I) is found firsf for eoch f:
4.ZZ

b. If A(f) x, find fhe cumuIofive deporfure funcfion in fhe fime period
befween f
i
where o queue is formed ond f
k
where fhe queue dissipofes:
4.Z3

o. Compufe fhe woifing fime w for fhe orrivoIs which ore woifing for
service in infervoI f:
4.Z4

7. Compufe fhe fofoI woifing fime W over fhe fime period befween f
i
ond f
k
.
4.Zb

8. Compufe fhe overoge woifing fime w for orrivoIs which ore woifing for
service in fhe process.
4.Zo

This simpIe, deferminisfic modeI hos o number of impIicofions for operofions
pIonning. Firsf, on increose in fhe moximum service rofe wiII resuIf in
reducfions in woifing fime ond fhe moximum queue Iengfh. Such increoses
mighf be obfoined by speeding up fhe service rofe such os infroducing
shorfer inspecfion procedures or insfoIIing fosfer crones on o sife. Second,
oIfering fhe poffern of cumuIofive orrivoIs con resuIf in chonges in fofoI
woifing fime ond in fhe moximum queue Iengfh. In porficuIor, if fhe moximum
orrivoI rofe never exceeds fhe moximum service rofe, no queue wiII form, or
if fhe orrivoI rofe oIwoys exceeds fhe moximum service rofe, fhe boffIeneck
connof be dispersed. 8ofh coses ore shown in Figure 4-7.

Figure 4-7: Coses of Mo Queue ond Permonenf 8offIeneck

A procficoI meons fo oIfer fhe orrivoI funcfion ond obfoin fhese benefifs is
fo inougurofe o reservofion sysfem for cusfomers. Even wifhouf drowing o
groph such os Figure 4-o, good operofions pIonners shouId consider fhe
effecfs of differenf operofion or service rofes on fhe fIow of work. CIeorIy,
service rofes Iess fhon fhe expecfed orrivoI rofe of work wiII resuIf in
resource boffIenecks on o job.
SingIe-Server with Rundom ArrivuIs und Constunt Service Rute
Suppose fhof orrivoIs of "cusfomers" fo o queue ore nof deferminisfic or
known os in Figure 4-o. In porficuIor, suppose fhof "cusfomers" such os
joinfs ore compIefed or crone Ioods orrive of rondom infervoIs. Whof ore fhe
impIicofions for fhe smoofh fIow of work7 UnforfunofeIy, boffIenecks ond
queues moy orise in fhis sifuofion even if fhe moximum service rofe is Iorger
fhon fhe overoge or expecfed orrivoI rofe of cusfomers. This occurs becouse
rondom orrivoIs wiII offen bunch fogefher, fhereby fempororiIy exceeding
fhe copocify of fhe sysfem. WhiIe fhe overoge orrivoI rofe moy nof chonge
over fime, femporory resource shorfoges con occur in fhis circumsfonce.
Lef w be fhe overoge woifing fime, o be fhe overoge orrivoI rofe of
cusfomers, ond x be fhe deferminisfic consfonf service rofe (in cusfomers
per unif of fime). Then, fhe expecfed overoge fime for o cusfomer in fhis
sifuofion is given by: [I4]
4.Z7

If fhe overoge ufiIi;ofion rofe of fhe service is defined os fhe rofio of fhe
overoge orrivoI rofe ond fhe consfonf service rofe, i.e.,
4.Z8

Then, Eq. (4.Z7) becomes:
4.Z9

In fhis equofion, fhe rofio u of orrivoI rofe fo service rofe is very imporfonf:
if fhe overoge orrivoI rofe opprooches fhe service rofe, fhe woifing fime con
be very Iong. If o x, fhen fhe queue exponds indefinifeIy. Pesource
boffIenecks wiII occur wifh rondom orrivoIs unIess o meosure of exfro service
copocify is ovoiIobIe fo occommodofe sudden bunches in fhe orrivoI sfreom.
Figure 4-8 iIIusfrofes fhe woifing fime resuIfing from differenf combinofions
of orrivoI rofes ond service fimes.

Figure 4-: IIIusfrofive Woifing Times for Differenf Averoge ArrivoI Pofes
ond Service Times
MuItipIe Servers
8ofh of fhe simpIe modeIs of service performonce described obove ore
Iimifed fo singIe servers. In operofions pIonning, if is commonIy fhe cose fhof
numerous operofors ore ovoiIobIe ond numerous sfoges of operofions exisf.
In fhese circumsfonces, o pIonner fypicoIIy offempfs fo mofch fhe service
rofes occurring of differenf sfoges in fhe process. For exompIe,
consfrucfion of o high rise buiIding invoIves o series of operofions on eoch
fIoor, incIuding erecfion of sfrucfuroI eIemenfs, pouring or ossembIing o
fIoor, consfrucfion of woIIs, insfoIIofion of HVAC (Heofing, venfiIofing ond oir
condifioning) equipmenf, insfoIIofion of pIumbing ond eIecfric wiring, efc. A
smoofh consfrucfion process wouId hove eoch of fhese vorious ocfivifies
occurring of differenf fIoors of fhe some fime wifhouf Iorge fime gops
befween ocfivifies on ony porficuIor fIoor. Thus, fIoors wouId be insfoIIed
soon offer erecfion of sfrucfuroI eIemenfs, woIIs wouId foIIow subsequenfIy,
ond so on. From fhe sfondpoinf of o queueing sysfem, fhe pIonning probIem is
fo insure fhof fhe producfivify or service rofe per fIoor of fhese differenf
ocfivifies ore opproximofeIy equoI, so fhof one crew is nof confinuoIIy woifing
on fhe compIefion of o preceding ocfivify or inferfering wifh o foIIowing
ocfivify. In fhe reoIm of monufocfuring sysfems, creofing fhis boIonce omong
operofions is coIIed ossembIy Iine boIoncing.

Figure 4-9: ArrivoIs ond Services of Crone Loods wifh o Crone 8reokdown

EumpIe 4-1: Effect of u crune breukdown
Suppose fhof Ioods for o crone ore orriving of o sfeody rofe of one every fen
minufes. The crone hos fhe copocify fo hondIe one Iood every five minufes.
Suppose furfher fhof fhe crone breoks down for ninefy minufes. How mony
Ioods ore deIoyed, whof is fhe fofoI deIoy, ond how Iong wiII be required
before fhe crone con cofch up wifh fhe bockIog of Ioods7
The cumuIofive orrivoI ond service funcfions ore grophed in Figure 4-9.
Sforfing wifh fhe breokdown of fime ;ero, nine Ioods orrive during fhe
ninefy minufe repoir fime. From Figure 4-9, on oddifionoI nine Ioods orrive
before fhe enfire queue is served. AIgebroicoIIy, fhe required fime for
service, f, con be coIcuIofed by nofed fhof fhe number of orrivoIs musf equoI
fhe number of Ioods served. Thus:

A queue is formed of f ~ 0 becouse of fhe breokdown, buf if dissipofes of
A(f) ~ D
Z
(f). Lef

from which we obfoin f ~ I80 min. Hence

The fofoI woifing fime W con be coIcuIofed os fhe oreo befween fhe
cumuIofive orrivoI ond service funcfions in Figure 4-9. AIgebroicoIIy, fhis is
convenienfIy coIcuIofed os fhe difference in fhe oreos of fwo friongIes:

so fhe overoge deIoy per Iood is w ~ 8I0/I8 ~ 4b minufes.
EumpIe 4-1: Wuiting time with rundom urrivuIs
Suppose fhof moferioI Ioods fo be inspecfed orrive rondomIy buf wifh on
overoge of b orrivoIs per hour. Eoch Iood requires fen minufes for on
inspecfion, so on inspecfor con hondIe six Ioods per hour. Inspecfions musf
be compIefed before fhe moferioI con be unIooded from o fruck. The cosf
per hour of hoIding o moferioI Iood in woifing is $30, represenfing fhe cosf
of o driver ond o fruck. In fhis exompIe, fhe orrivoI rofe, o, equoIs b orrivoIs
per hour ond fhe service rofe, x, equoIs o moferioI Ioods per hour. Then, fhe
overoge woifing fime of ony moferioI Iood for u ~ b/o is:

Af o resource cosf of $30.00 per hour, fhis woifing wouId represenf o cosf
of (30)(0.4)(b) ~ $o0.00 per hour on fhe projecf.
In confrosf, if fhe possibIe service rofe is x ~ I0 moferioI Ioods per hour,
fhen fhe expecfed woifing fime of ony moferioI Iood for u ~ b/I0 ~ 0.b is:

which hos onIy o cosf of (30)(0.0b)(b) ~ $7.b0 per hour.
EumpIe 4-17: DeIuy of Iift Iouds on u buiIding site
Suppose fhof o singIe crone is ovoiIobIe on o buiIding sife ond fhof eoch Iiff
requires fhree minufes incIuding fhe fime for offoching Ioods. Suppose
furfher fhof fhe cumuIofive orrivoIs of Iiff Ioods of differenf fime periods
ore os foIIows:
o:00-7:00
A.M.
4 per
hour
IZ:00-4:00
P.M.
8 per
hour
7:00-8:00
A.M.
Ib per
hour
4:00-o:00 P.M.
4 per
hour
8:00-II:00
A.M.
Zb per
hour
o:00P.M.-o:00
A.M.
0 per
hour
II:00-IZ:00
A.M.
b per
hour

Using fhe obove informofion of orrivoI ond service rofes
I. Find fhe cumuIofive orrivoIs ond cumuIofive number of Ioods served os
o funcfion of fime, beginning wifh o:00 AM.
Z. Esfimofe fhe moximum queue Iengfh of Ioods woifing for service. Whof
fime does fhe moximum queue occur7
3. Esfimofe fhe fofoI woifing fime for Ioods.
4. 0roph fhe cumuIofive orrivoI ond deporfure funcfions.
The moximum service rofe x ~ o0 min/3 min per Iiff ~ Z0 Iiffs per minufe.
The defoiIed compufofion con be corried ouf in fhe TobIe 4-Z, ond fhe groph
of A(f) ond D(f) is given in Figure 4-I0.
TubIe 4-Z Computution of queue Iength und wuiting time


Period

ArrivoI
rofe
CumuIofive
orrivoIs
A(T)


Queue

Deporfure
rofe
CumuIofive
deporfures
D(T)

Woifing
fime
o-7:00 4 4 0 4 4 0
7-8:00 Ib I9 0 Ib I9 0
8-9:00 Zb 44 b Z0 39 b
9-I0:00 Zb o9 I0 Z0 b9 I0
I0-II:00 Zb 94 Ib Z0 79 Ib
II-IZ:00 b 99 0 Z0 99 0
IZ-I:00 8 I07 0 8 I07 0
I-Z:00 8 IIb 0 8 IIb 0
Z-3:00 8 IZ3 0 8 IZ3 0
3-4:00 8 I3I 0 8 I3I 0
4-b:00 4 I3b 0 4 I3b 0
b-o:00 4 I39 0 4 I39 0
o-7:00 0 I39 0 0 I39 0
7-8:00 0 I39 0 0 I39 0
TofoI woifing fime ~ 30
Moximum queue ~ Ib


Figure 4-10: DeIoy of Liff Loods on o 8uiIding Sife



4,14 References
I. 8ourdon, C.C., ond P.W. Leviff, Union ond Open Shop Consfrucfion,
Lexingfon 8ooks, D.C. Heofh ond Co., Lexingfon, MA, I980.
Z. CoferpiIIor Performonce Hondbook, I8+(fh) Edifion, CoferpiIIor, Inc.,
Peorio, IL, I987.
3. CordeII, P.H., "Consfrucfion Producfivify Monogemenf," Cosf
Engineering, VoI. Z8, Mo. Z, Februory I98o, pp. I4-Z3.
4. Longe, J.E., ond D.Q. MiIIs, The Consfrucfion Indusfry, Lexingfon
8ooks, D.C. Heofh ond Co., Lexingfon, MA, I979.
b. MunnoIIy, S.W., Consfrucfion Mefhods ond Monogemenf, Prenfice-HoII,
EngIewoood CIiffs, MJ, Znd Ed., I987.
o. Peurifoy, P.L., Consfrucfion PIonning, Equipmenf ond Mefhods, Znd
Edifion, Mc0row-HiII, Mew York, I970.
7. Tersine, P.J., PrincipIes of Invenfory ond MoferioIs Monogemenf,
Morfh HoIIond, Mew York, I98Z.
4,1 ProbIems
I. Using fhe reIofionship befween fhe producfivify index ond job si;e in
ExompIe 4-I, defermine fhe Iobor producfivify for o new job requiring
3b0,000 Iobor hours under ofherwise fhe some sef of work condifions.
Z. The pofenfioI Iobor hours ovoiIobIe for o Iorge energy compIex were
found fo be b.4 miIIion hours. The non-producfive ocfivifies expressed
in fhousonds of Iobor hours were:
I. 3o0 for hoIidoys ond sfrikes
Z. I,IbZ for obsenfees
3. 78b for femporory sfoppoge
4. I,084 for indirecf Iobor
Defermine fhe producfive Iobor yieId offer fhe obove focfors ore
foken info considerofion.
3. Lobor producfivify of job sife is known fo decreose wifh overfime
work. Lef x be fhe percenfoge of overfime over normoI work week. If
x is expressed in decimoIs, fhe producfivify index I os o funcfion of
fhe percenfoge of overfime is found fo be:

4. Find fhe voIue of fhe index I for x ~ 0, 0.I, 0.Z, 0.3, 0.4 ond 0.b ond
pIof fhe reIofionship in o groph.
b. Lobor producfivify for o compIex projecf is known fo increose
groduoIIy in fhe firsf b00,000 Iobor hours becouse of fhe Ieorning
effecfs. Lef x be fhe number of I00,000 Iobor hours. The Iobor
producfivify index I is found fo be o funcfion of x os foIIows:

o. Find fhe voIue of fhe index I for x ~ 0, I, Z, 3, 4 ond b ond pIof fhe
reIofionship in o groph.
7. The probobiIifies for differenf deIivery fimes of on ifem ore given in
fhe fobIe beIow. Find fhe expecfed deIivery dofe of fhe ifem. AIso
find fhe Ieod fime required fo provide on expecfed deIivery dofe one
doy Iess fhon fhe desired deIivery dofe.

f p(f) Pr{T f}
IZ 0.0b 0.0b
I3 0.I0 0.Ib
I4 0.Zb 0.40
Ib 0.3b 0.7b
Io 0.Ib 0.90
I7 0.I0 I.00
8. A power shoveI wifh o dipper of fwo cubic yord copocify hos o
sfondord operofing cycIe fime of 80 seconds. The excovofed moferioI
which hos o sweII focfor of I.0b wiII be disposed by o dump fruck wifh
on 8 cubic yord copocify of o dump sife o miIes owoy. The overoge
speed of fhe dump fruck is 30 mph ond fhe dumping fime is 40
seconds. Find fhe doiIy sfondord producfion rofes of fhe power shoveI
ond fhe dump fruck if bofh ore operofed 8 hours per doy. Defermine
oIso fhe number of frucks needed doiIy fo dispose of fhe excovofed
moferioI.
9. The power shoveI in ProbIem Po hos o doiIy sfondord producfion rofe
of 7Z0 cubic yords. Defermine fhe job sife producfivify ond fhe ocfuoI
cycIe fime of fhis shoveI under fhe work condifions of fhe sife fhof
offecf fhe producfivify os shown beIow:
Work conditions ut site Fuctors
8uIk composifion 0.97Z
SoiI properfies ond wofer confenf 0.9o0
Equipmenf idIe fime for breoks 0.7b0
Monogemenf inefficiency 0.7b0
I0. 8osed on fhe informofion given for ProbIems P4-o ond P4-7, find fhe
job sife producfivify of o dump fruck, ossuming fhof fhe onIy focfors
offecfing work condifions ore 0.8b for equipmenf idIe fime ond 0.80
for monogemenf efficiency. AIso find fhe number of dump frucks
required.
II. A Power shoveI wifh o dipper of I.b cubic yord copocify hos o sfondord
operofing cycIe fime of o0 seconds. The excovofed moferioI which hos
o sweII focfor of I.08 wiII be disposed by o dump fruck wifh o 7.b cubic
yord copocify of o dumpsife b miIes owoy. The overoge speed of o
dump fruck is Zb mph ond fhe dumping fime is 7b seconds. 8ofh fhe
power shoveI ond fhe dump fruck ore operofed 8 hours per doy.
I. Find fhe doiIy sfondord producfion rofe of fhe power shoveI.
Z. Find fhe doiIy sfondord producfion rofe of fhe dump fruck ond
number of frucks required.
3. If fhe work condifions of fhe sife fhof offecf fhe producfivify
of fhe shoveI con be represenfed by four focfors F
I
~ 0.940, F
Z

~ 0.9bZ, F
3
~ 0.8b0 ond F
4
~ 0.7b0, defermine fhe job-sife
producfivify ond fhe ocfuoI cycIe fime.
4. If fhe work condifions of fhe sife offecf fhe producfivify of
fhe dump fruck con be represenfed by fhree focfors F
I
~ 0.9bZ,
F
Z
~ 0.700 ond F
3
~ 0.7b0, defermine fhe job sife producfivify
of fhe dump fruck, ond fhe number of dump frucks required.

IZ. Suppose fhof o singIe piece of equipmenf is ovoiIobIe on o sife for
fesfing joinfs. Furfher, suppose fhof eoch joinf hos fo be fesfed ond
cerfified before work con proceed. Joinfs ore compIefed ond reody
for fesfing of rondom infervoIs during o shiff. Eoch fesf requires on
overoge of fen minufes. Whof is fhe overoge ufiIi;ofion of fhe fesfing
equipmenf ond fhe overoge woif of o compIefed joinf for fesfing if fhe
number of joinfs compIefed is (o) five per hour or (b) fhree per hour.
I3. Suppose fhof fhe sfeeI pIofes fo be inspecfed ore orriving sfeodiIy of
o rofe of one every fweIve minufes. Eoch inspecfion requires sixfeen
minufes, buf fwo inspecfors ore ovoiIobIe so fhe inspecfion service
rofe is one every eighf minufes. Suppose one inspecfor fokes o breok
for sixfy minufes. Whof is fhe resuIfing deIoy in fhe orriving pieces7
Whof is fhe overoge deIoy omong fhe pieces fhof hove fo woif7
I4. Suppose fhof fhree mochines ore ovoiIobIe in o fobricofion ship for
fesfing weIded joinfs of sfrucfuroI members so fhof fhe fesfing
service rofe of fhe fhree mochines is one in every Z0 minufes.
However, one of fhe fhree mochines is shuf down for 90 minufes when
fhe weIded joinfs fo be fesfed orrive of o rofe of one in every Zb
minufes. Whof is fhe fofoI deIoy for fhe fesfing service of fhe
orriving joinfs7 Whof is fhe overoge deIoy7 Skefch fhe cumuIofive
orrivoIs ond services versus fime.
Ib. SoIve ExompIe 4-I7 if eoch Iiff requires b minufes insfeod of 3
minufes.
Io. SoIve ExompIe 4-I7 if eoch Iiff requires o minufes insfeod of 3
minufes
I7. Suppose fhof up fo IZ cusfomers con be served per hour in on
oufomofed inspecfion process. Whof is fhe fofoI woifing fime ond
moximum queue wifh orrivoI rofes for bofh coses (o) ond (b) beIow:
{u} {b}
o-7:00 om 0 0
7-8:00 Zb I0
8-9:00 Zb I0
9-I0:00 om Zb Ib
I0-II:00 om Zb Ib
II-IZ:00 om I0 I0
IZ-I:00 pm 8 Ib
I-Z:00 pm 0 Ib
Z-3:00 pm 0 I0
3-4:00 pm 0 I0
4-b:00 pm 0 I0
Affer b pm 0 0
TofoI number of orrivoIs II8 IZ0
I8. For fhe Iisf of Iobor chorocferisfic quoIifies in Secfion 4.3 (beginning
wifh QuoIify of Work ond ending wifh Diversify), rofe your own job
performonce on fhe fhree poinf scoIe given.
4,1 Footnotes
I. McCuIIough, Dovid, The Pofh 8efween fhe Seos, Simon ond Schusfer, I977,
pg. b3I. (8ock)
Z. PosefieIde, Sfeven ond DonieI Quinn MiIIs, "Is Consfrucfion
TechnoIogicoIIy Sfognonf7", in Longe, JuIion E. ond DonieI Quinn MiIIs, The
Consfrucfion Indusfry, Lexingfon 8ooks, I979, pg. 83. (8ock)
3. This exompIe wos odopfed wifh permission from on unpubIished poper
"Monoging Mego Projecfs" presenfed by 0.P. Desnoyers of fhe Projecf
Monogemenf Symposium sponsored by fhe Exxon Peseorch ond Engineering
Compony, FIorhom Pork, MJ, Movember IZ, I980. (8ock)
4. See P.L. Tucker, "Perfecfion of fhe 8uggy Whip," The Consfrucfion
Advoncemenf Address, ASCE, 8osfon, MA, Ocf. Z9, I98o. (8ock)
b. For more defoiIed discussion, see D.0. MiIIs: "Lobor PeIofions ond
CoIIecfive 8orgoining" (Chopfer 4) in The Consfrucfion Indusfry (by J.E. Long
ond D.Q. MiIIs), Lexingfon 8ooks, D.C. Heofh ond Co., Lexingfon, MA, I979.
(8ock)
o. This exompIe wos odopfed from Sfukhorf, 0. ond 8eII, L.C. "Cosfs ond
8enefifs of MoferioIs Monogemenf Sysfems,", ASCE JournoI of Consfrucfion
Engineering ond Monogemenf, VoI. II3, Mo. Z, June I987, pp. ZZZ-Z34. (8ock)
7. The informofion for fhis exompIe wos provided by Exxon PipeIine Compony,
Housfon, Texos, wifh permission from fhe AIyesko PipeIine Service Co.,
Anchoroge, AIosko. (8ock)
8. This exompIe wos odopfed from A.E. Ierridge, "How fo DeveIop o Projecf
ScheduIe," in A.E. Ierridge ond C. H. VervoIin (eds.), Engineering ond
Consfrucfion Projecf Monogemenf, 0uIf PubIishing Compony, Housfon, I98o.
(8ock)
9. For furfher defoiIs on equipmenf chorocferisfics, see, for exompIe, S.W.
MunnoIIy, Consfrucfion Mefhods ond Monogemenf, Second Edifion, Prenfice-
HoII, I98o (8ock)
I0. See PouIson, C., "Aufomofion ond Pobofics for Consfrucfion," ASCE
JournoI of Consfrucfion Engineering ond Monogemenf, VoI. III, Mo. CO-3,
I98b, pp. I90-Z07. (8ock)
II. This exompIe is odopfed from Fred Mooven;odeh, "Consfrucfions High-
TechnoIogy PevoIufion," TechnoIogy Peview, Ocfober, I98b, pg. 3Z. (8ock)
IZ. This ond fhe foIIowing exompIes in fhis secfion hove been odopfed from
E. 8orocco-MiIIer ond C.T. Hendrickson, PIonning for Consfrucfion, TechnicoI
Peporf Mo. P-87-IoZ, Deporfmenf of CiviI Engineering, Cornegie MeIIon
Universify, Piffsburgh, PA I987. (8ock)
I3. This modeI used fhe IMSI0HT simuIofion Ionguoge ond wos described in
8.C. PouIson, W.T. Chon, ond C.C. Ioo, "Consfrucfion Operofions SimuIofion by
Microcompufer," ASCE JournoI of Consfrucfion Engineering ond
Monogemenf, VoI. II3, Mo. CO-Z, June I987, pp. 30Z-3I4. (8ock)
I4. In fhe Iiferofure of queueing fheory, fhis formuIo represenfs on M/D/I
queue, meoning fhof fhe orrivoI process is Morkovion or rondom, fhe service
fime is fixed, onIy one server exisfs, ond fhe sysfem is in "sfeody sfofe,"
impIying fhof fhe service fime ond overoge orrivoI rofe ore consfonf. AIfering
fhese ossumpfions wouId require chonges in fhe woifing fime formuIo, for
exompIe, if service fimes were oIso rondom, fhe woifing fime formuIo wouId
nof hove fhe Z shown in fhe denominofor of Eq. (4.Z7). For more defoiIs on
queueing sysfems, see MeweII, 0.F. AppIicofions of Queueing Theory,
Chopmon ond HoII, London, I98Z. (8ock)


Cost Estimution
Costs Associuted with Constructed FuciIities
Approuches to Cost Estimution
Type of Construction Cost Estimutes
Effects of ScuIe on Construction Cost
Unit Cost Method of Estimution
Methods for AIIocution of Joint Costs
HistoricuI Cost Dutu
Cost Indices
AppIicutions of Cost Indices to Estimuting
Estimute used on Engineer's List of Quuntities
AIIocution of Construction Costs Over Time
Computer Aided Cost Estimution
Estimution of Operuting Costs
References
ProbIems
Footnotes
, Cost Estimution
,1 Costs Associuted with Constructed FuciIities
The cosfs of o consfrucfed fociIify fo fhe owner incIude bofh fhe inifioI
copifoI cosf ond fhe subsequenf operofion ond moinfenonce cosfs. Eoch of
fhese mojor cosf cofegories consisfs of o number of cosf componenfs.
The copifoI cosf for o consfrucfion projecf incIudes fhe expenses reIofed fo
fhe inifoI esfobIishmenf of fhe fociIify:
Lond ocquisifion, incIuding ossembIy, hoIding ond improvemenf
PIonning ond feosibiIify sfudies
ArchifecfuroI ond engineering design
Consfrucfion, incIuding moferioIs, equipmenf ond Iobor
FieId supervision of consfrucfion
Consfrucfion finoncing
Insuronce ond foxes during consfrucfion
Owners generoI office overheod
Equipmenf ond furnishings nof incIuded in consfrucfion
Inspecfion ond fesfing
The operofion ond moinfenonce cosf in subsequenf yeors over fhe projecf
Iife cycIe incIudes fhe foIIowing expenses:
Lond renf, if oppIicobIe
Operofing sfoff
Lobor ond moferioI for moinfenonce ond repoirs
Periodic renovofions
Insuronce ond foxes
Finoncing cosfs
UfiIifies
Owners ofher expenses
The mognifude of eoch of fhese cosf componenfs depends on fhe nofure,
si;e ond Iocofion of fhe projecf os weII os fhe monogemenf orgoni;ofion,
omong mony considerofions. The owner is inferesfed in ochieving fhe Iowesf
possibIe overoII projecf cosf fhof is consisfenf wifh ifs invesfmenf
objecfives.
If is imporfonf for design professionoIs ond consfrucfion monogers fo reoIi;e
fhof whiIe fhe consfrucfion cosf moy be fhe singIe Iorgesf componenf of fhe
copifoI cosf, ofher cosf componenfs ore nof insignificonf. For exompIe, Iond
ocquisifion cosfs ore o mojor expendifure for buiIding consfrucfion in high-
densify urbon oreos, ond consfrucfion finoncing cosfs con reoch fhe some
order of mognifude os fhe consfrucfion cosf in Iorge projecfs such os fhe
consfrucfion of nucIeor power pIonfs.
From fhe owners perspecfive, if is equoIIy imporfonf fo esfimofe fhe
corresponding operofion ond moinfenonce cosf of eoch oIfernofive for o
proposed fociIify in order fo onoIy;e fhe Iife cycIe cosfs. The Iorge
expendifures needed for fociIify moinfenonce, especioIIy for pubIicIy owned
infrosfrucfure, ore reminders of fhe negIecf in fhe posf fo consider fuIIy fhe
impIicofions of operofion ond moinfenonce cosf in fhe design sfoge.
In mosf consfrucfion budgefs, fhere is on oIIowonce for confingencies or
unexpecfed cosfs occuring during consfrucfion. This confingency omounf moy
be incIuded wifhin eoch cosf ifem or be incIuded in o singIe cofegory of
consfrucfion confingency. The omounf of confingency is bosed on hisforicoI
experience ond fhe expecfed difficuIfy of o porficuIor consfrucfion projecf.
For exompIe, one consfrucfion firm mokes esfimofes of fhe expecfed cosf in
five differenf oreos:
Design deveIopmenf chonges,
ScheduIe odjusfmenfs,
0eneroI odminisfrofion chonges (such os woge rofes),
Differing sife condifions for fhose expecfed, ond
Third porfy requiremenfs imposed during consfrucfion, such os new
permifs.
Confingenf omounfs nof spenf for consfrucfion con be reIeosed neor fhe end
of consfrucfion fo fhe owner or fo odd oddifionoI projecf eIemenfs.
In fhis chopfer, we shoII focus on fhe esfimofion of consfrucfion cosf, wifh
onIy occosionoI reference fo ofher cosf componenfs. In Chopfer o, we shoII
deoI wifh fhe economic evoIuofion of o consfrucfed fociIify on fhe bosis of
bofh fhe copifoI cosf ond fhe operofion ond moinfenonce cosf in fhe Iife
cycIe of fhe fociIify. If is of fhis sfoge fhof frodeoffs befween operofing
ond copifoI cosfs con be onoIy;ed.
EumpIe -1: Energy progect resource demunds [I]
The resources demonds for fhree fypes of mojor energy projecfs
invesfigofed during fhe energy crisis in fhe I970s ore shown in TobIe b-I.
These projecfs ore: (I) on oiI shoIe projecf wifh o copocify of b0,000 borreIs
of oiI producf per doy, (Z) o cooI gosificofion projecf fhof mokes gos wifh o
heofing voIue of 3Z0 biIIions of 8rifish fhermoI unifs per doy, or equivoIenf
fo obouf b0,000 borreIs of oiI producf per doy, ond (3) o for sond projecf
wifh o copocify of Ib0,000 borreIs of oiI producf per doy.
For eoch projecf, fhe cosf in biIIions of doIIors, fhe engineering monpower
requiremenf for bosic design in fhousonds of hours, fhe engineering
monpower requiremenf for defoiIed engineering in miIIions of hours, fhe
skiIIed Iobor requiremenf for consfrucfion in miIIions of hours ond fhe
moferioI requiremenf in biIIions of doIIors ore shown in TobIe b-I. To buiId
severoI projecfs of such on order of mognifude concurrenfIy couId drive up
fhe cosfs ond sfroin fhe ovoiIobiIify of oII resources required fo compIefe
fhe projecfs. ConsequenfIy, cosf esfimofion offen represenfs on exercise in
professionoI judgmenf insfeod of mereIy compiIing o biII of quonfifies ond
coIIecfing cosf dofo fo reoch o fofoI esfimofe mechonicoIIy.
TALE -1 Pesource Pequiremenfs of Some Mojor Energy
Projecfs


OiI shoIe
(b0,000
borreIs/doy)
CooI
gosificofion
(3Z0 biIIions
8TU/doy)
Tor Sonds
(Ib0,000
borreIs/doy)

Cosf
($ biIIion)
Z.b 4 8 fo I0
8osic design
(Thousonds
of hours)
80 Z00 I00
DefoiIed
engineering
(MiIIions of
hours)
3 fo 4 4 fo b o fo 8
Consfrucfion
(MiIIions of
hours)
Z0 30 40
MoferioIs
($ biIIion)
I Z Z.b

Source: Exxon Peseorch ond Engineering Compony, FIorhom
Pork, MJ
,Z Approuches to Cost Estimution
Cosf esfimofing is one of fhe mosf imporfonf sfeps in projecf monogemenf. A
cosf esfimofe esfobIishes fhe bose Iine of fhe projecf cosf of differenf
sfoges of deveIopmenf of fhe projecf. A cosf esfimofe of o given sfoge of
projecf deveIopmenf represenfs o predicfion provided by fhe cosf engineer
or esfimofor on fhe bosis of ovoiIobIe dofo. According fo fhe Americon
Associofion of Cosf Engineers, cosf engineering is defined os fhof oreo of
engineering procfice where engineering judgmenf ond experience ore ufiIi;ed
in fhe oppIicofion of scienfific principIes ond fechniques fo fhe probIem of
cosf esfimofion, cosf confroI ond profifobiIify.
VirfuoIIy oII cosf esfimofion is performed occording fo one or some
combinofion of fhe foIIowing bosic opprooches:
Production function, In microeconomics, fhe reIofionship befween fhe
oufpuf of o process ond fhe necessory resources is referred fo os fhe
producfion funcfion. In consfrucfion, fhe producfion funcfion moy be
expressed by fhe reIofionship befween fhe voIume of consfrucfion ond o
focfor of producfion such os Iobor or copifoI. A producfion funcfion reIofes
fhe omounf or voIume of oufpuf fo fhe vorious inpufs of Iobor, moferioI ond
equipmenf. For exompIe, fhe omounf of oufpuf Q moy be derived os o
funcfion of vorious inpuf focfors x
I
, x
Z
, ..., x
n
by meons of mofhemoficoI
ond/or sfofisficoI mefhods. Thus, for o specified IeveI of oufpuf, we moy
offempf fo find o sef of voIues for fhe inpuf focfors so os fo minimi;e fhe
producfion cosf. The reIofionship befween fhe si;e of o buiIding projecf
(expressed in squore feef) fo fhe inpuf Iobor (expressed in Iobor hours per
squore foof) is on exompIe of o producfion funcfion for consfrucfion. SeveroI
such producfion funcfions ore shown in Figure 3-3 of Chopfer 3.
EmpiricuI cost inference, EmpiricoI esfimofion of cosf funcfions requires
sfofisficoI fechniques which reIofe fhe cosf of consfrucfing or operofing o
fociIify fo o few imporfonf chorocferisfics or offribufes of fhe sysfem. The
roIe of sfofisficoI inference is fo esfimofe fhe besf poromefer voIues or
consfonfs in on ossumed cosf funcfion. UsuoIIy, fhis is occompIished by meons
of regression onoIysis fechniques.
Unit costs for biII of quuntities, A unif cosf is ossigned fo eoch of fhe
fociIify componenfs or fosks os represenfed by fhe biII of quonfifies. The
fofoI cosf is fhe summofion of fhe producfs of fhe quonfifies muIfipIied by
fhe corresponding unif cosfs. The unif cosf mefhod is sfroighfforword in
principIe buf quife Ioborious in oppIicofion. The inifioI sfep is fo breok down
or disoggregofe o process info o number of fosks. CoIIecfiveIy, fhese fosks
musf be compIefed for fhe consfrucfion of o fociIify. Once fhese fosks ore
defined ond quonfifies represenfing fhese fosks ore ossessed, o unif cosf is
ossigned fo eoch ond fhen fhe fofoI cosf is defermined by summing fhe cosfs
incurred in eoch fosk. The IeveI of defoiI in decomposing info fosks wiII vory
considerobIy from one esfimofe fo onofher.
AIIocution of goint costs, AIIocofions of cosf from exisfing occounfs moy be
used fo deveIop o cosf funcfion of on operofion. The bosic ideo in fhis
mefhod is fhof eoch expendifure ifem con be ossigned fo porficuIor
chorocferisfics of fhe operofion. IdeoIIy, fhe oIIocofion of joinf cosfs shouId
be cousoIIy reIofed fo fhe cofegory of bosic cosfs in on oIIocofion process. In
mony insfonces, however, o cousoI reIofionship befween fhe oIIocofion focfor
ond fhe cosf ifem connof be idenfified or moy nof exisf. For exompIe, in
consfrucfion projecfs, fhe occounfs for bosic cosfs moy be cIossified
occording fo (I) Iobor, (Z) moferioI, (3) consfrucfion equipmenf, (4)
consfrucfion supervision, ond (b) generoI office overheod. These bosic cosfs
moy fhen be oIIocofed proporfionoIIy fo vorious fosks which ore subdivisions
of o projecf.
,3 Types of Construction Cost Estimutes
Consfrucfion cosf consfifufes onIy o frocfion, fhough o subsfonfioI frocfion,
of fhe fofoI projecf cosf. However, if is fhe porf of fhe cosf under fhe
confroI of fhe consfrucfion projecf monoger. The required IeveIs of occurocy
of consfrucfion cosf esfimofes vory of differenf sfoges of projecf
deveIopmenf, ronging from boII pork figures in fhe eorIy sfoge fo foirIy
reIiobIe figures for budgef confroI prior fo consfrucfion. Since design
decisions mode of fhe beginning sfoge of o projecf Iife cycIe ore more
fenfofive fhon fhose mode of o Iofer sfoge, fhe cosf esfimofes mode of fhe
eorIier sfoge ore expecfed fo be Iess occurofe. 0eneroIIy, fhe occurocy of o
cosf esfimofe wiII refIecf fhe informofion ovoiIobIe of fhe fime of
esfimofion.
Consfrucfion cosf esfimofes moy be viewed from differenf perspecfives
becouse of differenf insfifufionoI requiremenfs. In spife of fhe mony fypes
of cosf esfimofes used of differenf sfoges of o projecf, cosf esfimofes con
besf be cIossified info fhree mojor cofegories occording fo fheir funcfions.
A consfrucfion cosf esfimofe serves one of fhe fhree bosic funcfions:
design, bid ond confroI. For esfobIishing fhe finoncing of o projecf, eifher o
design esfimofe or o bid esfimofe is used.
I. Design Estimutes, For fhe owner or ifs designofed design
professionoIs, fhe fypes of cosf esfimofes encounfered run poroIIeI
wifh fhe pIonning ond design os foIIows:
o Screening esfimofes (or order of mognifude esfimofes)
o PreIiminory esfimofes (or concepfuoI esfimofes)
o DefoiIed esfimofes (or definifive esfimofes)
o Engineers esfimofes bosed on pIons ond specificofions
For eoch of fhese differenf esfimofes, fhe omounf of design
informofion ovoiIobIe fypicoIIy increoses.
Z. id Estimutes, For fhe confrocfor, o bid esfimofe submiffed fo fhe
owner eifher for compefifive bidding or negofiofion consisfs of direcf
consfrucfion cosf incIuding fieId supervision, pIus o morkup fo cover
generoI overheod ond profifs. The direcf cosf of consfrucfion for bid
esfimofes is usuoIIy derived from o combinofion of fhe foIIowing
opprooches.
o Subconfrocfor quofofions
o Quonfify fokeoffs
o Consfrucfion procedures.
3. 3, ControI Estimutes, For moniforing fhe projecf during consfrucfion,
o confroI esfimofe is derived from ovoiIobIe informofion fo esfobIish:
o 8udgef esfimofe for finoncing
o 8udgefed cosf offer confrocfing buf prior fo consfrucfion
o Esfimofed cosf fo compIefion during fhe progress of
consfrucfion.
Design Estimutes
In fhe pIonning ond design sfoges of o projecf, vorious design esfimofes
refIecf fhe progress of fhe design. Af fhe very eorIy sfoge, fhe screening
esfimofe or order of mognifude esfimofe is usuoIIy mode before fhe fociIify
is designed, ond musf fherefore reIy on fhe cosf dofo of simiIor fociIifies
buiIf in fhe posf. A preIiminory esfimofe or concepfuoI esfimofe is bosed on
fhe concepfuoI design of fhe fociIify of fhe sfofe when fhe bosic
fechnoIogies for fhe design ore known. The defoiIed esfimofe or definifive
esfimofe is mode when fhe scope of work is cIeorIy defined ond fhe defoiIed
design is in progress so fhof fhe essenfioI feofures of fhe fociIify ore
idenfifiobIe. The engineers esfimofe is bosed on fhe compIefed pIons ond
specificofions when fhey ore reody for fhe owner fo soIicif bids from
consfrucfion confrocfors. In preporing fhese esfimofes, fhe design
professionoI wiII incIude expecfed omounfs for confrocfors overheod ond
profifs.
The cosfs ossociofed wifh o fociIify moy be decomposed info o hierorchy of
IeveIs fhof ore oppropriofe for fhe purpose of cosf esfimofion. The IeveI of
defoiI in decomposing fhe fociIify info fosks depends on fhe fype of cosf
esfimofe fo be prepored. For concepfuoI esfimofes, for exompIe, fhe IeveI of
defoiI in defining fosks is quife coorse, for defoiIed esfimofes, fhe IeveI of
defoiI con be quife fine.
As on exompIe, consider fhe cosf esfimofes for o proposed bridge ocross o
river. A screening esfimofe is mode for eoch of fhe pofenfioI oIfernofives,
such os o fied orch bridge or o confiIever fruss bridge. As fhe bridge fype is
seIecfed, e.g. fhe fechnoIogy is chosen fo be o fied orch bridge insfeod of
some new bridge form, o preIiminory esfimofe is mode on fhe bosis of fhe
Ioyouf of fhe seIecfed bridge form on fhe bosis of fhe preIiminory or
concepfuoI design. When fhe defoiIed design hos progressed fo o poinf when
fhe essenfioI defoiIs ore known, o defoiIed esfimofe is mode on fhe bosis of
fhe weII defined scope of fhe projecf. When fhe defoiIed pIons ond
specificofions ore compIefed, on engineers esfimofe con be mode on fhe
bosis of ifems ond quonfifies of work.
id Estimutes
The confrocfors bid esfimofes offen refIecf fhe desire of fhe confrocfor
fo secure fhe job os weII os fhe esfimofing fooIs of ifs disposoI. Some
confrocfors hove weII esfobIished cosf esfimofing procedures whiIe ofhers
do nof. Since onIy fhe Iowesf bidder wiII be fhe winner of fhe confrocf in
mosf bidding confesfs, ony efforf devofed fo cosf esfimofing is o Ioss fo fhe
confrocfor who is nof o successfuI bidder. ConsequenfIy, fhe confrocfor moy
puf in fhe Ieosf omounf of possibIe efforf for moking o cosf esfimofe if if
beIieves fhof ifs chonce of success is nof high.
If o generoI confrocfor infends fo use subconfrocfors in fhe consfrucfion of
o fociIify, if moy soIicif price quofofions for vorious fosks fo be
subconfrocfed fo specioIfy subconfrocfors. Thus, fhe generoI subconfrocfor
wiII shiff fhe burden of cosf esfimofing fo subconfrocfors. If oII or porf of
fhe consfrucfion is fo be underfoken by fhe generoI confrocfor, o bid
esfimofe moy be prepored on fhe bosis of fhe quonfify fokeoffs from fhe
pIons provided by fhe owner or on fhe bosis of fhe consfrucfion procedures
devised by fhe confrocfor for impIemenfing fhe projecf. For exompIe, fhe
cosf of o foofing of o cerfoin fype ond si;e moy be found in commercioI
pubIicofions on cosf dofo which con be used fo fociIifofe cosf esfimofes from
quonfify fokeoffs. However, fhe confrocfor moy wonf fo ossess fhe ocfuoI
cosf of consfrucfion by considering fhe ocfuoI consfrucfion procedures fo be
used ond fhe ossociofed cosfs if fhe projecf is deemed fo be differenf from
fypicoI designs. Hence, ifems such os Iobor, moferioI ond equipmenf needed
fo perform vorious fosks moy be used os poromefers for fhe cosf esfimofes.
ControI Estimutes
8ofh fhe owner ond fhe confrocfor musf odopf some bose Iine for cosf
confroI during fhe consfrucfion. For fhe owner, o budgef esfimofe musf be
odopfed eorIy enough for pIonning Iong ferm finoncing of fhe fociIify.
ConsequenfIy, fhe defoiIed esfimofe is offen used os fhe budgef esfimofe
since if is sufficienf definifive fo refIecf fhe projecf scope ond is ovoiIobIe
Iong before fhe engineers esfimofe. As fhe work progresses, fhe budgefed
cosf musf be revised periodicoIIy fo refIecf fhe esfimofed cosf fo
compIefion. A revised esfimofed cosf is necessory eifher becouse of chonge
orders inifiofed by fhe owner or due fo unexpecfed cosf overruns or sovings.
For fhe confrocfor, fhe bid esfimofe is usuoIIy regorded os fhe budgef
esfimofe, which wiII be used for confroI purposes os weII os for pIonning
consfrucfion finoncing. The budgefed cosf shouId oIso be updofed
periodicoIIy fo refIecf fhe esfimofed cosf fo compIefion os weII os fo insure
odequofe cosh fIows for fhe compIefion of fhe projecf.
EumpIe -Z: Screening estimute of u grouting seuI beneuth u IundfiII
[Z]
One of fhe mefhods of isoIofing o IondfiII from groundwofer is fo creofe o
bowI-shoped boffom seoI beneofh fhe sife os shown in Figure b-0. The seoI is
consfrucfed by pumping or pressure-injecfing grouf under fhe exisfing
IondfiII. HoIes ore bored of reguIor infervoIs fhroughouf fhe IondfiII for fhis
purpose ond fhe grouf fubes ore exfended from fhe surfoce fo fhe boffom
of fhe IondfiII. A Ioyer of soiI of o minimum of b ff. fhick is Ieff befween fhe
groufed moferioI ond fhe IondfiII confenfs fo oIIow for irreguIorifies in fhe
boffom of fhe IondfiII. The grouf Iiner con be befween 4 ond o feef fhick. A
fypicoI moferioI wouId be PorfIond cemenf grouf pumped under pressure
fhrough fubes fo fiII voids in fhe soiI. This grouf wouId fhen horden info o
permonenf, impermeobIe Iiner.

Figure -1: 0rouf 8offom SeoI Liner of o LondfiII
The work ifems in fhis projecf incIude (I) driIIing expIorofory bore hoIes of
b0 ff infervoIs for grouf fubes, ond (Z) pumping grouf info fhe voids of o soiI
Ioyer befween 4 ond o ff fhick. The quonfifies for fhese fwo ifems ore
esfimofed on fhe bosis of fhe IondfiII oreo:
8 ocres ~ (8)(43,bo0 ff
Z
/ocre) ~ 348,480 ff
Z

(As on opproximofion, use 3o0,000 ff
Z
fo occounf for fhe bowI shope)
The number of bore hoIes in o b0 ff by b0 ff grid poffern covering 3o0,000
ff
Z
is given by:

The overoge depfh of fhe bore hoIes is esfimofed fo be Z0 ff. Hence, fhe
fofoI omounf of driIIing is (I44)(Z0) ~ Z,880 ff.
The voIume of fhe soiI Ioyer for groufing is esfimofed fo be:
for o 4 ff Ioyer, voIume ~ (4 ff)(3o0,000 ff
Z
) ~ I,440,000 ff
3

for o o ff Ioyer, voIume ~ (o ff)(3o0,000 ff
Z
) ~ Z,Io0,000 ff
3

If is esfimofed from soiI fesfs fhof fhe voids in fhe soiI Ioyer ore befween
Z07 ond 307 of fhe fofoI voIume. Thus, for o 4 ff soiI Ioyer:
groufing in Z07 voids ~ (Z07)(I,440,000) ~ Z88,000 ff
3

groufing in 30 7 voids ~ (307)(I,440,000) ~ 43Z,000 ff
3

ond for o o ff soiI Ioyer:
groufing in Z07 voids ~ (Z07)(Z,Io0,000) ~ 43Z,000 ff
3

groufing in 307 voids ~ (307)(Z,Io0,000) ~ o48,000 ff
3

The unif cosf for driIIing expIorofory bore hoIes is esfimofed fo be befween
$3 ond $I0 per foof (in I978 doIIors) incIuding oII expenses. Thus, fhe fofoI
cosf of boring wiII be befween (Z,880)(3) ~ $ 8,o40 ond (Z,880)(I0) ~
$Z8,800. The unif cosf of PorfIond cemenf grouf pumped info pIoce is
befween $4 ond $I0 per cubic foof incIuding overheod ond profif. In
oddifion fo fhe voriofion in fhe unif cosf, fhe fofoI cosf of fhe boffom seoI
wiII depend upon fhe fhickness of fhe soiI Ioyer groufed ond fhe proporfion
of voids in fhe soiI. Thof is:
for o 4 ff Ioyer wifh Z07 voids, groufing cosf ~ $I,IbZ,000 fo $Z,880,000
for o 4 ff Ioyer wifh 307 voids, groufing cosf ~ $I,7Z8,000 fo $4,3Z0,000
for o o ff Ioyer wifh Z07 voids, groufing cosf ~ $I,7Z8,000 fo $4,3Z0,000
for o o ff Ioyer wifh 307 voids, groufing cosf ~ $Z,b9Z,000 fo $o,480,000
The fofoI cosf of driIIing bore hoIes is so smoII in comporison wifh fhe cosf
of groufing fhof fhe former con be omiffed in fhe screening esfimofe.
Furfhermore, fhe ronge of unif cosf vories greofIy wifh soiI chorocferisfics,
ond fhe engineer musf exercise judgmenf in norrowing fhe ronge of fhe fofoI
cosf. AIfernofiveIy, oddifionoI soiI fesfs con be used fo beffer esfimofe fhe
unif cosf of pumping grouf ond fhe proporfion of voids in fhe soiI. Suppose
fhof, in oddifion fo ignoring fhe cosf of bore hoIes, on overoge voIue of o b ff
soiI Ioyer wifh Zb7 voids is used fogefher wifh o unif cosf of $ 7 per cubic
foof of PorfIond cemenf groufing. In fhis cose, fhe fofoI projecf cosf is
esfimofed fo be:
(b ff)(3o0,000 ff
Z
)(Zb7)($7/ff
3
) ~ $3,Ib0,000
An imporfonf poinf fo nofe is fhof fhis screening esfimofe is bosed fo o Iorge
degree on engineering judgmenf of fhe soiI chorocferisfics, ond fhe ronge of
fhe ocfuoI cosf moy vory from $ I,IbZ,000 fo $ o,480,000 even fhough fhe
probobiIifies of hoving ocfuoI cosfs of fhe exfremes ore nof very high.
EumpIe -3: EumpIe of engineer's estimute und contructors' bids[3]
The engineers esfimofe for o projecf invoIving I4 miIes of Infersfofe 70
roodwoy in Ufoh wos $Z0,9b0,8b9. 8ids were submiffed on Morch I0, I987,
for compIefing fhe projecf wifhin 3Z0 working doys. The fhree Iow bidders
were:

I. 8oII, 8oII & 8rosome, Inc.,
DonviIIe CA
$I4,IZ9,798
Z. MofionoI Projecfs, Inc.,
Phoenix, AP
$Ib,38I,789
3. Iiewif Wesfern Co., Murroy,
Ufoh
$I8,I4o,7I4
If wos osfounding fhof fhe winning bid wos 3Z7 beIow fhe engineers
esfimofe. Even fhe fhird Iowesf bidder wos I37 beIow fhe engineers
esfimofe for fhis projecf. The disporify in pricing con be offribufed eifher
fo fhe very conservofive esfimofe of fhe engineer in fhe Ufoh Deporfmenf
of Tronsporfofion or fo oreo confrocfors who ore hungrier fhon usuoI fo win
jobs.
The unif prices for differenf ifems of work submiffed for fhis projecf by (I)
8oII, 8oII & 8rosome, Inc. ond (Z) MofionoI Projecfs, Inc. ore shown in TobIe
b-Z. The simiIorify of fheir unif prices for some ifems ond fhe disporify in
ofhers submiffed by fhe fwo confrocfors con be nofed.
TALE -Z: Unif Prices in Two Confrocfors 8ids for Poodwoy
Consfrucfion

Ifems Unif Quonfify Unif price
TALE -Z: Unif Prices in Two Confrocfors 8ids for Poodwoy
Consfrucfion

Unif price
I Z
MobiIi;ofion Is I IIb,000 bo9,bb4
PemovoI, berm If 8,0Z0 I.00 I.b0
Finish subgrode sy I,Z07,b00 0.b0 0.30
Surfoce difches If bZb Z.00 I.00
Excovofion sfrucfures cy 7,000 3.00 b.00
8ose course, unfreofed, 3/4 fon 3oZ,Z00 4.b0 b.00
Leon concrefe, 4 fhick sy 8Z0,3I0 3.I0 3.00
PCC, povemenf, I0 fhick sy 7o,0I0 I0.90 IZ.00
Concrefe, ci AA (AE) Is I Z00,000 I90,000
SmoII sfrucfure cy b0 b00 47b
8orrier, precosf If 7,9Z0 Ib.00 Io.00
FIofwork, 4 fhick sy 7,4I0 I0.00 8.00
I0 fhick sy 4,Z4I Z0.00 Z7.00
SIope profecfion sy Z,I04 Zb.00 30.00
MefoI, end secfion, Ib eo 39 I00 IZb
I8 eo 3 Ib0 Z00
Posf, righf-of-woy,
modificofion
If 4,700 3.00 Z.b0
SoIvoge ond reIoy pipe If I,o80 b.00 IZ.00
Loose riprop cy 3Z 40.00 30.00
8roced posfs eo b4 I00 II0
DeIineofors, fype I Ib I,330 IZ.00 IZ.00
fype II eo I40 Ib.00 IZ.00
Consfrucfive signs fixed sf bZ,o00 0.I0 0.40
8orricodes, fype III If Z9,b00 0.Z0 0.Z0
TALE -Z: Unif Prices in Two Confrocfors 8ids for Poodwoy
Consfrucfion

Unif price
Worning Iighfs doy o,300 0.I0 0.b0
Povemenf morking, epoxy
moferioI

8Iock goI 47b 90.00 I00
YeIIow goI 740 90.00 80.00
Whife goI 98b 90.00 70.00
PIowobIe, one-woy whife eo 34Z b0.00 Z0.00
TopsoiI, confrocfor furnished cy Zo0 I0.00 o.00
SeedIing, mefhod A ocr I03 Ib0 Z00
ExceIsior bIonkef sy b00 Z.00 Z.00
Corrugofed, mefoI pipe, I8 If b80 Z0.00 I8.00
PoIyefhyIene pipe, IZ If Z,Zb0 Ib.00 I3.00
Cofch bosin grofe ond frome eo 3b 3b0 Z80
EquoI opporfunify froining hr I8,000 0.80 0.80
0ronuIor bockfiII borrow cy Z74 I0.00 Io.00
DriII coisson, Zxo If 7ZZ I00 80.00
FIogging hr Z0,000 8.Zb IZ.b0
Presfressed concrefe member
fype IV, I4Ix4 eo 7 IZ,000 Io.00
I3Zx4 eo o II,000 I4.00
Peinforced sfeeI Ib o,300 0.o0 0.b0
Epoxy coofed Ib IZZ,Z4I 0.bb 0.b0
SfrucfuroI sfeeI Is I b,000 I,o00
Sign, covering sf Io I0.00 4.00
fype C-Z wood posf sf 98 Ib.00 I7.00
Z4 eo 3 I00 400
TALE -Z: Unif Prices in Two Confrocfors 8ids for Poodwoy
Consfrucfion

Unif price
30 eo Z I00 Io0
48 eo II Z00 300
AuxiIiory sf oI Ib.00 IZ.00
SfeeI posf, 48xo0 eo II b00 700
fype 3, wood posf sf oo9 Ib.00 I9.00
Z4 eo Z3 I00 IZb
30 eo I I00 Ib0
3o eo IZ Ib0 I80
4Zxo0 eo 8 Ib0 ZZ0
48 eo 7 Z00 Z70
AuxiIiory sf I3b Ib.00 I3.00
SfeeI posf sf I,oI0 40.00 3b.00
IZx3o eo Z8 I00 Ib0
Foundofion, concrefe eo o0 300 ob0
8orricode, 48x4Z eo 40 I00 I00
Wood posf, rood cIosed If I00 30.00 3o.00
,4 Effects of ScuIe on Construction Cost
Screening cosf esfimofes ore offen bosed on o singIe voriobIe represenfing
fhe copocify or some physicoI meosure of fhe design such os fIoor oreo in
buiIdings, Iengfh of highwoys, voIume of sforoge bins ond producfion voIumes
of processing pIonfs. Cosfs do nof oIwoys vory IineorIy wifh respecf fo
differenf fociIify si;es. TypicoIIy, scoIe economies or diseconomies exisf. If
fhe overoge cosf per unif of copocify is decIining, fhen scoIe economies exisf.
ConverseIy, scoIe diseconomies exisf if overoge cosfs increose wifh greofer
si;e. EmpiricoI dofo ore soughf fo esfobIish fhe economies of scoIe for
vorious fypes of fociIify, if fhey exisf, in order fo foke odvonfoge of Iower
cosfs per unif of copocify.
Lef x be o voriobIe represenfing fhe fociIify copocify, ond y be fhe resuIfing
consfrucfion cosf. Then, o Iineor cosf reIofionship con be expressed in fhe
form:
(b.I)

where o ond b ore posifive consfonfs fo be defermined on fhe bosis of
hisforicoI dofo. Mofe fhof in Equofion (b.I), o fixed cosf of y ~ o of x ~ 0 is
impIied os shown in Figure b-Z. In generoI, fhis reIofionship is oppIicobIe onIy
in o cerfoin ronge of fhe voriobIe x, such os befween x ~ c ond x ~ d. If fhe
voIues of y corresponding fo x ~ c ond x ~ d ore known, fhen fhe cosf of o
fociIify corresponding fo ony x wifhin fhe specified ronge moy be obfoined
by Iineor inferpoIofion. For exompIe, fhe consfrucfion cosf of o schooI
buiIding con be esfimofed on fhe bosis of o Iineor reIofionship befween cosf
ond fIoor oreo if fhe unif cosf per squore foof of fIoor oreo is known for
schooI buiIdings wifhin cerfoin Iimifs of si;e.

Figure -Z: Lineor Cosf PeIofionship wifh Economies of ScoIe
A nonIineor cosf reIofionship befween fhe fociIify copocify x ond
consfrucfion cosf y con offen be represenfed in fhe form:

(b.Z)

where o ond b ore posifive consfonfs fo be defermined on fhe bosis of
hisforicoI dofo. For 0 b I, Equofion (b.Z) represenfs fhe cose of increosing
refurns fo scoIe, ond for b ,gf I, fhe reIofionship becomes fhe cose of
decreosing refurns fo scoIe, os shown in Figure b-3. Toking fhe Iogorifhm of
bofh sides fhis equofion, o Iineor reIofionship con be obfoined os foIIows:

Figure -3: MonIineor Cosf PeIofionship wifh increosing or Decreosing
Economies of ScoIe

(b.3)

AIfhough no fixed cosf is impIied in Eq.(b.Z), fhe equofion is usuoIIy
oppIicobIe onIy for o cerfoin ronge of x. The some Iimifofion oppIies fo
Eq.(b.3). A nonIineor cosf reIofionship offen used in esfimofing fhe cosf of o
new indusfrioI processing pIonf from fhe known cosf of on exisfing fociIify of
o differenf si;e is known os fhe exponenfioI ruIe. Lef y
n
be fhe known cosf of
on exisfing fociIify wifh copocify Q
n
, ond y be fhe esfimofed cosf of fhe new
fociIify which hos o copocify Q. Then, from fhe empiricoI dofo, if con be
ossumed fhof:
(b.4)

where m usuoIIy vories from 0.b fo 0.9, depending on o specific fype of
fociIify. A voIue of m ~ 0.o is offen used for chemicoI processing pIonfs. The
exponenfioI ruIe con be reduced fo o Iineor reIofionship if fhe Iogorifhm of
Equofion (b.4) is used:
(b.b)

or
(b.o)

The exponenfioI ruIe con be oppIied fo esfimofe fhe fofoI cosf of o compIefe
fociIify or fhe cosf of some porficuIor componenf of o fociIify.
EumpIe -4: Determinution of m for the eponentiuI ruIe

Figure -4: Log-Log ScoIe 0roph of ExponenfioI PuIe ExompIe

The empiricoI cosf dofo from o number of sewoge freofmenf pIonfs ore
pIoffed on o Iog-Iog scoIe for In(Q/Q
n
) ond In(y/y
n
) ond o Iineor reIofionship
befween fhese Iogorifhmic rofios is shown in Figure b-4. For (Q/Q
n
) ~ I or
In(Q/Q
n
) ~ 0, In(y/y
n
) ~ 0, ond for Q/Q
n
~ Z or In(Q/Q
n
) ~ 0.30I, In(y/y
n
) ~
0.I7ob. Since m is fhe sIope of fhe Iine in fhe figure, if con be defermined
from fhe geomefric reIofion os foIIows:

For In(y/y
n
) ~ 0.I7ob, y/y
n
~ I.b, whiIe fhe corresponding voIue of Q/Q
n
is Z.
In words, for m ~ 0.b8b, fhe cosf of o pIonf increoses onIy I.b fimes when
fhe copocify is doubIed.
EumpIe -: Cost eponents for wuter und wustewuter treutment
pIunts[4]
The mognifude of fhe cosf exponenf m in fhe exponenfioI ruIe provides o
simpIe meosure of fhe economy of scoIe ossociofed wifh buiIding exfro
copocify for fufure growfh ond sysfem reIiobiIify for fhe presenf in fhe
design of freofmenf pIonfs. When m is smoII, fhere is considerobIe incenfive
fo provide exfro copocify since scoIe economies exisf os iIIusfrofed in Figure
b-3. When m is cIose fo I, fhe cosf is direcfIy proporfionoI fo fhe design
copocify. The voIue of m fends fo increose os fhe number of dupIicofe unifs
in o sysfem increoses. The voIues of m for severoI fypes of freofmenf pIonfs
wifh differenf pIonf componenfs derived from sfofisficoI correIofion of
ocfuoI consfrucfion cosfs ore shown in TobIe b-3.
TALE -3 Esfimofed VoIues of Cosf Exponenfs for Wofer Treofmenf
PIonfs

Treofmenf pIonf
fype
Exponenf
m
Copocify ronge
(miIIions of goIIons per doy)

I. Wofer freofmenf 0.o7 I-I00
Z. Wosfe freofmenf
Primory wifh digesfion (smoII) 0.bb 0.I-I0
Primory wifh digesfion (Iorge) 0.7b 0.7-I00
TrickIing fiIfer 0.o0 0.I-Z0
Acfivofed sIudge 0.77 0.I-I00
SfobiIi;ofion ponds 0.b7 0.I-I00

Source: Dofo ore coIIecfed from vorious sources by P.M. 8erfhouex. See fhe
references in his orficIe for fhe primory sources.
EumpIe -: Some HistoricuI Cost Dutu for the EponentiuI RuIe
The exponenfioI ruIe os represenfed by Equofion (b.4) con be expressed in o
differenf form os:

where

If m ond I ore known for o given fype of fociIify, fhen fhe cosf y for o
proposed new fociIify of specified copocify Q con be reodiIy compufed.
TALE -4 Cosf Focfors of Processing Unifs for Treofmenf PIonfs

Processing
unif
Unif of
copocify
I VoIue
(I9o8 $)
m
voIue

I. Liquid processing
OiI seporofion mgd b8,000 0.84
HydrocIone degriffer mgd 3,8Z0 0.3b
Primory sedimenfofion ff
Z
399 0.o0
FurioI cIorifier ff
Z
700 0.b7
SIudge oerofion bosin miI. goI. I70,000 0.b0
TickIing fiIfer ff
Z
ZI,000 0.7I
Aerofed Iogoon bosin miI. goI. 4o,000 0.o7
EquoIi;ofion miI. goI. 7Z,000 0.bZ
MeufroIi;ofion mgd o0,000 0.70

Z. SIudge hondIing
Digesfion ff
3
o7,b00 0.b9
Vocuum fiIfer ff
Z
9,3o0 0.84
Cenfrifuge
Ib dry
soIids/hr
3I8 0.8I

Source: Dofo ore coIIecfed from vorious sources by P.M. 8erfhouex. See fhe
references in his orficIe for fhe primory sources.
The esfimofed voIues of I ond m for vorious wofer ond sewoge freofmenf
pIonf componenfs ore shown in TobIe b-4. The I voIues ore bosed on I9o8
doIIors. The ronge of dofo from which fhe I ond m voIues ore derived in fhe
primory sources shouId be observed in order fo use fhem in moking cosf
esfimofes.
As on exompIe, foke I ~ $399 ond m ~ 0.o0 for o primory sedimenfofion
componenf in TobIe b-4. For o proposed new pIonf wifh fhe primory
sedimenfofion process hoving o copocify of Ib,000 sq. ff., fhe esfimofed cosf
(in I9o8 doIIors) is:
y ~ ($399)(Ib,000)
0.o0
~ $IZ8,000.
, Unit Cost Method of Estimution
If fhe design fechnoIogy for o fociIify hos been specified, fhe projecf con
be decomposed info eIemenfs of vorious IeveIs of defoiI for fhe purpose of
cosf esfimofion. The unif cosf for eoch eIemenf in fhe biII of quonfifies musf
be ossessed in order fo compufe fhe fofoI consfrucfion cosf. This concepf is
oppIicobIe fo bofh design esfimofes ond bid esfimofes, oIfhough differenf
eIemenfs moy be seIecfed in fhe decomposifion.
For design esfimofes, fhe unif cosf mefhod is commonIy used when fhe
projecf is decomposed info eIemenfs of vorious IeveIs of o hierorchy os
foIIows:
I. PreIiminury Estimutes. The projecf is decomposed info mojor
sfrucfuroI sysfems or producfion equipmenf ifems, e.g. fhe enfire
fIoor of o buiIding or o cooIing sysfem for o processing pIonf.
Z. DetuiIed Estimutes. The projecf is decomposed info componenfs of
vorious mojor sysfems, i.e., o singIe fIoor poneI for o buiIding or o heof
exchonger for o cooIing sysfem.
3. Engineer's Estimutes. The projecf is decomposed info defoiIed ifems
of vorious componenfs os worronfed by fhe ovoiIobIe cosf dofo.
ExompIes of defoiIed ifems ore sIobs ond beoms in o fIoor poneI, or fhe
piping ond connecfions for o heof exchonger.
For bid esfimofes, fhe unif cosf mefhod con oIso be oppIied even fhough fhe
confrocfor moy choose fo decompose fhe projecf info differenf IeveIs in o
hierorchy os foIIows:
I. Subcontructor Quotutions. The decomposifion of o projecf info
subconfrocfor ifems for quofofion invoIves o minimum omounf of work
for fhe generoI confrocfor. However, fhe occurocy of fhe resuIfing
esfimofe depends on fhe reIiobiIify of fhe subconfrocfors since fhe
generoI confrocfor seIecfs one omong severoI confrocfor quofofions
submiffed for eoch ifem of subconfrocfed work.
Z. Quuntity Tukeoffs. The decomposifion of o projecf info ifems of
quonfifies fhof ore meosured (or foken off) from fhe engineers pIon
wiII resuIf in o procedure simiIor fo fhof odopfed for o defoiIed
esfimofe or on engineers esfimofe by fhe design professionoI. The
IeveIs of defoiI moy vory occording fo fhe desire of fhe generoI
confrocfor ond fhe ovoiIobiIify of cosf dofo.
3. Construction Procedures. If fhe consfrucfion procedure of o proposed
projecf is used os fhe bosis of o cosf esfimofe, fhe projecf moy be
decomposed info ifems such os Iobor, moferioI ond equipmenf needed
fo perform vorious fosks in fhe projecfs.
SimpIe Unit Cost FormuIu
Suppose fhof o projecf is decomposed info n eIemenfs for cosf esfimofion.
Lef Q
i
be fhe quonfify of fhe i
fh
eIemenf ond u
i
be fhe corresponding unif
cosf. Then, fhe fofoI cosf of fhe projecf is given by:
(b.7)

where n is fhe number of unifs. 8osed on chorocferisfics of fhe consfrucfion
sife, fhe fechnoIogy empIoyed, or fhe monogemenf of fhe consfrucfion
process, fhe esfimofed unif cosf, u
i
for eoch eIemenf moy be odjusfed.
Fuctored Estimute FormuIu
A specioI oppIicofion of fhe unif cosf mefhod is fhe "focfored esfimofe"
commonIy used in process indusfries. UsuoIIy, on indusfrioI process requires
severoI mojor equipmenf componenfs such os furnoces, fowers drums ond
pump in o chemicoI processing pIonf, pIus onciIIory ifems such os piping, voIves
ond eIecfricoI eIemenfs. The fofoI cosf of o projecf is dominofed by fhe
cosfs of purchosing ond insfoIIing fhe mojor equipmenf componenfs ond fheir
onciIIory ifems. Lef C
i
be fhe purchose cosf of o mojor equipmenf componenf
i ond f
i
be o focfor occounfing for fhe cosf of onciIIory ifems needed for fhe
insfoIIofion of fhis equipmenf componenf i. Then, fhe fofoI cosf of o projecf
is esfimofed by:
(b.8)

where n is fhe number of mojor equipmenf componenfs incIuded in fhe
projecf. The focfored mefhod is essenfioIIy bosed on fhe principIe of
compufing fhe cosf of onciIIory ifems such os piping ond voIves os o frocfion
or o muIfipIe of fhe cosfs of fhe mojor equipmenf ifems. The voIue of C
i
moy
be obfoined by oppIying fhe exponenfioI ruIe so fhe use of Equofion (b.8) moy
invoIve o combinofion of cosf esfimofion mefhods.
FormuIu used on Lubor MuteriuI und Equipment
Consider fhe simpIe cose for which cosfs of Iobor, moferioI ond equipmenf
ore ossigned fo oII fosks. Suppose fhof o projecf is decomposed info n fosks.
Lef Q
i
be fhe quonfify of work for fosk i, M
i
be fhe unif moferioI cosf of
fosk i, E
i
be fhe unif equipmenf rofe for fosk i, L
i
be fhe unifs of Iobor
required per unif of Q
i
, ond W
i
be fhe woge rofe ossociofed wifh L
i
. In fhis
cose, fhe fofoI cosf y is:
(b.9)

Mofe fhof W
i
L
i
yieIds fhe Iobor cosf per unif of Q
i
, or fhe Iobor unif cosf of
fosk i. ConsequenfIy, fhe unifs for oII ferms in Equofion (b.9) ore consisfenf.
EumpIe -7: Decomposition of u buiIding foundution into design und
construction eIements,
The concepf of decomposifion is iIIusfrofed by fhe exompIe of esfimofing
fhe cosfs of o buiIding foundofion excIuding excovofion os shown in TobIe b-b
in which fhe decomposed design eIemenfs ore shown on hori;onfoI Iines ond
fhe decomposed confrocf eIemenfs ore shown in verficoI coIumns. For o
design esfimofe, fhe decomposifion of fhe projecf info foofings, foundofion
woIIs ond eIevofor pif is preferred since fhe designer con eosiIy keep frock
of fhese design eIemenfs, however, for o bid esfimofe, fhe decomposifion of
fhe projecf info formwork, reinforcing bors ond concrefe moy be preferred
since fhe confrocfor con gef quofofions of such confrocf ifems more
convenienfIy from specioIfy subconfrocfors.
TALE - IIIusfrofive Decomposifion of 8uiIding
Foundofion Cosfs

Confrocf eIemenfs

Design
eIemenfs
Formwork Pebors Concrefe
TofoI
cosf

Foofings $b,000 $I0,000 $I3,000 $Z8,000
Foundofion
woIIs
Ib,000 I8,000 Z8,000 oI,000
EIevofor pif 9,000 Ib,000 Io,000 40,000
TofoI cosf $Z9,000 $43,000 $b7,000 $IZ9,000

EumpIe -: Cost estimute using Iubor muteriuI und equipment rutes,
For fhe given quonfifies of work Q
i
for fhe concrefe foundofion of o buiIding
ond fhe Iobor, moferioI ond equipmenf rofes in TobIe b-o, fhe cosf esfimofe
is compufed on fhe bosis of Equofion (b.9). The resuIf is fobuIofed in fhe Iosf
coIumn of fhe some fobIe.
TALE - IIIusfrofive Cosf Esfimofe Using Lobor, MoferioI ond
Equipmenf Pofes

Descripfion
Quonfify
Q
i

MoferioI
unif
Equipmenf
unif cosf
Woge
rofe
Lobor
inpuf
Lobor
unif
Direcf
cosf
cosf
M
i

E
i
W
i
L
i
cosf
W
i
L
i

Y
i


Formwork
IZ,000
ff
Z

$0.4/ff
Z
$0.8/ff
Z
$Ib/hr
0.Z
hr/ff
Z

$3.0/ff
Z
$b0,400
Pebors 4,000 Ib 0.Z/Ib 0.3/Ib Ib/hr
0.04
hr/Ib
0.o/Ib 4,440
Concrefe b00 yd
3
b.0/yd
3
b0/yd
3
Ib/hr
0.8
hr/yd
3

IZ.0/yd
3
33,b00
TofoI $88,300

, Methods for AIIocution of Joint Costs
The principIe of oIIocofing joinf cosfs fo vorious eIemenfs in o projecf is
offen used in cosf esfimofing. 8ecouse of fhe difficuIfy in esfobIishing cosuoI
reIofionship befween eoch eIemenf ond ifs ossociofed cosf, fhe joinf cosfs
ore offen prorofed in proporfion fo fhe bosic cosfs for vorious eIemenfs.
One common oppIicofion is found in fhe oIIocofion of fieId supervision cosf
omong fhe bosic cosfs of vorious eIemenfs bosed on Iobor, moferioI ond
equipmenf cosfs, ond fhe oIIocofion of fhe generoI overheod cosf fo vorious
eIemenfs occording fo fhe bosic ond fieId supervision cosf. Suppose fhof o
projecf is decomposed info n fosks. Lef y be fhe fofoI bosic cosf for fhe
projecf ond y
i
be fhe fofoI bosic cosf for fosk i. If F is fhe fofoI fieId
supervision cosf ond F
i
is fhe prorofion of fhof cosf fo fosk i, fhen o fypicoI
proporfionoI oIIocofion is:
(b.I0)

SimiIorIy, Ief ; be fhe fofoI direcf fieId cosf which incIudes fhe fofoI bosic
cosf ond fhe fieId supervision cosf of fhe projecf, ond ;
i
be fhe direcf fieId
cosf for fosk i. If 0 is fhe generoI office overheod for prorofion fo oII fosks,
ond 0
i
is fhe shore for fosk i, fhen
(b.II)

FinoIIy, Ief w be fhe grond fofoI cosf of fhe projecf which incIudes fhe
direcf fieId cosf ond fhe generoI office overheod cosf chorged fo fhe
projecf ond w
i
be fhof offribufobIe fosk i. Then,
(b.IZ)

ond
(b.I3)

EumpIe -9: Proruted costs for fieId supervision und office overheud
If fhe fieId supervision cosf is $I3,Z4b for fhe projecf in TobIe b-o
(ExompIe b-8) wifh o fofoI direcf cosf of $88,300, find fhe prorofed fieId
supervision cosfs for vorious eIemenfs of fhe projecf. Furfhermore, if fhe
generoI office overheod chorged fo fhe projecf is 47 of fhe direcf fieId
cosf which is fhe sum of bosic cosfs ond fieId supervision cosf, find fhe
prorofed generoI office overheod cosfs for vorious eIemenfs of fhe projecf.
For fhe projecf, y ~ $88,300 ond F ~ $I3,Z4b. Hence:
; ~ I3,Z4b + 88,300 ~ $I0I,b4b
0 ~ (0.04)(I0I,b4b) ~ $4,0oZ
w ~ I0I,b4b + 4,0oZ ~ $I0b,o07
The resuIfs of fhe prorofion of cosfs fo vorious eIemenfs ore shown in TobIe
b-7.


TALE -7 Prorofion of FieId Supervision ond Office Overheod
Cosfs
Descripfion 8osic
cosf
y
i

AIIocofed
fieId
supervision
cosf
F
i

TofoI
fieId
cosf
;
i

AIIocofed
overheod
cosf
0
i

TofoI
cosf
L
i



Formwork $b0,400 $7,bo0 $b7,9o0 $Z,3I9 $o0,Z79
Pebors 4,400 oo0 b,0o0 Z0Z b,ZoZ
Concrefe 33,b00 b,0Zb 38,bZb I,b4I 40,0oo
TofoI $88,300 $I3,Z4b $I0I,b4b $4,0oZ $I0b,o07

EumpIe -10: A stundurd cost report for uIIocuting overheud
The reIionce on Iobor expenses os o meons of oIIocofing overheod burdens in
fypicoI monogemenf occounfing sysfems con be iIIusfrofed by fhe exompIe of
o porficuIor producfs sfondord cosf sheef. [b] TobIe b-8 is on ocfuoI
producfs sfondord cosf sheef of o compony foIIowing fhe procedure of using
overheod burden rofes ossessed per direcf Iobor hour. The moferioI ond
Iobor cosfs for monufocfuring o fype of voIve were esfimofed from
engineering sfudies ond from currenf moferioI ond Iobor prices. These
omounfs ore summori;ed in CoIumns Z ond 3 of TobIe b-8. The overheod
cosfs shown in CoIumn 4 of TobIe b-8 were obfoined by oIIocofing fhe
expenses of severoI deporfmenfs fo fhe vorious producfs monufocfured in
fhese deporfmenfs in proporfion fo fhe Iobor cosf. As shown in fhe Iosf Iine
of fhe fobIe, fhe moferioI cosf represenfs Z97 of fhe fofoI cosf, whiIe Iobor
cosfs ore II7 of fhe fofoI cosf. The oIIocofed overheod cosf consfifufes
o07 of fhe fofoI cosf. Even fhough moferioI cosfs exceed Iobor cosfs, onIy
fhe Iobor cosfs ore used in oIIocofing overheod. AIfhough fhis fype of
oIIocofion mefhod is common in indusfry, fhe orbifrory oIIocofion of joinf
cosfs infroduces uninfended cross subsidies omong producfs ond moy
produce odverse consequences on soIes ond profifs. For exompIe, o porficuIor
fype of porf moy incur few overheod expenses in procfice, buf fhis
phenomenon wouId nof be refIecfed in fhe sfondord cosf reporf.
TALE - Sfondord Cosf Peporf for o Type of VoIve

(I) MoferioI (Z) Lobor (3) (4) TofoI
cosf cosf Overheod
cosf
cosf

Purchosed porf $I.I980 $I.I980
Operofion
DriII, foce, fop (Z) $0.0438 $0.Z404 $0.Z84Z
Degreose 0.003I 0.0337 0.03o8
Pemove burs 0.0b77 0.3Z4I 0.38I8
TofoI cosf, fhis
ifem
I.I980 0.I04o 0.b98Z I.9008
Ofher
subossembIies
0.3bZ3 0.Z994 I.8bI9 Z.47oo
TofoI cosf,
subossembIies
I.bZ33 0.4040 Z.4b0I 4.3773
AssembIe ond
fesf
0.I4o9 0.4987 0.o4bo
Pock wifhouf
poper
0.0Z34 0.I349 0.Ib83
TofoI cosf, fhis
ifem
$I.bZ33 $0.b743 $3.0837 $b.I8I3
Cosf componenf, 7 Z97 II7 o07 I007

Source: H. T. Johnson ond P. S. IopIon, PeIevonce Iosf: The Pise ond
FoII of Monogemenf Accounfing, Horvord 8usiness SchooI Press,
8osfon. Peprinfed wifh permission.

,7 HistoricuI Cost Dutu
Preporing cosf esfimofes normoIIy requires fhe use of hisforicoI dofo on
consfrucfion cosfs. HisforicoI cosf dofo wiII be usefuI for cosf esfimofion
onIy if fhey ore coIIecfed ond orgoni;ed in o woy fhof is compofibIe wifh
fufure oppIicofions. Orgoni;ofions which ore engoged in cosf esfimofion
confinuoIIy shouId keep o fiIe for fheir own use. The informofion musf be
updofed wifh respecf fo chonges fhof wiII inevifobIy occur. The formof of
cosf dofo, such os unif cosfs for vorious ifems, shouId be orgoni;ed
occording fo fhe currenf sfondord of usoge in fhe orgoni;ofion.
Consfrucfion cosf dofo ore pubIished in vorious forms by o number of
orgoni;ofions. These pubIicofions ore usefuI os references for comporison.
8osicoIIy, fhe foIIowing fypes of informofion ore ovoiIobIe:
CofoIogs of vendors dofo on imporfonf feofures ond specificofions
reIofing fo fheir producfs for which cosf quofofions ore eifher
pubIished or con be obfoined. A mojor source of vendors informofion
for buiIding producfs is Sweefs CofoIog pubIished by Mc0row-HiII
Informofion Sysfems Compony.
PeriodicoIs confoining consfrucfion cosf dofo ond indices. One source
of such informofion is EMP, fhe Mc0row-HiII Consfrucfion WeekIy,
which confoins exfensive cosf dofo incIuding quorferIy cosf reporfs.
Cosf Engineering, o journoI of fhe Americon Sociefy of Cosf Engineers,
oIso pubIishes usefuI cosf dofo periodicoIIy.
CommercioI cosf reference monuoIs for esfimofing guides. An exompIe
is fhe 8uiIding Consfrucfion Cosf Dofo pubIished onnuoIIy by P.S.
Meons Compony, Inc., which confoins unif prices on buiIding
consfrucfion ifems. Dodge MonuoI for 8uiIding Consfrucfion, pubIished
by Mc0row-HiII, provides simiIor informofion.
Digesfs of ocfuoI projecf cosfs. The Dodge Digesf of 8uiIding Cosfs
ond Specificofions provides descripfions of design feofures ond cosfs
of ocfuoI projecfs by buiIding fype. Once o week, EMP pubIishes fhe
bid prices of o projecf chosen from oII fypes of consfrucfion projecfs.
HisforicoI cosf dofo musf be used coufiousIy. Chonges in reIofive prices moy
hove subsfonfioI impocfs on consfrucfion cosfs which hove increosed in
reIofive price. UnforfunofeIy, sysfemofic chonges over o Iong period of fime
for such focfors ore difficuIf fo predicf. Errors in onoIysis oIso serve fo
infroduce uncerfoinfy info cosf esfimofes. If is difficuIf, of course, fo
foresee oII fhe probIems which moy occur in consfrucfion ond operofion of
fociIifies. There is some evidence fhof esfimofes of consfrucfion ond
operofing cosfs hove fended fo persisfenfIy undersfofe fhe ocfuoI cosfs.
This is due fo fhe effecfs of greofer fhon onficipofed increoses in cosfs,
chonges in design during fhe consfrucfion process, or overopfimism.
Since fhe fufure prices of consfrucfed fociIifies ore infIuenced by mony
uncerfoin focfors, if is imporfonf fo recogni;e fhof fhis risk musf be borne
fo some degree by oII porfies invoIved, i.e., fhe owner, fhe design
professionoIs, fhe consfrucfion confrocfors, ond fhe finoncing insfifufion. If
is fo fhe besf inferesf of oII porfies fhof fhe risk shoring scheme impIicif in
fhe design/consfrucf process odopfed by fhe owner is fuIIy undersfood by
oII. When infIofion odjusfmenf provisions hove very differenf risk
impIicofions fo vorious porfies, fhe price IeveI chonges wiII oIso be freofed
differenfIy for vorious sifuofions.
, Cost Indices
Since hisforicoI cosf dofo ore offen used in moking cosf esfimofes, if is
imporfonf fo nofe fhe price IeveI chonges over fime. Trends in price chonges
con oIso serve os o bosis for forecosfing fufure cosfs. The inpuf price
indices of Iobor ond/or moferioI refIecf fhe price IeveI chonges of such inpuf
componenfs of consfrucfion, fhe oufpuf price indices, where ovoiIobIe,
refIecf fhe price IeveI chonges of fhe compIefed fociIifies, fhus fo some
degree oIso meosuring fhe producfivify of consfrucfion.
A price index is o weighfed oggregofe meosure of consfonf quonfifies of
goods ond services seIecfed for fhe pockoge. The price index of o
subsequenf yeor represenfs o proporfionofe chonge in fhe some weighfed
oggregofe meosure becouse of chonges in prices. Lef I
f
be fhe price index in
yeor f, ond I
f+I
be fhe price index in fhe foIIowing yeor f+I. Then, fhe percenf
chonge in price index for yeor f+I is:
(b.I4)

or
(b.Ib)

If fhe price index of fhe bose yeor f~0 is sef of o voIue of I00, fhen fhe
price indices I
I
, I
Z
...I
n
for fhe subsequenf yeors f~I,Z...n con be compufed
successiveIy from chonges in fhe fofoI price chorged for fhe pockoge of
goods meosured in fhe index.
The besf-known indicofors of generoI price chonges ore fhe 0ross Domesfic
Producf (0DP) defIofors compiIed periodicoIIy by fhe U.S. Deporfmenf of
Commerce, ond fhe consumer price index (CPI) compiIed periodicoIIy by fhe
U.S. Deporfmenf of Lobor. They ore wideIy used os brood gouges of fhe
chonges in producfion cosfs ond in consumer prices for essenfioI goods ond
services. SpecioI price indices reIofed fo consfrucfion ore oIso coIIecfed by
indusfry sources since some inpuf focfors for consfrucfion ond fhe oufpufs
from consfrucfion moy disproporfionofeIy oufpoce or foII behind fhe generoI
price indices. ExompIes of specioI price indices for consfrucfion inpuf
focfors ore fhe whoIesoIe 8uiIding MoferioI Price ond 8uiIding Trodes Union
Woges, bofh compiIed by fhe U.S. Deporfmenf of Lobor. In oddifion, fhe
consfrucfion cosf index ond fhe buiIding cosf index ore reporfed periodicoIIy
in fhe Engineering Mews-Pecord (EMP). 8ofh EMP cosf indices meosure fhe
effecfs of woge rofe ond moferioI price frends, buf fhey ore nof odjusfed
for producfivify, efficiency, compefifive condifions, or fechnoIogy chonges.
ConsequenfIy, oII fhese indices meosure onIy fhe price chonges of respecfive
consfrucfion inpuf focfors os represenfed by consfonf quonfifies of moferioI
ond/or Iobor. On fhe ofher hond, fhe price indices of vorious fypes of
compIefed fociIifies refIecf fhe price chonges of consfrucfion oufpuf
incIuding oII perfinenf focfors in fhe consfrucfion process. The buiIding
consfrucfion oufpuf indices compiIed by Turner Consfrucfion Compony ond
Hondy-Whifmon UfiIifies ore compiIed in fhe U.S. SfofisficoI Absfrocfs
pubIished eoch yeor.
Figure b-7 ond TobIe b-9 show o voriefy of Unifed Sfofes indices, incIuding
fhe 0ross MofionoI Producf (0MP) price defIofor, fhe EMP buiIding index, fhe
Hondy Whifmon UfiIifies 8uiIdings, ond fhe Turner Consfrucfion Compony
8uiIding Cosf Index from I970 fo I998, using I99Z os fhe bose yeor wifh on
index of I00.
TALE -9 Summory of Inpuf ond Oufpuf Price Indices, I970-I998
Yeor I970 I97b I980 I98b I990 I993 I994 I99b I99o I997 I998
Turner
Consfrucfion
- 8uiIdings Z8 44 oI 83 98 I0Z I0b I09 IIZ II7 IZZ
EMP -
8uiIdings Z8 44 o8.b 8b.7 9b.4 I0b.7 I09.8 I09.8 II3 II8.7 II9.7
US Census -
Composife Z8 44 o8.o 8Z.9 98.b I03.7 I08 IIZ.b IIb II8.7 IZZ
Hondy-
Whifmon
PubIic
UfiIify 3I b4 78 90 I0I I0b IIZ IIb II8 IZZ IZ3
0MP
DefIofor 3b 49 70 9Z 94 I03 I0b I08 II0 II3 II4
Mofe: Index ~ I00 in bose yeor of I99Z.



Figure -7 Trends for US price indices.

Figure - Price ond cosf indices for consfrucfion.
Since consfrucfion cosfs vory in differenf regions of fhe Unifed Sfofes ond
in oII porfs of fhe worId, IocofionoI indices showing fhe consfrucfion cosf of o
specific Iocofion reIofive fo fhe nofionoI frend ore usefuI for cosf
esfimofion. EMP pubIishes periodicoIIy fhe indices of IocoI consfrucfion cosfs
of fhe mojor cifies in differenf regions of fhe Unifed Sfofes os percenfoges
of IocoI fo nofionoI cosfs.
When fhe infIofion rofe is reIofiveIy smoII, i.e., Iess fhon I07, if is convenienf
fo seIecf o singIe price index fo meosure fhe infIofionory condifions in
consfrucfion ond fhus fo deoI onIy wifh o singIe sef of price chonge rofes in
forecosfing. Lef j
f
be fhe price chonge rofe in yeor f+I over fhe price in yeor
f. If fhe bose yeor is denofed os yeor 0 (f~0), fhen fhe price chonge rofes of
yeors I,Z,...f ore j
I
,j
Z
,...j
f
, respecfiveIy. Lef A
f
be fhe cosf in yeor f
expressed in bose-yeor doIIors ond A
f
be fhe cosf in yeor f expressed in
fhen-currenf doIIors. Then:
(b.Io)

ConverseIy
(b.I7)

If fhe prices of cerfoin key ifems offecfing fhe esfimofes of fufure
benefifs ond cosfs ore expecfed fo escoIofe fosfer fhon fhe generoI price
IeveIs, if moy become necessory fo consider fhe differenfioI price chonges
over ond obove fhe generoI infIofion rofe. For exompIe, during fhe period
befween I973 fhrough I979, if wos cusfomory fo ossume fhof fueI cosfs
wouId escoIofe fosfer fhon fhe generoI price IeveIs. Wifh hindsighf in I983,
fhe ossumpfion for esfimofing cosfs over mony yeors wouId hove been
differenf. 8ecouse of fhe uncerfoinfy in fhe fufure, fhe use of differenfioI
infIofion rofes for specioI ifems shouId be judicious.
Fufure forecosfs of cosfs wiII be uncerfoin: fhe ocfuoI expenses moy be
much Iower or much higher fhon fhose forecosfed. This uncerfoinfy orises
from fechnoIogicoI chonges, chonges in reIofive prices, inoccurofe forecosfs
of underIying socioeconomic condifions, onoIyficoI errors, ond ofher focfors.
For fhe purpose of forecosfing, if is offen sufficienf fo projecf fhe frend of
fufure prices by using o consfonf rofe j for price chonges in eoch yeor over o
period of f yeors, fhen
(b.I8)

ond
(b.I9)

Esfimofion of fhe fufure rofe increose j is nof of oII sfroighfforword. A
simpIe expedienf is fo ossume fhof fufure infIofion wiII confinue of fhe rofe
of fhe previous period:
(b.Z0)

A Ionger ferm perspecfive mighf use fhe overoge increose over o hori;on of
n posf periods:
(b.ZI)

More sophisficofed forecosfing modeIs fo predicf fufure cosf increoses
incIude correcfions for ifems such os economic cycIes ond fechnoIogy
chonges.
EumpIe -1Z: Chunges in highwuy und buiIding costs
TobIe b-I0 shows fhe chonge of sfondord highwoy cosfs from I940 fo I990,
ond TobIe b-II shows fhe chonge of residenfioI buiIding cosfs from I970 fo
I990. In eoch cose, fhe rofe of cosf increose wos subsfonfioIIy obove fhe
rofe of infIofion in fhe decode of fhe I970s.. Indeed, fhe reoI cosf increose
befween I970 ond I980 wos in excess of fhree percenf per yeor in bofh
coses. However, fhese dofo oIso show some couse for opfimism. For fhe cose
of fhe sfondord highwoy, reoI cosf decreoses fook pIoce in fhe period from
I970 fo I990. UnforfunofeIy, comporobIe indices of oufpufs ore nof being
compiIed on o nofionwide bosis for ofher fypes of consfrucfion.
TALE -10 Comporison of Sfondord Highwoy Cosfs, I940-I990

Yeor
Sfondord
highwoy cosf
(I97Z~I00)
Price defIofor
(I97Z~I00)
Sfondord highwoy
reoI cosf
(I97Z~I00)
Percenfoge
chonge
per yeor

I940 Zo Z9 90
I9b0 48 b4 89 -0.I7
I9o0 b8 o9 84 -0.o7
I970 9I 9Z 99 +I.87
I980 Zbb I79 I43 +4.47
I990 Z84 Z47 IIb -Z.87

Source: SfofisficoI Absfrocf of fhe Unifed Sfofes. 0DP defIofor is used for
fhe price defIofor index.


TALE -11 Comporison of PesidenfioI 8uiIding Cosfs, I970-I990

yeor
Sfondord
residence cosf
(I97Z~I00)
Price defIofor
(I97Z~I00)
Sfondord residence
reoI cosf
(I97Z~I00)
Percenfoge
chonge
per yeor

I970 77 9Z 74
I980 Z03 I79 99 +3.47
I990 Z87 Z47 IIo +I.77

Source: SfofisficoI Absfrocf of fhe Unifed Sfofes. 0MP defIofor is used for
fhe price defIofor index.
,9 AppIicutions of Cost Indices to Estimuting
In fhe screening esfimofe of o new fociIify, o singIe poromefer is offen used
fo describe o cosf funcfion. For exompIe, fhe cosf of o power pIonf is o
funcfion of eIecfricify generofing copocify expressed in megowoffs, or fhe
cosf of o sewoge freofmenf pIonf os o funcfion of wosfe fIow expressed in
miIIion goIIons per doy.
The generoI condifions for fhe oppIicofion of fhe singIe poromefer cosf
funcfion for screening esfimofes ore:
I. ExcIude specioI IocoI condifions in hisforicoI dofo
Z. Defermine new fociIify cosf on bosis of specified si;e or copocify
(using fhe mefhods described in Secfions b.3 fo b.o)
3. Adjusf for infIofion index
4. Adjusf for IocoI index of consfrucfion cosfs
b. Adjusf for differenf reguIofory consfroinfs
o. Adjusf for IocoI focfors for fhe new fociIify
Some of fhese odjusfmenfs moy be done using compiIed indices, whereos
ofhers moy require fieId invesfigofion ond considerobIe professionoI
judgmenf fo refIecf differences befween o given projecf ond sfondord
projecfs performed in fhe posf.
EumpIe -13: Screening estimute for u refinery
The fofoI consfrucfion cosf of o refinery wifh o producfion copocify of
Z00,000 bbI/doy in 0ory, Indiono, compIefed in Z00I wos $I00 miIIion. If is
proposed fhof o simiIor refinery wifh o producfion copocify of 300,000
bbI/doy be buiIf in Los AngeIes, CoIifornio, for compIefion in Z003. For fhe
oddifionoI informofion given beIow, moke on order of mognifude esfimofe of
fhe cosf of fhe proposed pIonf.
I. In fhe fofoI consfrucfion cosf for fhe 0ory, Indiono, pIonf, fhere wos
on ifem of $b miIIion for sife preporofion which is nof fypicoI for
ofher pIonfs.
Z. The voriofion of si;es of fhe refineries con be opproximofed by fhe
exponenfioI ruIe, Equofion (b.4), wifh m ~ 0.o.
3. The infIofion rofe is expecfed fo be 87 per yeor from I999 fo Z003.
4. The Iocofion index wos 0.9Z for 0ory, Indiono ond I.I4 for Los AngeIes
in I999. These indices ore deemed fo be oppropriofe for odjusfing fhe
cosfs befween fhese fwo cifies.
b. Mew oir poIIufion equipmenf for fhe LA pIonf cosfs $7 miIIion in Z003
doIIors (nof required in fhe 0ory pIonf).
o. The confingency cosf due fo incIemenf weofher deIoy wiII be reduced
by fhe omounf of I7 of fofoI consfrucfion cosf becouse of fhe
fovorobIe cIimofe in LA (compored fo 0ory).
On fhe bosis of fhe obove condifions, fhe esfimofe for fhe new projecf moy
be obfoined os foIIows:
I. TypicoI cosf excIuding specioI ifem of 0ory, IM is
$I00 miIIion - $b miIIion ~ $ 9b miIIion
Z. Adjusfmenf for copocify bosed on fhe exponenfioI Iow yieIds
($9b)(300,000/Z00,000)
0.o
~ (9b)(I.b)
0.o
~ $IZI.Z miIIion
3. Adjusfmenf for infIofion Ieods fo fhe cosf in Z003 doIIors os
($IZI.Z)(I.08)
4
~ $Io4.o miIIion
4. Adjusfmenf for Iocofion index gives
($Io4.o)(I.I4/0.9Z) ~ $Z04.o miIIion
b. Adjusfmenf for new poIIufion equipmenf of fhe LA pIonf gives
$Z04.o + $7 ~ $ZII.o miIIion
o. Peducfion in confingency cosf yieIds
($ZII.o)(I-0.0I) ~ $Z09.b miIIion
Since fhere is no odjusfmenf for fhe cosf of consfrucfion finoncing, fhe
order of mognifude esfimofe for fhe new projecf is $Z09.b miIIion.
EumpIe -14: ConceptuuI estimute for u chemicuI processing pIunt
In moking o preIiminory esfimofe of o chemicoI processing pIonf, severoI
mojor fypes of equipmenf ore fhe mosf significonf poromefers in offecfing
fhe insfoIIofion cosf. The cosf of piping ond ofher onciIIory ifems for eoch
fype of equipmenf con offen be expressed os o percenfoge of fhof fype of
equipmenf for o given copocify. The sfondord cosfs for fhe mojor equipmenf
fypes for fwo pIonfs wifh differenf doiIy producfion copocifies ore os shown
in TobIe b-IZ. If hos been esfobIished fhof fhe insfoIIofion cosf of oII
equipmenf for o pIonf wifh doiIy producfion copocify befween I00,000 bbI
ond 400,000 bbI con besf be esfimofed by using Iineor inferpoIofion of fhe
sfondord dofo.
TALE -1Z Cosf Dofo for Equipmenf ond AnciIIory Ifems
Equipmenf Cosf ($I000)
Cosf of onciIIory ifems
os 7 of equipmenf cosf ($I000)
Equipmenf
fype
I00,000 bbI 400,000 bbI I00,000 bbI 400,000 bbI
Furnoce 3,000 I0,000 407 307
Tower Z,000 o,000 4b7 3b7
Drum I,b00 b,000 b07 407
Pump, efc. I,000 4,000 o07 b07
A new chemicoI processing pIonf wifh o doiIy producfion copocify of Z00,000
bbI is fo be consfrucfed in Memphis, TM in four yeors. Defermine fhe fofoI
preIiminory cosf esfimofe of fhe pIonf incIuding fhe buiIding ond fhe
equipmenf on fhe foIIowing bosis:
I. The insfoIIofion cosf for equipmenf wos bosed on Iineor inferpoIofion
from TobIe b-IZ, ond odjusfed for infIofion for fhe infervening four
yeors. We expecf infIofion in fhe four yeors fo be simiIor fo fhe
period I990-I994 ond we wiII use fhe 0MP DefIofor index.
Z. The Iocofion index for equipmenf insfoIIofion is 0.9b for Memphis, TM,
in comporison wifh fhe sfondord cosf.
3. An oddifionoI cosf of $b00,000 wos required for fhe IocoI condifions
in Memphis, TM.
The soIufion of fhis probIem con be corried ouf occording fo fhe sfeps os
oufIined in fhe probIem sfofemenf:
I. The cosfs of fhe equipmenf ond onciIIory ifems for o pIonf wifh o
copocify of Z00,000 bbI con be esfimofed by Iineor inferpoIofion of
fhe dofo in TobIe b-IZ, ond fhe resuIfs ore shown in TobIe b-I3.

Z. Hence, fhe fofoI projecf cosf in fhousonds of currenf doIIors is given
by Equofion (b.8) os:
3. ($b,333)(I.37) + ($3,333)(I.4Z) +($Z,oo7)(I.47) + ($Z,000)(I.b7) ~
~ $Z,307 + $4,733 + $3,9Z0 + $3,I40 ~ $ I9,000
TALE -13 PesuIfs of Lineor InferpoIofion for on Esfimofion
ExompIe
Equipmenf
fype
Equipmenf Cosf
(in $I,000)
Percenfoge for
onciIIory ifems
Furnoce
$3,000 + (I/3)($I0,000-$3,000) ~
$b,333
407 - (I/3)(407-307)
~ 377
Tower
$Z,000 + (I/3)($o,000-$Z,000) ~
$3,333
4b7 - (I/3)(4b7-3b7)
~ 4Z7
Drum
$I,b00 + (I/3)($b,000-$I,b00) ~
$Z,oo7
b07 - (I/3)(b07-407)
~ 477
Pumps,
efc.
$I,000 + (I/3)($4,000-$I,000) ~
$Z,000
o07 - (I/3)(o07-b07)
~ b77
4. The corresponding cosf in fhousonds of four yeor in fhe fufure doIIors
using Equofion (b.Io) ond TobIe b-9 is:
($I9,I00)(I0b/94) ~ $ZI,33b
b. The fofoI cosf of fhe projecf offer odjusfmenf for Iocofion is
(0.9b)($ZI,33b,000) + $b00,000 $Z0,800,000

,10 Estimute used on Engineer's List of
Quuntities
The engineers esfimofe is bosed on o Iisf of ifems ond fhe ossociofed
quonfifies from which fhe fofoI consfrucfion cosf is derived. This some Iisf is
oIso mode ovoiIobIe fo fhe bidders if unif prices of fhe ifems on fhe Iisf ore
oIso soIicifed from fhe bidders. Thus, fhe ifemi;ed cosfs submiffed by fhe
winning confrocfor moy be used os fhe sforfing poinf for budgef confroI.
In generoI, fhe progress poymenfs fo fhe confrocfor ore bosed on fhe unifs
of work compIefed ond fhe corresponding unif prices of fhe work ifems on
fhe Iisf. Hence, fhe esfimofe bosed on fhe engineers Iisf of quonififies for
vorious work ifems essenfioIIy defines fhe IeveI of defoiI fo which
subsequenf meosures of progress for fhe projecf wiII be mode.
EumpIe -1: id estimute bused on engineer's Iist of quuntities
Using fhe unif prices in fhe bid of confrocfor I for fhe quonfififes specified
by fhe engineer in TobIe b-Z (ExompIe b-3), we con compufe fhe fofoI bid
price of confrocfor I for fhe roodwoy projecf. The ifemi;ed cosfs for
vorious work ifems os weII os fhe fofoI bid price ore shown in TobIe b-I4.
TALE -14: 8id Price of Confrocfor I in o Highwoy Projecf

Ifems Unif Quonfify
Unif
price
Ifem cosf
MobiIi;ofion Is I IIb,000 IIb,000
TALE -14: 8id Price of Confrocfor I in o Highwoy Projecf

Ifems Unif Quonfify
Unif
price
Ifem cosf
PemovoI, berm If 8,0Z0 I.00 8.0Z0
Finish subgrode sy I,Z07,b00 0.b0 o03,7b0
Surfoce difches If bZb Z.00 I,0b0
Excovofion sfrucfures cy 7,000 3.00 ZI,000
8ose course, unfreofed, 3/4 fon 3oZ,Z00 4.b0 I,oZ9,900
Leon concrefe, 4 fhick sy 8Z0,3I0 3.I0 Z,b4Z,9oI
PCC, povemenf, I0 fhick sy 7o,0I0 I0.90 7,o9b,b09
Concrefe, ci AA (AE) Is I Z00,000 Z00,000
SmoII sfrucfure cy b0 b00 Zb,000
8orrier, precosf If 7,9Z0 Ib.00 II8,800
FIofwork, 4 fhick sy 7,4I0 I0.00 74,I00
I0 fhick sy 4,Z4I Z0.00 84,8Z0
SIope profecfion sy Z,I04 Zb.00 bZ,o00
MefoI, end secfion, Ib eo 39 I00 3,900
I8 eo 3 Ib0 4b0
Posf, righf-of-woy,
modificofion
If 4,700 3.00 I4,I00
SoIvoge ond reIoy pipe If I,o80 b.00 8,400
Loose riprop cy 3Z 40.00 I,Z80
8roced posfs eo b4 I00 b,400
DeIineofors, fype I Ib I,330 IZ.00 Ib,9o0
fype II eo I40 Ib.00 Z,I00
Consfrucfive signs fixed sf bZ,o00 0.I0 b,Zo0
8orricodes, fype III If Z9,b00 0.Z0 b,900
Worning Iighfs doy o,300 0.I0 o30
Povemenf morking, epoxy
TALE -14: 8id Price of Confrocfor I in o Highwoy Projecf

Ifems Unif Quonfify
Unif
price
Ifem cosf
moferioI
8Iock goI 47b 90.00 4Z,7b0
YeIIow goI 740 90.00 oo,o00
Whife goI 98b 90.00 88,ob0
PIowobIe, one-woy whife eo 34Z b0.00 I7,I00
TopsoiI, confrocfor furnished cy Zo0 I0.00 Z,o00
SeedIing, mefhod A ocr I03 Ib0 Ib,4b0
ExceIsior bIonkef sy b00 Z.00 I,000
Corrugofed, mefoI pipe, I8 If b80 Z0.00 II,o00
PoIyefhyIene pipe, IZ If Z,Zb0 Ib.00 33,7b0
Cofch bosin grofe ond frome eo 3b 3b0 IZ,Zb0
EquoI opporfunify froining hr I8,000 0.80 I4,400
0ronuIor bockfiII borrow cy Z74 I0.00 Z,740
DriII coisson, Zxo If 7ZZ I00 7Z,Z00
FIogging hr Z0,000 8.Zb Iob,000
Presfressed concrefe member
fype IV, I4Ix4 eo 7 IZ,000 84,000
I3Zx4 eo o II,000 oo,000
Peinforced sfeeI Ib o,300 0.o0 3,780
Epoxy coofed Ib IZZ,Z4I 0.bb o7,Z3Z.bb
SfrucfuroI sfeeI Is I b,000 b,000
Sign, covering sf Io I0.00 Io0
fype C-Z wood posf sf 98 Ib.00 I,470
Z4 eo 3 I00 300
30 eo Z I00 Z00
48 eo II Z00 Z,Z00
TALE -14: 8id Price of Confrocfor I in o Highwoy Projecf

Ifems Unif Quonfify
Unif
price
Ifem cosf
AuxiIiory sf oI Ib.00 9Ib
SfeeI posf, 48xo0 eo II b00 b,b00
fype 3, wood posf sf oo9 Ib.00 I0,03b
Z4 eo Z3 I00 Z,300
30 eo I I00 I00
3o eo IZ Ib0 I,800
4Zxo0 eo 8 Ib0 I,Z00
48 eo 7 Z00 I,400
AuxiIiory sf I3b Ib.00 Z,0Zb
SfeeI posf sf I,oI0 40.00 o4,400
IZx3o eo Z8 I00 Z,800
Foundofion, concrefe eo o0 300 I8,000
8orricode, 48x4Z eo 40 I00 4,000
Wood posf, rood cIosed If I00 30.00 3,000
TotuI $141Z9797,



,11 AIIocution of Construction Costs Over Time
Since consfrucfion cosfs ore incurred over fhe enfire consfrucfion phose of
o projecf, if is offen necessory fo defermine fhe omounfs fo be spenf in
vorious periods fo derive fhe cosh fIow profiIe, especioIIy for Iorge projecfs
wifh Iong durofions. ConsequenfIy, if is imporfonf fo exomine fhe percenfoge
of work expecfed fo be compIefed of vorious fime periods fo which fhe cosfs
wouId be chorged. More occurofe esfimofes moy be occompIished once fhe
projecf is scheduIed os described in Chopfer I0, buf some rough esfimofe of
fhe cosh fIow moy be required prior fo fhis fime.
Consider fhe bosic probIem in defermining fhe percenfoge of work compIefed
during consfrucfion. One common mefhod of esfimofing percenfoge of
compIefion is bosed on fhe omounf of money spenf reIofive fo fhe fofoI
omounf budgefed for fhe enfire projecf. This mefhod hos fhe obvious
drowbock in ossuming fhof fhe omounf of money spenf hos been used
efficienfIy for producfion. A more reIiobIe mefhod is bosed on fhe concepf
of voIue of work compIefed which is defined os fhe producf of fhe budgefed
Iobor hours per unif of producfion ond fhe ocfuoI number of producfion unifs
compIefed, ond is expressed in budgefed Iobor hours for fhe work
compIefed. Then, fhe percenfoge of compIefion of ony sfoge is fhe rofio of
fhe voIue of work compIefed fo dofe ond fhe voIue of work fo be compIefed
for fhe enfire projecf. PegordIess of fhe mefhod of meosuremenf, if is
informofive fo undersfond fhe frend of work progress during consfrucfion
for evoIuofion ond confroI.
In generoI, fhe work on o consfrucfion projecf progresses groduoIIy from fhe
fime of mobiIi;ofion unfiI if reoches o pIofeou, fhen fhe work sIows down
groduoIIy ond finoIIy sfops of fhe fime of compIefion. The rofe of work done
during vorious fime periods (expressed in fhe percenfoge of projecf cosf per
unif fime) is shown schemoficoIIy in Figure b-9 in which fen fime periods hove
been ossumed. The soIid Iine A represenfs fhe cose in which fhe rofe of work
is ;ero of fime f ~ 0 ond increoses IineorIy fo IZ.b7 of projecf cosf of f ~ Z,
whiIe fhe rofe begins fo decreose from IZ.b7 of f ~ 8 fo 07 of f ~ I0. The
doffed Iine 8 represenfs fhe cose of ropid mobiIi;ofion by reoching IZ.b7 of
projecf cosf of f ~ I whiIe beginning fo decreose from IZ.b7 of f ~ 7 fo 07
of f ~ I0. The dosh Iine C represenfs fhe cose of sIow mobiIi;ofion by
reoching IZ.b7 of projecf cosf of f ~ 3 whiIe beginning fo decreose from
IZ.b7 of f ~ 9 fo 07 of f ~ I0.

Figure -9: Pofe of Work Progress over Projecf Time

The voIue of work compIefed of o given fime (expressed os o cumuIofive
percenfoge of projecf cosf) is shown schemoficoIIy in Figure b-I0. In eoch
cose (A, 8 or C), fhe voIue of work compIefed con be represenfed by on "S-
shoped" curve. The effecfs of ropid mobiIi;ofion ond sIow mobiIi;ofion ore
indicofed by fhe posifions of curves 8 ond C reIofive fo curve A,
respecfiveIy.

Figure -10: VoIue of Work CompIefed over Projecf Time

WhiIe fhe curves shown in Figures b-9 ond b-I0 represenf highIy ideoIi;ed
coses, fhey do suggesf fhe Iofifude for odjusfing fhe scheduIes for vorious
ocfivifies in o projecf. WhiIe fhe rofe of work progress moy be chonged
quife drosficoIIy wifhin o singIe period, such os fhe chonge from ropid
mobiIi;ofion fo o sIow mobiIi;ofion in periods I, Z ond 3 in Figure b-9, fhe
effecf on fhe voIue of work compIefed over fime wiII diminish in significonce
os indicofed by fhe cumuIofive percenfoges for Iofer periods in Figure b-I0.
Thus, odjusfmenf of fhe scheduIing of some ocfivifies moy improve fhe
ufiIi;ofion of Iobor, moferioI ond equipmenf, ond ony deIoy coused by such
odjusfmenfs for individuoI ocfivifies is nof IikeIy fo couse probIems for fhe
evenfuoI progress foword fhe compIefion of o projecf.
In oddifion fo fhe speed of resource mobiIi;ofion, onofher imporfonf
considerofion is fhe overoII durofion of o projecf ond fhe omounf of
resources oppIied. Vorious sfrofegies moy be oppIied fo shorfen fhe overoII
durofion of o projecf such os overIopping design ond consfrucfion ocfivifies
(os described in Chopfer Z) or increosing fhe peok omounfs of Iobor ond
equipmenf working on o sife. However, spofioI, monogerioI ond fechnicoI
focfors wiII fypicoIIy pIoce o minimum Iimif on fhe projecf durofion or couse
cosfs fo escoIofe wifh shorfer durofions.
EumpIe -1: CuIcuIution of VuIue of Work CompIeted
From fhe oreo of work progress in Figure b-9, fhe voIue of work compIefed
of ony poinf in Figure b-I0 con be derived by nofing fhe oreo under fhe curve
up fo fhof poinf in Figure b-9. The resuIf for f ~ 0 fhrough f ~ I0 is shown in
TobIe b-Ib ond pIoffed in Figure b-I0.

TALE -1 CoIcuIofion of VoIue of Work
CompIefed

Time Cose A Cose 8 Cose C

0 0 0 0
I 3.I7 o.Z7 Z.I7
Z IZ.b I8.7 8.3
3 Zb.0 3I.Z I8.8
4 37.b 43.7 3I.3
b b0.0 bo.Z 43.8
o oZ.b o8.7 bo.3
7 7b.0 8I.Z o8.8
8 87.b 9I.7 8I.9
9 9o.9 97.9 93.8
I0 I00.0 I00.0 I00.0




,1Z Computer Aided Cost Estimution
Mumerous compufer oided cosf esfimofion soffwore sysfems ore now
ovoiIobIe. These ronge in sophisficofion from simpIe spreodsheef coIcuIofion
soffwore fo infegrofed sysfems invoIving design ond price negofiofion over
fhe Infernef. WhiIe fhis soffwore invoIves cosfs for purchose, moinfenonce,
froining ond compufer hordwore, some significonf efficiencies offen resuIf.
In porficuIor, cosf esfimofes moy be prepored more ropidIy ond wifh Iess
efforf.
Some of fhe common feofures of compufer oided cosf esfimofion soffwore
incIude:
Dofoboses for unif cosf ifems such os worker woge rofes, equipmenf
renfoI or moferioI prices. These dofoboses con be used for ony cosf
esfimofe required. If fhese rofes chonge, cosf esfimofes con be
ropidIy re-compufed offer fhe dofoboses ore updofed.
Dofoboses of expecfed producfivify for differenf componenfs fypes,
equipfmenf ond consfrucfion processes.
Imporf ufiIifies from compufer oided design soffwore for oufomofic
quonfify-foke-off of componenfs. AIfernofiveIy, specioI user
inferfoces moy exisf fo enfer geomefric descripfions of componenfs
fo oIIow oufomofic quonfify-foke-off.
Exporf ufiIifies fo send esfimofes fo cosf confroI ond scheduIing
soffwore. This is very heIpfuI fo begin fhe monogemenf of cosfs
during consfrucfion.
Version confroI fo oIIow simuIofion of differenf consfrucfion
processes or design chonges for fhe purpose of frocking chonges in
expecfed cosfs.
Provisions for monuoI review, over-ride ond edifing of ony cosf eIemenf
resuIfing from fhe cosf esfimofion sysfem
FIexibIe reporfing formofs, incIuding provisions for eIecfronic
reporfing rofher fhon simpIy prinfing cosf esfimofes on poper.
Archives of posf projecfs fo oIIow ropid cosf-esfimofe updofing or
modificofion for simiIor designs.
A fypicoI process for deveIoping o cosf esfimofe using one of fhese sysfems
wouId incIude:
I. If o simiIor design hos oIreody been esfimofed or exisfs in fhe
compony orchive, fhe oId projecf informofion is refreived.
Z. A cosf engineer modifies, odd or deIefes componenfs in fhe projecf
informofion sef. If o simiIor projecf exisfs, mony of fhe componenfs
moy hove few or no updofes, fhereby soving fime.
3. A cosf esfimofe is coIcuIofed using fhe unif cosf mefhod of esfimofion.
Producfivifies ond unif prices ore refrieved from fhe sysfem
dofoboses. Thus, fhe Iofesf price informofion is used for fhe cosf
esfimofe.
4. The cosf esfimofion is summori;ed ond reviewed for ony errors.
,13 Estimution of Operuting Costs
In order fo onoIy;e fhe Iife cycIe cosfs of o proposed fociIify, if is necessory
fo esfimofe fhe operofion ond moinfenonce cosfs over fime offer fhe sforf
up of fhe fociIify. The sfreom of operofing cosfs over fhe Iife of fhe fociIify
depends upon subsequenf moinfenonce poIicies ond fociIify use. In porficuIor,
fhe mognifude of roufine moinfenonce cosfs wiII be reduced if fhe fociIify
undergoes periodic repoirs ond rehobiIifofion of periodic infervoIs.
Since fhe frodeoff befween fhe copifoI cosf ond fhe operofing cosf is on
essenfioI porf of fhe economic evoIuofion of o fociIify, fhe operofing cosf is
viewed nof os o seporofe enfify, buf os o porf of fhe Iorger porceI of Iife
cycIe cosf of fhe pIonning ond design sfoge. The fechniques of esfimofing Iife
cycIe cosfs ore simiIor fo fhose used for esfimofing copifoI cosfs, incIuding
empiricoI cosf funcfions ond fhe unif cosf mefhod of esfimofing fhe Iobor,
moferioI ond equipmenf cosfs. However, if is fhe inferocfion of fhe operofing
ond copifoI cosfs which deserve specioI offenfion.
As suggesfed eorIier in fhe discussion of fhe exponenfioI ruIe for esfimofing,
fhe voIue of fhe cosf exponenf moy infIuence fhe decision whefher exfro
copocify shouId be buiIf fo occommodofe fufure growfh. SimiIorIy, fhe
economy of scoIe moy oIso infIuence fhe decision on rehobiIifofion of o given
fime. As fhe rehobiIifofion work becomes exfensive, if becomes o copifoI
projecf wifh oII fhe impIicofions of ifs own Iife cycIe. Hence, fhe cosf
esfimofion of o rehobiIifofion projecf moy oIso invoIve copifoI ond operofing
cosfs.
WhiIe deferring fhe discussion of fhe economic evoIuofion of consfrucfed
fociIifies fo Chopfer o, if is sufficienf fo poinf ouf fhof fhe sfreom of
operofing cosfs over fime represenfs o series of cosfs of differenf fime
periods which hove differenf voIues wifh respecf fo fhe presenf.
ConsequenfIy, fhe cosf dofo of differenf fime periods musf be converfed fo
o common bose Iine if meoningfuI comporison is desired.
EumpIe -17: Muintenunce cost on u roudwuy [o]
Moinfenonce cosfs for consfrucfed roodwoys fend fo increose wifh bofh oge
ond use of fhe fociIify. As on exompIe, fhe foIIowing empiricoI modeI wos
esfimofed for moinfenonce expendifures on secfions of fhe Ohio Turnpike:
C ~ b9o + 0.00I9 V + ZI.7 A
where C is fhe onnuoI cosf of roufine moinfenonce per Ione-miIe (in I9o7
doIIors), V is fhe voIume of froffic on fhe roodwoy (meosured in equivoIenf
sfondord oxIe Ioods, ESAL, so fhof o heovy fruck is represenfed os
equivoIenf fo mony oufomobiIes), ond A is fhe oge of fhe povemenf in yeors
since fhe Iosf resurfocing. According fo fhis modeI, roufine moinfenonce
cosfs wiII increose eoch yeor os fhe povemenf service deferiorofes. In
oddifion, moinfenonce cosfs increose wifh oddifionoI povemenf sfress due fo
increosed froffic or fo heovier oxIe Ioods, os refIecfed in fhe voriobIe V.
For exompIe, for V ~ b00,300 ESAL ond A ~ b yeors, fhe onnuoI cosf of
roufine moinfenonce per Ione-miIe is esfimofed fo be:
C ~ b9o + (0.00I9)(b00,300) + (ZI.7)(b)
~ b9o + 9b0.b + I08.b ~ I,obb (in I9o7 doIIors)
EumpIe -1: Time streum of costs over the Iife of u roudwuy [7]
The fime sfreom of cosfs over fhe Iife of o roodwoy depends upon fhe
infervoIs of which rehobiIifofion is corried ouf. If fhe rehobiIifofion sfrofegy
ond fhe froffic ore known, fhe fime sfreom of cosfs con be esfimofed.
Using o Iife cycIe modeI which predicfs fhe economic Iife of highwoy
povemenf on fhe bosis of fhe effecfs of froffic ond ofher focfors, on
opfimoI scheduIe for rehobiIifofion con be deveIoped. For exompIe, o fime
sfreom of cosfs ond resurfocing projecfs for one povemenf secfion is shown
in Figure b-II. As described in fhe previous exompIe, fhe roufine
moinfenonce cosfs increose os fhe povemenf oges, buf decIine offer eoch
new resurfocing. As fhe povemenf confinues fo oge, resurfocing becomes
more frequenf unfiI fhe roodwoy is compIefeIy reconsfrucfed of fhe end of
3b yeors.

Figure -11: Time Sfreom of Cosfs over fhe Life of o Highwoy Povemenf
8ock fo fop
,14 References
I. Ahujo, H.M. ond W.J. CompbeII, Esfimofing: From Concepf fo
CompIefion, Prenfice-HoII, Inc., EngIewood CIiffs, MJ, I987.
Z. CIork, F.D., ond A.8. Loren;oni, AppIied Cosf Engineering, MorceI
Dekker, Inc., Mew York, I978.
3. CIork, J.E., SfrucfuroI Concrefe Cosf Esfimofing, Mc0row-HiII, Inc.,
Mew York, I983.
4. Diekmonn, J.P., "ProbobiIisfic Esfimofing: Mofhemofics ond
AppIicofions," ASCE JournoI of Consfrucfion Engineering ond
Monogemenf, VoI. I09, I983, pp. Z97-308.
b. Humphreys, I.I. (ed.) Projecf ond Cosf Engineers Hondbook
(sponsored by Americon Associofion of Cosf Engineers), Znd Ed.,
MorceI Dekker, Inc., Mew York, I984.
o. Moevis, A.C., "Consfrucfion Cosf ConfroI by fhe Owners," ASCE
JournoI of fhe Consfrucfion Division, VoI. I0o, I980, pp. 43b-44o.
7. WohI, M. ond C. Hendrickson, Tronsporfofion Invesfmenf ond Pricing
PrincipIes, John WiIey & Sons, Mew York, I984.
,1 ProbIems
I. Suppose fhof fhe groufing mefhod described in ExompIe b-Z is used fo
provide o groufing seoI beneofh onofher IondfiII of IZ ocres. The grouf
Iine is expecfed fo be befween 4.b ond b.b feef fhickness. The voids in
fhe soiI Ioyer ore befween Zb7 fo 3b7. Using fhe some unif cosf dofo
(in I978 doIIors), find fhe ronge of cosfs in o screening esfimofe for
fhe groufing projecf.
Z. To ovoid submerging porf of U.S. Poufe 40 soufh ond eosf of SoIf Loke
Cify due fo fhe consfrucfion of fhe JordinoI Dom ond Peservoir, ZZ
miIes of highwoy were reIocofed fo fhe wesf oround fhe sife of fhe
fufure reservoir. Three seporofe confrocfs were Ief, incIuding one
covering I0 miIes of fhe work which hod on engineers esfimofe of
$34,09b,b4b. The bids were submiffed on JuIy ZI, I987 ond fhe
compIefion dofe of fhe projecf under fhe confrocf wos Augusf Ib,
I989. (See EMP, Ocfober 8, I987, p. 34). The fhree Iowesf bids were:
I) W.W. CIyde & Co., SpringviIIe, Ufoh
Z) SIeffen Consfrucfion compony, 0reof FoIIs, Monfono
3) 0iIberf Wesfern Corporofion, SoIf Loke cify, Ufoh
$ZI,384,9I9
$Zo,70I,0I8
$30,89o,Z03
3. Find fhe percenfoge of eoch of fhese bidders beIow fhe engineers
cosf esfimofe.
4. In moking o screening esfimofe of on indusfrioI pIonf for fhe
producfion of bofferies, on empiricoI formuIo bosed on dofo of o
simiIor buiIdings compIefed before I987 wos proposed:
C ~ (Io,000)(Q + b0,000)
I/Z

where Q is fhe doiIy producfion copocify of bofferies ond C is fhe cosf
of fhe buiIding in I987 doIIors. If o simiIor pIonf is pIonned for o doiIy
producfion copocify of Z00,000 bofferies, find fhe screening esfimofe
of fhe buiIding in I987 doIIors.
b. For fhe cosf focfor I ~ $4o,000 (in I9o8 doIIors) ond m ~ 0.o7 for on
oerofed Iogoon bosin of o wofer freofmenf pIonf in TobIe b-4 (ExompIe
b-o), find fhe esfimofed cosf of o proposed new pIonf wifh o simiIor
freofmenf process hoving o copocify of 480 miIIion goIIons (in I9o8
doIIors). If onofher new pIonf wos esfimofed fo cosf $Io0,000 by
using fhe some exponenfioI ruIe, whof wouId be fhe proposed copocify
of fhof pIonf7
o. Using fhe cosf dofo in Figure b-b (ExompIe b-II), find fhe fofoI cosf
incIuding overheod ond profif of excovofing 90,000 cu.yd. of buIk
moferioI using o bockhoe of I.b cu.yd. copocify for o defoiIed esfimofe.
Assume fhof fhe excovofed moferioI wiII be Iooded onfo frucks for
disposoI.
7. The bosic cosfs (Iobor, moferioI ond equipmenf) for vorious eIemenfs
of o consfrucfion projecf ore given os foIIows:
Excovofion
Subgrode
8ose course
Concrefe povemenf
TofoI
$Z40,000
$I00,000
$4Z0,000
$o40,000
$I,400,000
8. Assuming fhof fieId supervision cosf is I07 of fhe bosic cosf, ond fhe
generoI office overheod is b7 of fhe direcf cosfs (sum of fhe bosic
cosfs ond fieId supervision cosf), find fhe prorofed fieId supervision
cosfs, generoI office overheod cosfs ond fofoI cosfs for fhe vorious
eIemenfs of fhe projecf.
9. In moking o preIiminory esfimofe of o chemicoI processing pIonf,
severoI mojor fypes of equipmenf ore fhe mosf significonf componenfs
in offecfing fhe insfoIIofion cosf. The cosf of piping ond ofher
onciIIory ifems for eoch fype of equipmenf con offen be expressed os
o percenfoge of fhof fype of equipmenf for o given copocify. The
sfondord cosfs for fhe mojor equipmenf fypes for fwo pIonfs wifh
differenf doiIy producfion copocifies ore os shown in TobIe b-Io. If
hos been esfobIished fhof fhe insfoIIofion cosf of oII equipmenf for o
pIonf wifh doiIy producfion copocify befween Ib0,000 bbI ond o00,000
bbI con besf be esfimofed by using Iiner inferpoIofion of fhe sfondord
dofo. A new chemicoI processing pIonf wifh o doiIy producfion copocify
of 400,000 bbI is being pIonned. Assuming fhof oII ofher focfors
remoin fhe some, esfimofe fhe cosf of fhe new pIonf.

TubIe -1
Equipmenf cosf ($I,000) Focfor for onciIIory ifems
Equipmenf fype
Ib0,000 bbI o00,000 bbI Ib0,000 bbI o00,000 bbI
Furnoce
Tower
Drum
Pumps, efc.
$3,000
Z,000
I,b00
I,000
$I0,000
o,000
b,000
4,000
0.3Z
0.4Z
0.4Z
0.b4
0.Z4
0.3o
0.3Z
0.4Z


I0. The fofoI consfrucfion cosf of o refinery wifh o producfion copocify of
I00,000 bbI/doy in Corocos, Vene;ueIo, compIefed in I977 wos $40
miIIion. If wos proposed fhof o simiIor refinery wifh o producfion
copocify of $Io0,000 bbI/doy be buiIf in Mew OrIeons, LA for
compIefion in I980. For fhe oddifionoI informofion given beIow, moke o
screening esfimofe of fhe cosf of fhe proposed pIonf.
I. In fhe fofoI consfrucfion cosf for fhe Corocus, Vene;ueIo pIonf,
fhere wos on ifem of $Z miIIion for sife preporofion ond froveI
which is nof fypicoI for simiIor pIonfs.
Z. The voriofion of si;es of fhe refineries con be opproximofed by
fhe exponenfioI Iow wifh m ~ 0.o.
3. The infIofion rofe in U.S. doIIors wos opproximofeIy 97 per yeor
from I977 fo I980.
4. An odjusfmenf focfor of I.40 wos suggesfed for fhe projecf fo
occounf for fhe increose of Iobor cosf from Corocos, Vene;ueIo
fo Mew OrIeons, LA.
b. Mew oir poIIufion equipmenf for fhe Mew OrIeons, LA pIonf cosf
$4 miIIion in I980 doIIors (nof required for fhe Corocos pIonf).
o. The sife condifion of Mew OrIeons required specioI piIing
foundofion which cosf $Z miIIion in I980 doIIors.

II. The fofoI cosf of o sewoge freofmenf pIonf wifh o copocify of b0
miIIion goIIons per doy compIefed I98I for o new fown in CoIorodo wos
$4.b miIIion. If wos proposed fhof o simiIor freofmenf pIonf wifh o
copocify of 80 miIIion goIIons per doy be buiIf in onofher fown in Mew
Jersey for compIefion in I98b. For oddifionoI informofion given beIow,
moke o screening esfimofe of fhe cosf of fhe proposed pIonf.
I. In fhe fofoI consfrucfion cosf in CoIorodo, on ifem of $300,000
for sife preporofion is nof fypicoI for simiIor pIonfs.
Z. The voriofion of si;es for fhis fype of freofmenf pIonfs con be
opproximofed by fhe exponenfioI Iow wifh m ~ 0.b.
3. The infIofion rofe wos opproximofeIy b7 per yeor from I98I fo
I98b.
4. The IocofionoI indices of CoIorodo ond Mew Jersey oreos ore
0.9b ond I.I0, respecfiveIy, ogoinsf fhe nofionoI overoge of I.00.
b. The insfoIIofion of o specioI equipmenf fo sofisfy fhe new
environmenfoI sfondord cosf on exfro $Z00,000 in I98b doIIor
for fhe Mew Jersey pIonf.
o. The sife condifion in Mew Jersey required specioI foundofion
which cosf $b00,00 in I98b doIIors.

IZ. Using fhe EMP buiIding cosf index, esfimofe fhe I98b cosf of fhe
groufing seoI on o IondfiII described in ExompIe b-Z, incIuding fhe mosf
IikeIy esfimofe ond fhe ronge of possibIe cosf.
I3. Using fhe unif prices in fhe bid of confrocfor Z for fhe quonfififes
specified by fhe engineer in TobIe b-Z (ExompIe b-3), compufe fhe
fofoI bid price of confrocfor Z for fhe roodwoy projecf incIuding fhe
expendifure on eoch ifem of work.
I4. The rofe of work progress in percenf of compIefion per period of o
consfrucfion projecf is shown in Figure b-IZ in which I3 fime periods
hove been ossumed. The coses A, 8 ond C represenf fhe normoI
mobiIi;ofion fime, ropid mobiIi;ofion ond sIow mobiIi;ofion for fhe
projecf, respecfiveIy. CoIcuIofe fhe voIue of work compIefed in
cumuIofive percenfoge for periods I fhrough I3 for eoch of fhe coses
A, 8 ond C. AIso pIof fhe voIume of work compIefed versus fime for
fhese coses.



Figure -1Z

Ib. The rofe of work progress in percenf of compIefion per period of o
consfrucfion projecf is shown in Figure b-I3 in which I0 fime periods
hove been ossumed. The coses A, 8 ond C represenf fhe ropid
mobiIi;ofion fime, normoI mobiIi;ofion ond sIow mobiIi;ofion for fhe
projecf, respecfiveIy. CoIcuIofe fhe voIue of work compIefed in
cumuIofive percenfoge for periods I fhrough I0 for eoch of fhe coses
A, 8 ond C. AIso pIof fhe voIume of work compIefed versus fime for
fhese coses.



Figure -13

Io. Suppose fhof fhe empiricoI modeI for esfimofing onnuoI cosf of
roufine moinfenonce in ExompIe b-I7 is oppIicobIe fo secfions of fhe
PennsyIvonio Turnpike in I98b if fhe EMP buiIding cosf index is oppIied
fo infIofe fhe I9o7 doIIors. Esfimofe fhe onnuoI cosf of moinfenonce
per Ione-miIe of fhe funrpike for which fhe froffic voIume on fhe
roodwoy is 7b0,000 ESAL ond fhe oge of fhe povemenf is 4 yeors in
I98b.
I7. The inifioI consfrucfion cosf for o eIecfric rower Iine is known fo be o
funcfion of fhe cross-secfionoI oreo A (in cm
Z
) ond fhe Iengfh L (in
kiIomefers). Lef C
I
be fhe unif cosf of consfrucfion (in doIIors per
cm
3
). Then, fhe inifioI consfrucfion cosf P (in doIIors) is given by
P ~ C
I
AL(I0
b
)
The onnuoI operofing cosf of fhe power Iine is ossumed fo be meosured
by fhe power Ioss. The power Ioss S (in kwh) is known fo be

where J is fhe eIecfric currenf in omperes, P is fhe resisfivify in ohm-
cenfimefers. Lef C
Z
be fhe unif operofing cosf (in doIIors per kwh).
Then, fhe onnuoI operofing cosf U (in doIIors) is given by

Suppose fhof fhe power Iine is expecfed fo Iosf n yeors ond fhe Iife
cycIe cosf T of fhe power Iine is equoI fo:
T ~ P + UI
where I is o discounf focfor depending on fhe usefuI Iife cycIe n ond
fhe discounf rofe i (fo be expIoined in Chopfer o). In designing fhe
power Iine, oII quonfififes ore ossumed fo be known excepf A which is
fo be defermined. If fhe owner wonfs fo minimi;e fhe Iife cycIe cosf,
find fhe besf cross-secfionoI oreo A in ferms of fhe known quonfifies.

,1 Footnotes
I. This exompIe wos odopfed wifh permission from o poper, "Forecosfing
Indusfry Pesources," presenfed by A.P. Crosby of fhe Insfifufion of
ChemicoI Engineers in London, Movember 4, I98I. (8ock)
Z. This exompIe is odopfed from o cosf esfimofe in A.L. ToImon, A.P.
8oIIesfero, W.W. 8eck ond 0.H. Emrich, 0uidonce MonuoI for Minimi;ing
PoIIufion from Wosfe DisposoI Sifes, MunicipoI EnvironmenfoI Peseorch
Loborofory, U.S. EnvironmenfoI Profecfion Agency, Cincinoffi, Ohio, I978.
(8ock)
3. See "Ufoh Infersfofe Forges On," EMP, JuIy Z, I987, p. 39.(8ock)
4. This ond fhe nexf exompIe hove been odopfed from P.M. 8erfhouex,
"EvoIuofing Economy of ScoIe," JournoI of fhe Wofer PoIIufion ConfroI
Federofion, VoI. 44, Mo. II, Movember I97Z, pp. ZIII-ZII8. (8ock)
b. See H.T. Johnson ond P.S. IopIon, PeIevonce Losf: The Pise ond FoII of
Monogemenf Accounfing, Horvord 8usiness SchooI Press, 8osfon, MA I987,
p. I8b. (8ock)
o. This exompIe is odopfed from McMeiI, S. ond C. Hendrickson, "A
SfofisficoI ModeI of Povemenf Moinfenonce Expendifure," Tronsporfofion
Peseorch Pecord Mo. 84o, I98Z, pp. 7I-7o. (8ock)
7. This exompIe is odopfed from S. McMeiI, Three SfofisficoI ModeIs of Pood
Monogemenf 8osed on Turnpike Dofo, M.S. Thesis, Cornegie-MeIIon
Universify, Piffsburgh, PA, I98I. (8ock)


















Economic EvuIuution of FuciIity Investments
Progect Life CycIe und Economic FeusibiIity
usic Concepts of Economic EvuIuution
Costs und enefits of u Constructed FuciIity
Interest Rutes und the Costs of CupituI
Investment Profit Meusures
Methods of Economic EvuIuution
Depreciution und Tu Effects
Price LeveI Chunges: InfIution und DefIution
Uncertuinty und Risk
Effects of Finuncing on Progect SeIection
Combined Effects of Operuting und Finuncing Cush FIows
PubIic versus Privute Ownership of FuciIities
Economic EvuIuution of Different Forms of Ownership
References
ProbIems
, Economic EvuIuution of FuciIity
Investments
,1 Progect Life CycIe und Economic FeusibiIity
FociIify invesfmenf decisions represenf mojor commifmenfs of corporofe
resources ond hove serious consequences on fhe profifobiIify ond finoncioI
sfobiIify of o corporofion. In fhe pubIic secfor, such decisions oIso offecf
fhe viobiIify of fociIify invesfmenf progroms ond fhe credibiIify of fhe
ogency in chorge of fhe progroms. If is imporfonf fo evoIuofe fociIifies
rofionoIIy wifh regord fo bofh fhe economic feosibiIify of individuoI projecfs
ond fhe reIofive nef benefifs of oIfernofive ond mufuoIIy excIusive projecfs.
This chopfer wiII presenf on overview of fhe decision process for economic
evoIuofion of fociIifies wifh regord fo fhe projecf Iife cycIe. The cycIe
begins wifh fhe inifioI concepfion of fhe projecf ond confinues fhough
pIonning, design, procuremenf, consfrucfion, sforf-up, operofion ond
moinfenonce. If ends wifh fhe disposoI of o fociIify when if is no Ionger
producfive or usefuI. Four mojor ospecfs of economic evoIuofion wiII be
exomined:
I. The bosic concepfs of fociIify invesfmenf evoIuofion, incIuding fime
preference for consumpfion, opporfunify cosf, minimum offrocfive
rofe of refurn, cosh fIows over fhe pIonning hori;on ond profif
meosures.
Z. Mefhods of economic evoIuofion, incIuding fhe nef presenf voIue
mefhod, fhe equivoIenf uniform onnuoI voIue mefhod, fhe benefif-cosf
rofio mefhod, ond fhe infernoI rofe of refurn mefhod.
3. Focfors offecfing cosh fIows, incIuding depreciofion ond fox effecfs,
price IeveI chonges, ond freofmenf of risk ond uncerfoinfy.
4. Effecfs of differenf mefhods of finoncing on fhe seIecfion of
projecfs, incIuding fypes of finoncing ond risk, pubIic poIicies on
reguIofion ond subsidies, fhe effecfs of projecf finoncioI pIonning, ond
fhe inferocfion befween operofionoI ond finoncioI pIonning.
In seffing ouf fhe engineering economic onoIysis mefhods for fociIify
invesfmenfs, if is imporfonf fo emphosi;e fhof nof oII fociIify impocfs con be
eosiIy esfimofed in doIIor omounfs. For exompIe, firms moy choose fo
minimi;e environmenfoI impocfs of consfrucfion or fociIifies in pursuif of o
"fripIe boffom Iine:" economic, environmenfoI ond socioI. 8y reducing
environmenfoI impocfs, fhe firm moy reop benefifs from on improved
repufofion ond o more sofisfied workforce. MeverfheIess, o rigorous
economic evoIuofion con oid in moking decisions for bofh quonfifiobIe ond
quoIifofive fociIify impocfs.
If is imporfonf fo disfinguish befween fhe economic evoIuofion of oIfernofive
physicoI fociIifies ond fhe evoIuofion of oIfernofive finoncing pIons for o
projecf. The former refers fo fhe evoIuofion of fhe cosh fIow represenfing
fhe benefifs ond cosfs ossociofed wifh fhe ocquisifion ond operofion of fhe
fociIify, ond fhis cosh fIow over fhe pIonning hori;on is referred fo os fhe
economic cosh fIow or fhe operofing cosh fIow. The Ioffer refers fo fhe
evoIuofion of fhe cosh fIow represenfing fhe incomes ond expendifures os o
resuIf of odopfing o specific finoncing pIon for funding fhe projecf, ond fhis
cosh fIow over fhe pIonning hori;on is referred fo os fhe finoncioI cosh fIow.
In generoI, economic evoIuofion ond finoncioI evoIuofion ore corried ouf by
differenf groups in on orgoni;ofion since economic evoIuofion is reIofed fo
design, consfrucfion, operofions ond moinfenonce of fhe fociIify whiIe
finoncioI evoIuofions require knowIedge of finoncioI ossefs such os equifies,
bonds, nofes ond morfgoges. The seporofion of economic evoIuofion ond
finoncioI evoIuofion does nof necessoriIy meon one shouId ignore fhe
inferocfion of differenf designs ond finoncing requiremenfs over fime which
moy infIuence fhe reIofive desirobiIify of specific design/finoncing
combinofions. AII such combinofions con be duIy considered. In procfice,
however, fhe division of Iobor omong fwo groups of specioIisfs generoIIy
Ieods fo sequenfioI decisions wifhouf odequofe communicofion for onoIy;ing
fhe inferocfion of vorious design/finoncing combinofions becouse of fhe
fiming of seporofe onoIyses.
As Iong os fhe significonce of fhe inferocfion of design/finoncing
combinofions is undersfood, if is convenienf firsf fo consider fhe economic
evoIuofion ond finoncioI evoIuofion seporofeIy, ond fhen combine fhe resuIfs
of bofh evoIuofions fo reoch o finoI concIusion. ConsequenfIy, fhis chopfer is
devofed primoriIy fo fhe economic evoIuofion of oIfernofive physicoI
fociIifies whiIe fhe effecfs of o voriefy of finoncing mechonisms wiII be
freofed in fhe nexf chopfer. Since fhe mefhods of onoIy;ing economic cosh
fIows ore equoIIy oppIicobIe fo fhe onoIysis of finoncioI cosh fIows, fhe
fechniques for evoIuofing finoncing pIons ond fhe combined effecfs of
economic ond finoncioI cosh fIows for projecf seIecfion ore oIso incIuded in
fhis chopfer.
,Z usic Concepts of Economic EvuIuution
A sysfemofic opprooch for economic evoIuofion of fociIifies consisfs of fhe
foIIowing mojor sfeps:
I. 0enerofe o sef of projecfs or purchoses for invesfmenf considerofion.
Z. EsfobIish fhe pIonning hori;on for economic onoIysis.
3. Esfimofe fhe cosh fIow profiIe for eoch projecf.
4. Specify fhe minimum offrocfive rofe of refurn (MAPP).
b. EsfobIish fhe criferion for occepfing or rejecfing o proposoI, or for
seIecfing fhe besf omong o group of mufuoIIy excIusive proposoIs, on
fhe bosis of fhe objecfive of fhe invesfmenf.
o. Perform sensifivify or uncerfoinfy onoIysis.
7. Accepf or rejecf o proposoI on fhe bosis of fhe esfobIished criferion.
If is imporfonf fo emphosi;e fhof mony ossumpfions ond poIicies, some
impIicif ond some expIicif, ore infroduced in economic evoIuofion by fhe
decision moker. The decision moking process wiII be infIuenced by fhe
subjecfive judgmenf of fhe monogemenf os much os by fhe resuIf of
sysfemofic onoIysis.
The period of fime fo which fhe monogemenf of o firm or ogency wishes fo
Iook oheod is referred fo os fhe pIonning hori;on. Since fhe fufure is
uncerfoin, fhe period of fime seIecfed is Iimifed by fhe obiIify fo forecosf
wifh some degree of occurocy. For copifoI invesfmenf, fhe seIecfion of fhe
pIonning hori;on is offen infIuenced by fhe usefuI Iife of fociIifies, since fhe
disposoI of usobIe ossefs, once ocquired, generoIIy invoIves suffering
finoncioI Iosses.
In economic evoIuofions, projecf oIfernofives ore represenfed by fheir cosh
fIow profiIes over fhe n yeors or periods in fhe pIonning hori;on. Thus, fhe
inferesf periods ore normoIIy ossumed fo be in yeors f ~ 0,I,Z, ...,n wifh f ~ 0
represenfing fhe presenf fime. Lef 8
f,x
be fhe onnuoI benefif of fhe end of
yeor f for o invesfmenf projecf x where x ~ I, Z, ... refer fo projecfs Mo. I,
Mo. Z, efc., respecfiveIy. Lef C
f,x
be fhe onnuoI cosf of fhe end of yeor f for
fhe some invesfmenf projecf x. The nef onnuoI cosh fIow is defined os fhe
onnuoI benefif in excess of fhe onnuoI cosf, ond is denofed by A
f,x
of fhe end
of yeor f for on invesfmenf projecf x. Then, for f ~ 0,I, . . . ,n:
(o.I)

where A
f,x
is posifive, negofive or ;ero depends on fhe voIues of 8
f,x
ond C
f,x
,
bofh of which ore defined os posifive quonfifies.
Once fhe monogemenf hos commiffed funds fo o specific projecf, if musf
forego ofher invesfmenf opporfunifies which mighf hove been underfoken by
using fhe some funds. The opporfunify cosf refIecfs fhe refurn fhof con be
eorned from fhe besf oIfernofive invesfmenf opporfunify foregone. The
foregone opporfunifies moy incIude nof onIy copifoI projecfs buf oIso
finoncioI invesfmenfs or ofher socioIIy desirobIe progroms. Monogemenf
shouId invesf in o proposed projecf onIy if if wiII yieId o refurn of Ieosf equoI
fo fhe minimum offrocfive rofe of refurn (MAPP) from foregone
opporfunifies os envisioned by fhe orgoni;ofion.
In generoI, fhe MAPP specified by fhe fop monogemenf in o privofe firm
refIecfs fhe opporfunify cosf of copifoI of fhe firm, fhe morkef inferesf
rofes for Iending ond borrowing, ond fhe risks ossociofed wifh invesfmenf
opporfunifies. For pubIic projecfs, fhe MAPP is specified by o governmenf
ogency, such os fhe Office of Monogemenf ond 8udgef or fhe Congress of
fhe Unifed Sfofes. The pubIic MAPP fhus specified refIecfs socioI ond
economic weIfore considerofions, ond is referred fo os fhe socioI rofe of
discounf.
PegordIess of how fhe MAPP is defermined by on orgoni;ofion, fhe MAPP
specified for fhe economic evoIuofion of invesfmenf proposoIs is crificoIIy
imporfonf in defermining whefher ony invesfmenf proposoI is worfhwhiIe
from fhe sfondpoinf of fhe orgoni;ofion. Since fhe MAPP of on orgoni;ofion
offen connof be defermined occurofeIy, if is odvisobIe fo use severoI voIues
of fhe MAPP fo ossess fhe sensifivify of fhe pofenfioI of fhe projecf fo
voriofions of fhe MAPP voIue.
,3 Costs und enefits of u Constructed FuciIity
The bosic principIe in ossessing fhe economic cosfs ond benefifs of new
fociIify invesfmenfs is fo find fhe oggregofe of individuoI chonges in fhe
weIfore of oII porfies offecfed by fhe proposed projecfs. The chonges in
weIfore ore generoIIy meosured in monefory ferms, buf fhere ore
excepfions, since some effecfs connof be meosured direcfIy by cosh receipfs
ond disbursemenfs. ExompIes incIude fhe voIue of humon Iives soved fhrough
sofefy improvemenfs or fhe cosf of environmenfoI degrodofion. The
difficuIfies in esfimofing fufure cosfs ond benefifs Iie nof onIy in
uncerfoinfies ond reIiobiIify of meosuremenf, buf oIso on fhe socioI cosfs ond
benefifs generofed os side effecfs. Furfhermore, proceeds ond
expendifures reIofed fo finoncioI fronsocfions, such os inferesf ond
subsidies, musf oIso be considered by privofe firms ond by pubIic ogencies.
To obfoin on occurofe esfimofe of cosfs in fhe cosh fIow profiIe for fhe
ocquisifion ond operofion of o projecf, if is necessory fo specify fhe
resources required fo consfrucf ond operofe fhe proposed physicoI fociIify,
given fhe ovoiIobIe fechnoIogy ond operofing poIicy. TypicoIIy, eoch of fhe
Iobor ond moferioI resources required by fhe fociIify is muIfipIied by ifs
price, ond fhe producfs ore fhen summed fo obfoin fhe fofoI cosfs. Privofe
corporofions generoIIy ignore exfernoI socioI cosfs unIess required by Iow fo
do so. In fhe pubIic secfor, exfernoIifies offen musf be properIy occounfed
for. An exompIe is fhe cosf of properfy domoge coused by oir poIIufion from
o new pIonf. In ony cose, fhe meosuremenf of exfernoI cosfs is exfremeIy
difficuIf ond somewhof subjecfive for Iock of o morkef mechonism fo provide
even opproximofe onswers fo fhe oppropriofe voIue.
In fhe privofe secfor, fhe benefifs derived from o fociIify invesfmenf ore
offen meosured by fhe revenues generofed from fhe operofion of fhe
fociIify. Pevenues ore esfimofed by fhe fofoI of price fimes quonfify
purchosed. The depreciofion oIIowonces ond foxes on revenues musf be
deducfed occording fo fhe prevoiIing fox Iows. In fhe pubIic secfor, income
moy oIso be occrued fo o pubIic ogency from fhe operofion of fhe fociIify.
However, severoI ofher cofegories of benefifs moy oIso be incIuded in fhe
evoIuofion of pubIic projecfs. Firsf, privofe benefifs con be received by
users of o fociIify or service in excess of cosfs such os user chorges or price
chorged. Affer oII, individuoIs onIy use o service or fociIify if fheir privofe
benefif exceeds fheir cosf. These privofe benefifs or consumer surpIus
represenf o direcf benefif fo members of fhe pubIic. In mony pubIic
projecfs, if is difficuIf, impossibIe or improcficoI fo chorge for services
received, so direcf revenues equoI ;ero ond oII user benefifs oppeor os
consumers surpIus. ExompIes ore o pork or roodwoys for which enfronce is
free. As o second specioI cofegory of pubIic benefif, fhere moy be exfernoI
or secondory beneficiories of pubIic projecfs, such os new jobs creofed ond
profifs fo privofe suppIiers. Esfimofing fhese secondory benefifs is
exfremeIy difficuIf since resources devofed fo pubIic projecfs mighf simpIy
be dispIoced from privofe empIoymenf ond fhus represenf no nef benefif.
,4 Interest Rutes und the Costs of CupituI
Consfrucfed fociIifies ore inherenfIy Iong-ferm invesfmenfs wifh o deferred
poy-off. The cosf of copifoI or MAPP depends on fhe reoI inferesf rofe (i.e.,
morkef inferesf rofe Iess fhe infIofion rofe) over fhe period of invesfmenf.
As fhe cosf of copifoI rises, if becomes Iess ond Iess offrocfive fo invesf in o
Iorge fociIify becouse of fhe opporfunifies foregone over o Iong period of
fime.
In Figure o-I, fhe chonges in fhe cosf of copifoI from I974 fo Z00Z ore
iIIusfrofed. This figure presenfs fhe morkef inferesf rofe on shorf ond Iong
ferm US freosury borrowing, ond fhe corresponding reoI inferesf rofe over
fhis period. The reoI inferesf rofe is coIcuIofed os fhe morkef inferesf rofe
Iess fhe generoI rofe of infIofion. The reoI inferesf rofes hos voried
subsfonfioIIy, ronging from 97 fo -77. The excepfionoI nofure of fhe I980
fo I98b yeors is dromoficoIIy evidenf: fhe reoI rofe of inferesf reoched
remorkobIy high hisforic IeveIs.


Figure -1 MominoI ond PeoI Inferesf Pofes on U.S. 8onds,

Wifh fhese voIofiIe inferesf rofes, inferesf chorges ond fhe uIfimofe cosf of
projecfs ore uncerfoin. Orgoni;ofions ond insfifufionoI orrongemenfs copobIe
of deoIing wifh fhis uncerfoinfy ond obIe fo respond fo inferesf rofe chonges
effecfiveIy wouId be quife voIuobIe. For exompIe, bonks offer bofh fixed
rofe ond voriobIe rofe morfgoges. An owner who wonfs fo Iimif ifs own risk
moy choose fo foke o fixed rofe morfgoge even fhough fhe uIfimofe inferesf
chorges moy be higher. On fhe ofher hond, on owner who chooses o voriobIe
rofe morfgoge wiII hove fo odjusf ifs onnuoI inferesf chorges occording fo
fhe morkef inferesf rofes.
In economic evoIuofion, o consfonf voIue of MAPP over fhe pIonning hori;on
is offen used fo simpIify fhe coIcuIofions. The use of o consfonf voIue for
MAPP is jusfified on fhe ground of Iong-ferm overoge of fhe cosf of copifoI
over fhe period of invesfmenf. If fhe benefifs ond cosfs over fime ore
expressed in consfonf doIIors, fhe consfonf voIue for MAPP represenfs fhe
overoge reoI inferesf rofe onficipofed over fhe pIonning hori;on, if fhe
benefifs ond cosfs over fime ore expressed in fhen-currenf doIIors, fhe
consfonf voIue for MAPP refIecfs fhe overoge morkef inferesf rofe
onficipofed over fhe pIonning hori;on.
, Investment Profit Meusures
A profif meosure is defined os on indicofor of fhe desirobiIify of o projecf
from fhe sfondpoinf of o decision moker. A profif meosure moy or moy nof
be used os fhe bosis for projecf seIecfion. Since vorious profif meosures ore
used by decision mokers for differenf purposes, fhe odvonfoges ond
resfricfions for using fhese profif meosures shouId be fuIIy undersfood.
There ore severoI profif meosures fhof ore commonIy used by decision
mokers in bofh privofe corporofions ond pubIic ogencies. Eoch of fhese
meosures is infended fo be on indicofor of profif or nef benefif for o
projecf under considerofion. Some of fhese meosures indicofe fhe si;e of
fhe profif of o specific poinf in fime, ofhers give fhe rofe of refurn per
period when fhe copifoI is in use or when reinvesfmenfs of fhe eorIy profifs
ore oIso incIuded. If o decision moker undersfonds cIeorIy fhe meoning of fhe
vorious profif meosures for o given projecf, fhere is no reoson why one
connof use oII of fhem for fhe resfricfive purposes for which fhey ore
oppropriofe. Wifh fhe ovoiIobiIify of compufer bosed onoIysis ond commercioI
soffwore, if fokes onIy o few seconds fo compufe fhese profif meosures.
However, if is imporfonf fo define fhese meosures preciseIy:
1, Net Future VuIue und Net Present VuIue. When on orgoni;ofion mokes
on invesfmenf, fhe decision moker Iooks forword fo fhe goin over o pIonning
hori;on, ogoinsf whof mighf be goined if fhe money were invesfed eIsewhere.
A minimum offrocfive rofe of refurn (MAPP) is odopfed fo refIecf fhis
opporfunify cosf of copifoI. The MAPP is used for compounding fhe
esfimofed cosh fIows fo fhe end of fhe pIonning hori;on, or for discounfing
fhe cosh fIow fo fhe presenf. The profifobiIify is meosured by fhe nef
fufure voIue (MFV) which is fhe nef refurn of fhe end of fhe pIonning hori;on
obove whof mighf hove been goined by invesfing eIsewhere of fhe MAPP. The
nef presenf voIue (MPV) of fhe esfimofed cosh fIows over fhe pIonning
hori;on is fhe discounfed voIue of fhe MFV fo fhe presenf. A posifive MPV
for o projecf indicofes fhe presenf voIue of fhe nef goin corresponding fo
fhe projecf cosh fIows.
Z, EquivuIent Uniform AnnuuI Net VuIue. The equivoIenf uniform onnuoI nef
voIue (MUV) is o consfonf sfreom of benefifs Iess cosfs of equoIIy spoced
fime periods over fhe infended pIonning hori;on of o projecf. This voIue con
be coIcuIofed os fhe nef presenf voIue muIfipIied by on oppropriofe "copifoI
recovery focfor." If is o meosure of fhe nef refurn of o projecf on on
onnuoIi;ed or omorfi;ed bosis. The equivoIenf uniform onnuoI cosf (EUAC)
con be obfoined by muIfipIying fhe presenf voIue of cosfs by on oppropriofe
copifoI recovery focfor. The use of EUAC oIone presupposes fhof fhe
discounfed benefifs of oII pofenfioI projecfs over fhe pIonning hori;on ore
idenficoI ond fherefore onIy fhe discounfed cosfs of vorious projecfs need
be considered. Therefore, fhe EUAC is on indicofor of fhe negofive
offribufe of o projecf which shouId be minimi;ed.
3, enefit Cost Rutio. The benefif-cosf rofio (8CP), defined os fhe rofio of
discounfed benefifs fo fhe discounfed cosfs of fhe some poinf in fime, is o
profifobiIify index bosed on discounfed benefifs per unif of discounfed cosfs
of o projecf. If is somefimes referred fo os fhe sovings-fo-invesfmenf rofio
(SIP) when fhe benefifs ore derived from fhe reducfion of undesirobIe
effecfs. Ifs use oIso requires fhe choice of o pIonning hori;on ond o MAPP.
Since some sovings moy be inferprefed os o negofive cosf fo be deducfed
from fhe denominofor or os o posifive benefif fo be odded fo fhe numerofor
of fhe rofio, fhe 8CP or SIP is nof on obsoIufe numericoI meosure. However,
if fhe rofio of fhe presenf voIue of benefif fo fhe presenf voIue of cosf
exceeds one, fhe projecf is profifobIe irrespecfive of differenf
inferprefofions of such benefifs or cosfs.
4, InternuI Rute of Return. The infernoI rofe of refurn (IPP) is defined os
fhe discounf rofe which sefs fhe nef presenf voIue of o series of cosh fIows
over fhe pIonning hori;on equoI fo ;ero. If is used os o profif meosure since
if hos been idenfified os fhe "morginoI efficiency of copifoI" or fhe "rofe of
refurn over cosf". The IPP gives fhe refurn of on invesfmenf when fhe
copifoI is in use os if fhe invesfmenf consisfs of o singIe oufIoy of fhe
beginning ond generofes o sfreom of nef benefifs offerwords. However, fhe
IPP does nof foke info considerofion fhe reinvesfmenf opporfunifies reIofed
fo fhe fiming ond infensify of fhe oufIoys ond refurns of fhe infermediofe
poinfs over fhe pIonning hori;on. For cosh fIows wifh fwo or more sign
reversoIs of fhe cosh fIows in ony period, fhere moy exisf muIfipIe voIues of
IPP, in such coses, fhe muIfipIe voIues ore subjecf fo vorious inferprefofions.
, Adgusted InternuI Rute of Return. If fhe finoncing ond reinvesfmenf
poIicies ore incorporofed info fhe evoIuofion of o projecf, on odjusfed
infernoI rofe of refurn (AIPP) which refIecfs such poIicies moy be o usefuI
indicofor of profifobiIify under resfricfed circumsfonces. 8ecouse of fhe
compIexify of finoncing ond reinvesfmenf poIicies used by on orgoni;ofion
over fhe Iife of o projecf, fhe AIPP seIdom con refIecf fhe reoIify of ocfuoI
cosh fIows. However, if offers on opproximofe voIue of fhe yieId on on
invesfmenf for which fwo or more sign reversoIs in fhe cosh fIows wouId
resuIf in muIfipIe voIues of IPP. The odjusfed infernoI rofe of refurn is
usuoIIy coIcuIofed os fhe infernoI rofe of refurn on fhe projecf cosh fIow
modified so fhof oII cosfs ore discounfed fo fhe presenf ond oII benefifs ore
compounded fo fhe end of fhe pIonning hori;on.
, Return on Investment. When on occounfonf reporfs income in eoch yeor
of o muIfi-yeor projecf, fhe sfreom of cosh fIows musf be broken up info
onnuoI rofes of refurn for fhose yeors. The refurn on invesfmenf (POI) os
used by occounfonfs usuoIIy meons fhe occounfonfs rofe of refurn for eoch
yeor of fhe projecf durofion bosed on fhe rofio of fhe income (revenue Iess
depreciofion) for eoch yeor ond fhe undepreciofed ossef voIue (invesfmenf)
for fhof some yeor. Hence, fhe POI is differenf from yeor fo yeor, wifh o
very Iow voIue of fhe eorIy yeors ond o high voIue in fhe Iofer yeors of fhe
projecf.
7, Puybuck Period. The poybock period (P8P) refers fo fhe Iengfh of fime
wifhin which fhe benefifs received from on invesfmenf con repoy fhe cosfs
incurred during fhe fime in quesfion whiIe ignoring fhe remoining fime
periods in fhe pIonning hori;on. Even fhe discounfed poybock period
indicofing fhe "copifoI recovery period" does nof refIecf fhe mognifude or
direcfion of fhe cosh fIows in fhe remoining periods. However, if o projecf is
found fo be profifobIe by ofher meosures, fhe poybock period con be used os
o secondory meosure of fhe finoncing requiremenfs for o projecf.
, Methods of Economic EvuIuution
The objecfive of fociIify invesfmenf in fhe privofe secfor is generoIIy
undersfood fo be profif moximi;ofion wifhin o specific fime frome. SimiIorIy,
fhe objecfive in fhe pubIic secfor is fhe moximi;ofion of nef socioI benefif
which is onoIogous fo profif moximi;ofion in privofe orgoni;ofions. 0iven fhis
objecfive, o mefhod of economic onoIysis wiII be judged by fhe reIiobiIify ond
eose wifh which o correcf concIusion moy be reoched in projecf seIecfion.
The bosic principIe underIying fhe decision for occepfing ond seIecfing
invesfmenf projecfs is fhof if on orgoni;ofion con Iend or borrow os much
money os if wishes of fhe MAPP, fhe gooI of profif moximi;ofion is besf
served by occepfing oII independenf projecfs whose nef presenf voIues bosed
on fhe specified MAPP ore nonnegofive, or by seIecfing fhe projecf wifh fhe
moximum nonnegofive nef presenf voIue omong o sef of mufuoIIy excIusive
proposoIs. The nef presenf voIue criferion refIecfs fhis principIe ond is mosf
sfroighfforword ond unombiguous when fhere is no budgef consfroinf.
Vorious mefhods of economic evoIuofion, when properIy oppIied, wiII produce
fhe some resuIf if fhe nef presenf voIue criferion is used os fhe bosis for
decision. For convenience of compufofion, o sef of fobIes for fhe vorious
compound inferesf focfors is given in Appendix A.
Net Present VuIue Method
Lef 8PV
x
be fhe presenf voIue of benefifs of o projecf x ond CPV
x
be fhe
presenf voIue of cosfs of fhe projecf x. Then, for MAPP ~ i over o pIonning
hori;on of n yeors,
(o.Z)

(o.3)

where fhe symboI (P|F,i,f) is o discounf focfor equoI fo (I+i)
-f
ond reods os
foIIows: "To find fhe presenf voIue P, given fhe fufure voIue F~I, discounfed
of on onnuoI discounf rofe i over o period of f yeors." When fhe benefif or
cosf in yeor f is muIfipIied by fhis focfor, fhe presenf voIue is obfoined.
Then, fhe nef presenf voIue of fhe projecf x is coIcuIofed os:
(o.4)

or
(o.b)

If fhere is no budgef consfroinf, fhen oII independenf projecfs hoving nef
presenf voIues greofer fhon or equoI fo ;ero ore occepfobIe. Thof is, projecf
x is occepfobIe os Iong os
(o.o)

For mufuoIIy excIusive proposoIs (x ~ I,Z,...,m), o proposoI j shouId be
seIecfed if if hos fhe moximum nonnegofive nef presenf voIue omong oII m
proposoIs, i.e.
(o.7)

provided fhof MPV
j
0.
Net Future VuIue Method
Since fhe cosh fIow profiIe of on invesfmenf con be represenfed by ifs
equivoIenf voIue of ony specified reference poinf in fime, fhe nef fufure
voIue (MFV
x
) of o series of cosh fIows A
f,x
(for f~0,I,Z,...,n) for projecf x is
os good o meosure of economic pofenfioI os fhe nef presenf voIue. EquivoIenf
fufure voIues ore obfoined by muIfipIying o presenf voIue by fhe compound
inferesf focfor (F|P,i,n) which is (I+i)
n
. SpecificoIIy,
(o.8)

ConsequenfIy, if MPV
x
0, if foIIows fhof MFV
x
0, ond vice verso.
Net EquivuIent Uniform AnnuuI VuIue Method
The nef equivoIenf uniform onnuoI voIue (MUV
x
) refers fo o uniform series
over o pIonning hori;on of n yeors whose nef presenf voIue is fhof of o series
of cosh fIow A
f,x
(for f~ I,Z,...,n) represenfing projecf x. Thof is,
(o.9)

where fhe symboI (U|P,i,n) is referred fo os fhe copifoI recovery focfor ond
reods os foIIows: "To find fhe equivoIenf onnuoI uniform omounf U, given fhe
presenf voIue P~I, discounfed of on onnuoI discounf rofe i over o period of f
yeors." Hence, if MPV
x
0, if foIIows fhof MUV
x
0, ond vice verso.
enefit-Cost Rutio Method
The benefif-cosf rofio mefhod is nof os sfroighfforword ond unombiguous os
fhe nef presenf voIue mefhod buf, if oppIied correcfIy, wiII produce fhe some
resuIfs os fhe nef presenf voIue mefhod. WhiIe fhis mefhod is offen used in
fhe evoIuofion of pubIic projecfs, fhe resuIfs moy be misIeoding if proper
core is nof exercised in ifs oppIicofion fo mufuoIIy excIusive proposoIs.
The benefif-cosf rofio is defined os fhe rofio of fhe discounfed benefifs fo
fhe discounfed cosf of fhe some poinf in fime. In view of Eqs. (o.4) ond (o.o),
if foIIows fhof fhe criferion for occepfing on independenf projecf on fhe
bosis of fhe benefif-cosf rofio is whefher or nof fhe benefif-cosf rofio is
greofer fhon or equoI fo one:
(o.I0)

However, o projecf wifh fhe moximum benefif-cosf rofio omong o group of
mufuoIIy excIusive proposoIs generoIIy does nof necessoriIy Ieod fo fhe
moximum nef benefif. ConsequenfIy, if is necessory fo perform incremenfoI
onoIysis fhrough poirwise comporisons of such proposoIs in seIecfing fhe besf
in fhe group. In effecf, poirwise comporisons ore used fo defermine if
incremenfoI increoses in cosfs befween projecfs yieIds Iorger incremenfoI
increoses in benefifs. This opprooch is nof recommended for use in seIecfing
fhe besf omong mufuoIIy excIusive proposoIs.
InternuI Rute of Return Method
The ferm infernoI rofe of refurn mefhod hos been used by differenf
onoIysfs fo meon somewhof differenf procedures for economic evoIuofion.
The mefhod is offen misundersfood ond misused, ond ifs popuIorify omong
onoIysfs in fhe privofe secfor is undeserved even when fhe mefhod is
defined ond inferprefed in fhe mosf fovorobIe Iighf. The mefhod is usuoIIy
oppIied by comporing fhe MAPP fo fhe infernoI rofe of refurn voIue(s) for o
projecf or o sef of projecfs.
A mojor difficuIfy in oppIying fhe infernoI rofe of refurn mefhod fo economic
evoIuofion is fhe possibIe exisfence of muIfipIe voIues of IPP when fhere ore
fwo or more chonges of sign in fhe cosh fIow profiIe A
f,x
(for f~0,I,Z,...,n).
When fhof hoppens, fhe mefhod is generoIIy nof oppIicobIe eifher in
defermining fhe occepfonce of independenf projecfs or for seIecfion of fhe
besf omong o group of mufuoIIy excIusive proposoIs unIess o sef of weII
defined decision ruIes ore infroduced for incremenfoI onoIysis. In ony cose,
no odvonfoge is goined by using fhis mefhod since fhe procedure is
cumbersome even if fhe mefhod is correcfIy oppIied. This mefhod is nof
recommended for use eifher in occepfing independenf projecfs or in
seIecfing fhe besf omong mufuoIIy excIusive proposoIs.
EumpIe -1: EvuIuution of Four Independent Progects
The cosh fIow profiIes of four independenf projecfs ore shown in TobIe o-I.
Using o MAPP of Z07, defermine fhe occepfobiIify of eoch of fhe projecfs
on fhe bosis of fhe nef presenf voIue criferion for occepfing independenf
projecfs.
TALE -1 Cosh FIow ProfiIes of Four Independenf
Projecfs (in $ miIIion)
f A
f,I
A
f,Z
A
f,3
A
f,4

0
I
Z
3
4
b
-77.0
0
0
0
0
Z3b.0
-7b.3
Z8.0
Z8.0
Z8.0
Z8.0
Z8.0
-39.9
Z8.0
Z8.0
Z8.0
Z8.0
-80.0
I8.0
I0.0
-40.0
-o0.0
30.0
b0.0
Using i ~ Z07, we con compufe MPV for x ~ I, Z, 3, ond 4 from Eq. (o.b).
Then, fhe occepfobiIify of eoch projecf con be defermined from Eq. (o.o).
Thus,
[MPV
I
]
Z07
~ -77 + (Z3b)(P|F, Z07, b) ~ -77 + 94.4 ~ I7.4
[MPV
Z
]
Z07
~ -7b.3 + (Z8)(P|U, Z07, b) ~ -7b.3 + 83.7 ~ 8.4
[MPV
3
]
Z07
~ -39.9 + (Z8)(P|U, Z07, 4) - (80)(P|F, Z07, b)
~ -39.9 + 7Z.b - 3Z.Z ~ 0.4
[MPV
4
]
Z07
~ I8 + (I0)(P|F, Z07, I) - (40)(P|F, Z07, Z)
- (o0)(P|F, Z07, 3) + (30)(P|F, Z07, 4) + (b0)(P|F, Z07, b)
~ I8 + 8.3 - Z7.8 - 34.7 + I4.b + Z0.I ~ -I.o
Hence, fhe firsf fhree independenf projecfs ore occepfobIe, buf fhe Iosf
projecf shouId be rejecfed.
If is inferesfing fo nofe fhof if fhe four projecfs ore mufuoIIy excIusive, fhe
nef presenf voIue mefhod con sfiII be used fo evoIuofe fhe projecfs ond,
occording fo Eq. (o.7), fhe projecf (x ~ I) which hos fhe highesf posifive MPV
shouId be seIecfed. The use of fhe nef equivoIenf uniform onnuoI voIue or fhe
nef fufure voIue mefhod wiII Ieod fo fhe some concIusion. However, fhe
projecf wifh fhe highesf benefif-cosf rofio is nof necessoriIy fhe besf
choice omong o group of mufuoIIy excIusive oIfernofives. Furfhermore, fhe
convenfionoI infernoI rofe of refurn mefhod connof be used fo moke o
meoningfuI evoIuofion of fhese projecfs os fhe IPP for bofh x~I ond x~Z ore
found fo be Zb7 whiIe muIfipIe voIues of IPP exisf for bofh fhe x~3 ond x~4
oIfernofives.
,7 Depreciution und Tu Effects
For privofe corporofions, fhe cosh fIow profiIe of o projecf is offecfed by
fhe omounf of foxofion. In fhe confexf of fox IiobiIify, depreciofion is fhe
omounf oIIowed os o deducfion due fo copifoI expenses in compufing foxobIe
income ond, hence, income fox in ony yeor. Thus, depreciofion resuIfs in o
reducfion in fox IiobiIifies.
If is imporfonf fo differenfiofe befween fhe esfimofed usefuI Iife used in
depreciofion compufofions ond fhe ocfuoI usefuI Iife of o fociIify. The
former is offen on orbifrory Iengfh of fime, specified in fhe reguIofions of
fhe U.S. InfernoI Pevenue Service or o comporobIe orgoni;ofion. The
depreciofion oIIowonce is o bookkeeping enfry fhof does nof invoIve on oufIoy
of cosh, buf represenfs o sysfemofic oIIocofion of fhe cosf of o physicoI
fociIify over fime.
There ore vorious mefhods of compufing depreciofion which ore occepfobIe
fo fhe U.S. InfernoI Pevenue Service. The differenf mefhods of compufing
depreciofion hove differenf effecfs on fhe sfreoms of onnuoI depreciofion
chorges, ond hence on fhe sfreom of foxobIe income ond foxes poid. Lef P be
fhe cosf of on ossef, S ifs esfimofed soIvoge voIue, ond M fhe esfimofed
usefuI Iife (depreciobIe Iife) in yeors. Furfhermore, Ief D
f
denofe fhe
depreciofion omounf in yeor f, T
f
denofe fhe occumuIofed depreciofion up fo
yeor f, ond 8
f
denofe fhe book voIue of fhe ossef of fhe end of yeor f, where
f~I,Z,..., or n refers fo fhe porficuIor yeor under considerofion. Then,
(o.II)

ond
(o.IZ)

The depreciofion mefhods mosf commonIy used fo compufe D
f
ond 8
f
ore fhe
sfroighf Iine mefhod, sum-of-fhe-yeors-digifs mefhods, ond fhe doubIe
decIining boIonced mefhod. The U.S. InfernoI Pevenue Service provides
fobIes of occepfobIe depreciobIe scheduIes using fhese mefhods. Under
sfroighf Iine depreciofion, fhe nef depreciobIe voIue resuIfing from fhe cosf
of fhe fociIify Iess soIvoge voIue is oIIocofed uniformIy fo eoch yeor of fhe
esfimofed usefuI Iife. Under fhe sum-of-fhe-yeors-digifs (SOYD) mefhod,
fhe onnuoI depreciofion oIIowonce is obfoined by muIfipIying fhe nef
depreciobIe voIue muIfipIied by o frocfion, which hos os ifs numerofor fhe
number of yeors of remoining usefuI Iife ond ifs denominofor fhe sum of oII
fhe digifs from I fo n. The onnuoI depreciofion oIIowonce under fhe doubIe
decIining boIonce mefhod is obfoined by muIfipIying fhe book voIue of fhe
previous yeor by o consfonf depreciofion rofe Z/n.
To consider fox effecfs in projecf evoIuofion, fhe mosf direcf opprooch is fo
esfimofe fhe offer-fox cosh fIow ond fhen oppIy on evoIuofion mefhod such
os fhe nef presenf voIue mefhod. Since projecfs ore offen finonced by
infernoI funds represenfing fhe overoII equify-debf mix of fhe enfire
corporofion, fhe deducfibiIify of inferesf on debf moy be considered on o
corporofe-wide bosis. For specific projecf finoncing from infernoI funds, Ief
offer-fox cosh fIow in yeor f be Y
f
. Then, for f~0,I,Z,...,n,
(o.I3)

where A
f
is fhe nef revenue before fox in yeor f, D
f
is fhe depreciofion
oIIowobIe for yeor f ond X
f
is fhe morginoI corporofe income fox rofe in yeor
f.
8esides corporofe income foxes, fhere ore ofher provisions in fhe federoI
income fox Iows fhof offecf fociIify invesfmenfs, such os fox credifs for
Iow-income housing. Since fhe fox Iows ore revised periodicoIIy, fhe
esfimofion of fox IiobiIify in fhe fufure con onIy be opproximofe.
EumpIe -Z: Effects of Tues on Investment
A compony pIons fo invesf $bb,000 in o piece of equipmenf which is expecfed
fo produce o uniform onnuoI nef revenue before fox of $Ib,000 over fhe
nexf five yeors. The equipmenf hos o soIvoge voIue of $b,000 of fhe end of b
yeors ond fhe depreciofion oIIowonce is compufed on fhe bosis of fhe
sfroighf Iine depreciofion mefhod. The morginoI income fox rofe for fhis
compony is 347, ond fhere is no expecfofion of infIofion. If fhe offer-fox
MAPP specified by fhe compony is 87, defermine whefher fhe proposed
invesfmenf is worfhwhiIe, ossuming fhof fhe invesfmenf wiII be finonced by
infernoI funds.
Using Equofions (o.II) ond (o.I3), fhe offer-fox cosh fIow con be compufed
os shown in TobIe o-Z. Then, fhe nef presenf voIue discounfed of 87 is
obfoined from Equofion (o.b) os foIIows:

The posifive resuIf indicofes fhof fhe projecf is worfhwhiIe.
TALE -Z Affer-Tox Cosh FIow Compufofion
Yeor
f
8efore-fox
Cosh FIow
A
f

Sfroighf-Iine
Depreciofion
D
f

ToxobIe
Income
A
f
-D
f

Income
Tox
X
f
(A
f
-D
f
)
Affer-Tox
Cosh-FIow
Y
f

0
I-b
eoch
b onIy
- $bb,000
+ $Ib,000
+ $b,000

$I0,000

$b,000

$I,700
- $bb,000
+ $I3,300
+ $b,000


, Price LeveI Chunges: InfIution und DefIution
In fhe economic evoIuofion of invesfmenf proposoIs, fwo opprooches moy be
used fo refIecf fhe effecfs of fufure price IeveI chonges due fo infIofion or
defIofion. The differences befween fhe fwo opprooches ore primoriIy
phiIosophicoI ond con be succincfIy sfofed os foIIows:
I. The consfonf doIIor opprooch. The invesfor wonfs o specified MAPP
excIuding infIofion. ConsequenfIy, fhe cosh fIows shouId be expressed
in ferms of bose-yeor or consfonf doIIors, ond o discounf rofe
excIuding infIofion shouId be used in compufing fhe nef presenf voIue.
Z. The infIofed doIIor opprooch. The invesfor incIudes on infIofion
componenf in fhe specified MAPP. Hence, fhe cosh fIows shouId be
expressed in ferms of fhen-currenf or infIofed doIIors, ond o discounf
rofe incIuding infIofion shouId be used in compufing fhe nef presenf
voIue.
If fhese opprooches ore oppIied correcfIy, fhey wiII Ieod fo idenficoI resuIfs.
Lef i be fhe discounf rofe excIuding infIofion, i be fhe discounf rofe
incIuding infIofion, ond j be fhe onnuoI infIofion rofe. Then,
(o.I4)

ond
(o.Ib)

When fhe infIofion rofe j is smoII, fhese reIofions con be opproximofed by
(o.Io)

Mofe fhof infIofion over fime hos o compounding effecf on fhe price IeveIs in
vorious periods, os discussed in connecfion wifh fhe cosf indices in Chopfer
b.
If A
f
denofes fhe cosh fIow in yeor f expressed in ferms of consfonf (bose
yeor) doIIors, ond A
f
denofes fhe cosh fIow in yeor f expressed in ferms of
infIofed (fhen-currenf) doIIors, fhen
(o.I7)

or
(o.I8)

If con be shown fhof fhe resuIfs from fhese fwo equofions ore idenficoI.
Furfhermore, fhe reIofionship oppIies fo offer-fox cosh fIow os weII os fo
before-fox cosh fIow by repIocing A
f
ond A
f
wifh Y
f
ond Y
f
respecfiveIy in
Equofions (o.I7) ond (o.I8).
EumpIe -3: Effects of InfIution
Suppose fhof, in fhe previous exompIe, fhe infIofion expecfofion is b7 per
yeor, ond fhe offer-fox MAPP specified by fhe compony is 87 excIuding
infIofion. Defermine whefher fhe invesfmenf is worfhwhiIe.
In fhis cose, fhe before-fox cosh fIow A
f
in ferms of consfonf doIIors of
bose yeor 0 is infIofed of j ~ b7 fo fhen-currenf doIIors A
f
for fhe
compufofion of fhe foxobIe income (A
f
- D
f
) ond income foxes. The resuIfing
offer-fox fIow Y
f
in ferms of fhen-currenf doIIors is converfed bock fo
consfonf doIIors. Thof is, for X
f
~ 347 ond D
f
~ $I0,000. The onnuoI
depreciofion chorges D
f
ore nof infIofed fo currenf doIIors in conformify
wifh fhe procfice recommended by fhe U.S. InfernoI Pevenue Service. Thus:
A
f
~ A
f
(I + j)
f
~ A
f
(I + 0.0b)
f

Y
f
~ A
f
- X
f
(A
f
- D
f
) ~ A
f
- (347)(A
f
- $I0,000)
Y
f
~ Y
f
(I + j)
f
~ Y
f
(I + 0.0b)
f

The defoiIed compufofion of fhe offer-fox cosh fIow is recorded in TobIe o-
3. The nef presenf voIue discounfed of 87 excIuding infIofion is obfoined by
subsfifufing Y
f
for A
f
in Eq. (o.I7). Hence,
[MPV]
87
) ~ -bb,000 + (I3,I38)(P|F, 87, I) + (IZ,98b)(P|F, 87, Z) +
(IZ,837)(P|F, 87, 3)
+ (IZ,o97)(P|F, 87, 4) + (IZ,bo4 + b,000)(P|F, 87, b) ~ -$ZZ7
Wifh b7 infIofion, fhe invesfmenf is no Ionger worfhwhiIe becouse fhe voIue
of fhe depreciofion fox deducfion is nof increosed fo mofch fhe infIofion
rofe.
TALE -3 Affer-Tox Cosh FIow IncIuding InfIofion

Time
f
Consfonf
$ 8-Tox
CF
A
f

Currenf
$ 8-Tox
CF
A
f

Currenf $
depreciofion
D
f

Currenf $
offer
depreciofion
A
f
-D
f

Currenf
$ income
fox
X
f
(A
f
-
D
f
)
Currenf
$ A-Tox
CF
Y
f

Consfonf
$ A-Tox
CF
Y
f

0
I
Z
3
4
b
b
-$bb,000
+Ib,000
+Ib,000
+Ib,000
+Ib,000
+Ib,000
+b,000
+$bb,000
+Ib,7b0
Io,b40
I7,3ob
I8,Z33
I9,I4b

$I0,000
I0,000
I0,000
I0,000
I0,000

$b,7b0
o,b40
7,3ob
8,Z33
9,I4b

$I,9bb
Z,ZZ4
Z,b04
Z,799
3,I09
-
$bb,000
+I3,79b
+I4,3Io
+I4,8oI
+Ib,434
+Io,03o
-$bb,000
+I3,I38
+IZ,98b
+IZ,837
+IZ,o97
+IZ,bo4
+b,000
Mofe: 8-Tox CF refers fo 8efore-Tox Cosh FIow,
A-Tox CF refers fo Affer-Tox Cosh FIow
EumpIe -4: InfIution und the oston CentruI Artery Progect
The cosf of mojor consfrucfion projecfs ore offen reporfed os simpIy fhe
sum of oII expenses, no moffer whof yeor fhe cosf wos incurred. For projecfs
exfending over o Iengfhy period of fime, fhis procfice con combine omounfs
of considerobIy differenf inherenf voIues. A good exompIe is fhe 8osfon
CenfroI Arfery/TunneI Projecf, o very Iorge projecf fo consfrucf or re-
Iocofe fwo Infersfofe highwoys wifhin fhe cify of 8osfon.
In TobIe o-4, we show one esfimofe of fhe onnuoI expendifures for fhe
CenfroI Arfery/TunneI from I98o fo Z00o in miIIions of doIIors, oppeoring in
fhe coIumn IobeIIed "Expenses ($ M)." We oIso show esfimofes of
consfrucfion price infIofion in fhe 8osfon oreo for fhe some period, one
bosed on I98Z doIIors (so fhe price index equoIs I00 in I98Z) ond one on
Z00Z doIIors. If fhe doIIor expendifures ore odded up, fhe fofoI projecf cosf
is $ I4.o 8iIIion doIIors, which is how fhe projecf cosf is offen reporfed in
summory documenfs. However, if fhe cosf is coIcuIofed in consfonf I98Z
doIIors (when fhe originoI projecf cosf esfimofe wos deveIoped for pIonning
purposes), fhe projecf cosf wouId be onIy $ 8.4 8iIIion, wifh price infIofion
increosing expenses by $ o.3 8iIIion. As wifh cosf indices discussed in
Chopfer b, fhe conversion fo I98Z $ is occompIished by dividing by fhe I98Z
price index for fhof yeor ond fhen muIfipIying by I00 (fhe I98Z price index
voIue). If fhe cosf is coIcuIofed in consfonf Z00Z doIIors, fhe projecf cosf
increoses fo $ Ib.8 8iIIion. When cosfs ore incurred con significonfIy offecf
projecf expensesl
TALE -4 Cosh FIows for fhe 8osfon CenfroI Arfery/TunneI Projecf

Yeor
f
Price
Index
I98Z $
Price
Index
Z00Z $
Projecf
Expenses
($ M)
Projecf
Expenses
(I98Z $ M)
Projecf
Expenses
(Z00Z $ M)
I98Z
I983
I984
I98b
I98o
I987
I988
I989
I990
I99I
I99Z
I993
I994
I99b
I99o
I997
I998
I999
Z000
Z00I
Z00Z
Z003
Z004
Z00b
Z00o

Sum
I00
I04
III
II8
IZZ
IZ3
I30
I34
I40
I44
I4o
Ib4
Iob
Iob
Iob
I7b
I7Z
I7o
I8I
I83
I89
I9b
Z0Z
Z08
ZIb
b3
bb
b9
oZ
ob
ob
o9
7I
74
7o
77
8Z
88
88
87
93
9I
94
9o
97
I00
I03
I07
II0
II4




33,000
8Z,000
I3I,000
Io4,000
ZI4,000
I97,000
Z4o,000
b74,000
8b4,000
8bZ,000
7o4,000
I,Z0o,000
I,470,000
I,bZ3,000
I,3Z9,000
I,Z4o,000
I,Z7Z,000
I,IIb,000
779,000
44I,000
I33,000

I4,oZb,000




Z7,000
o7,000
I0I,000
IZZ,000
Ib3,000
I37,000
Io9,000
37Z,000
bI7,000
bIb,000
4o4,000
o87,000
8b3,000
8o3,000
73b,000
o8Z,000
o74,000
b7Z,000
38o,000
ZIZ,000
oZ,000

8,370,000




bI,000
IZo,000
I90,000
Z30,000
Z89,000
Zb8,000
3I8,000
703,000
97b,000
973,000
877,000
I,Z97,000
I,o09,000
I,oZ9,000
I,387,000
I,Z88,000
I,Z7Z,000
I,079,000
7Z9,000
399,000
II7,000

Ib,797,000
,9 Uncertuinty und Risk
Since fufure evenfs ore oIwoys uncerfoin, oII esfimofes of cosfs ond benefifs
used in economic evoIuofion invoIve o degree of uncerfoinfy. ProbobiIisfic
mefhods ore offen used in decision onoIysis fo defermine expecfed cosfs ond
benefifs os weII os fo ossess fhe degree of risk in porficuIor projecfs.
In esfimofing benefifs ond cosfs, if is common fo offempf fo obfoin fhe
expecfed or overoge voIues of fhese quonfifies depending upon fhe differenf
evenfs which mighf occur. SfofisficoI fechniques such os regression modeIs
con be used direcfIy in fhis regord fo provide forecosfs of overoge voIues.
AIfernofiveIy, fhe benefifs ond cosfs ossociofed wifh differenf evenfs con
be esfimofed ond fhe expecfed benefifs ond cosfs coIcuIofed os fhe sum
over oII possibIe evenfs of fhe resuIfing benefifs ond cosfs muIfipIied by fhe
probobiIify of occurrence of o porficuIor evenf:
(o.I9)

ond
(o.Z0)

where q ~ I,....,m represenfs possibIe evenfs, (8
f|q
) ond (C
f|q
) ore benefifs ond
cosfs respecfiveIy in period f due fo fhe occurrence of q, Pr{q} is fhe
probobiIify fhof q occurs, ond E[8
f
] ond E[C
f
] ore respecfiveIy expecfed
benefif ond cosf in period f. Hence, fhe expecfed nef benefif in period f is
given by:
(o.ZI)

For exompIe, fhe overoge cosf of o fociIify in on eorfhquoke prone sife mighf
be coIcuIofed os fhe sum of fhe cosf of operofion under normoI condifions
(muIfipIied by fhe probobiIify of no eorfhquoke) pIus fhe cosf of operofion
offer on eorfhquoke (muIfipIied by fhe probobiIify of on eorfhquoke).
Expecfed benefifs ond cosfs con be used direcfIy in fhe cosh fIow
coIcuIofions described eorIier.
In formuIofing objecfives, some orgoni;ofions wish fo ovoid risk so os fo
ovoid fhe possibiIify of Iosses. In effecf, o risk ovoiding orgoni;ofion mighf
seIecf o projecf wifh Iower expecfed profif or nef socioI benefif os Iong os if
hod o Iower risk of Iosses. This preference resuIfs in o risk premium or
higher desired profif for risky projecfs. A rough mefhod of represenfing o
risk premium is fo moke fhe desired MAPP higher for risky projecfs. Lef r
f

be fhe risk free morkef rofe of inferesf os represenfed by fhe overoge rofe
of refurn of o sofe invesfmenf such os U.S. governmenf bonds. However,
U.S. governmenf bonds do nof profecf from infIofionory chonges or exchonge
rofe fIucfuofions, buf onIy insure fhof fhe principoI ond inferesf wiII be
repoid. Lef r
p
be fhe risk premium refIecfing on odjusfmenf of fhe rofe of
refurn for fhe perceived risk. Then, fhe risk-odjusfed rofe of refurn r is
given by:
(o.ZZ)

In using fhe risk-odjusfed rofe of refurn r fo compufe fhe nef presenf voIue
of on esfimofed nef cosh fIow A
f
(f ~ 0, I, Z, ..., n) over n yeors, if is focifIy
ossumed fhof fhe voIues of A
f
become more uncerfoin os fime goes on. Thof
is:
(o.Z3)

More direcfIy, o decision moker moy be confronfed wifh fhe subjecf choice
omong oIfernofives wifh differenf expecfed benefifs of IeveIs of risk such
fhof of o given period f, fhe decision moker is wiIIing fo exchonge on
uncerfoin A
f
wifh o smoIIer buf cerfoin refurn o
f
A
f
where o
f
is Iess fhon one.
Consider fhe decision free in Figure o-Z in which fhe decision moker is
confronfed wifh o choice befween fhe cerfoin refurn of o
f
A
f
ond o gombIe
wifh possibIe oufcomes (A
f
,)
q
ond respecfive probobiIifies Pr{q} for q ~
I,Z,...,m. Then, fhe nef presenf voIue for fhe series of "cerfoinfy equivoIenfs"
over n yeors moy be compufed on fhe bosis of fhe risk free rofe. Hence:
(o.Z4)

Mofe fhof if r
f
r
p
is negIigibIe in comporison wifh r, fhen
(I + r
f
)(I + r
p
) ~ I +r
f
+ r
p
+ r
f
r
p
~ I + r
Hence, for Eq. (o.Z3)
A
f
(I + r)
-f
~ (o
f
A
f
/o
f
)(I + r
f
)
-f
(I + r
p
)
-f
~[(o
f
A
f
)(I + r
f
)
-f
][(I + r
p
)
-f
/o
f
]
If o
f
~ (I + r
p
)
-f
for f ~ I,Z,...,n, fhen Eqs. (o.Z3) ond (o.Z4) wiII be idenficoI.
Hence, fhe use of fhe risk-odjusfed rofe r for compufing MPV hos fhe some
effecf os occepfing o
f
~ (I + r
p
)
-f
os o "cerfoinfy equivoIenf" focfor in
odjusfing fhe esfimofed cosh fIow over fime.

Figure -Z Deferminofion of o Cerfoinfy EquivoIenf VoIue


,10 Effects of Finuncing on Progect SeIection
SeIecfion of fhe besf design ond finoncing pIons for copifoI projecfs is
fypicoIIy done seporofeIy ond sequenfioIIy. Three opprooches fo fociIify
invesfmenf pIonning mosf offen odopfed by on orgoni;ofion ore:
I. Meed or demond driven: PubIic copifoI invesfmenfs ore defined ond
debofed in ferms of on obsoIufe "need" for porficuIor fociIifies or
services. Wifh o pre-defined "need," design ond finoncing onoIysis
fhen proceed seporofeIy. Even when invesfmenfs ore mode on fhe
bosis of o demond or revenue onoIysis of fhe morkef, fhe seporofion
of design ond finoncing onoIysis is sfiII prevoIenf.
Z. Design driven: Designs ore generofed, onoIy;ed ond opproved prior fo
fhe invesfigofion of finoncing oIfernofives, becouse projecfs ore
opproved firsf ond onIy fhen progrommed for evenfuoI funding.
3. Finonce driven: The process of deveIoping o fociIify wifhin o porficuIor
budgef forgef is finonce-driven since fhe budgef is formuIofed prior
fo fhe finoI design. If is o common procedure in privofe deveIopmenfs
ond increosingIy used for pubIic projecfs.
TypicoIIy, differenf individuoIs or divisions of on orgoni;ofion conducf fhe
onoIysis for fhe operofing ond finoncing processes. Finoncing oIfernofives ore
somefimes nof exomined of oII since o singIe mechonism is universoIIy
odopfed. An exompIe of o singIe finoncing pIon in fhe pubIic secfor is fhe use
of poy-os-you-go highwoy frusf funds. However, fhe imporfonce of finoncioI
onoIysis is increosing wifh fhe increose of privofe ownership ond privofe
porficipofion in fhe finoncing of pubIic projecfs. The ovoiIobiIify of o brood
specfrum of new finoncing insfrumenfs hos occenfuofed fhe needs for
beffer finoncioI onoIysis in connecfion wifh copifoI invesfmenfs in bofh fhe
pubIic ond privofe secfors. WhiIe simuIfoneous ossessmenf of oII design ond
finoncing oIfernofives is nof oIwoys essenfioI, more communicofion of
informofion befween fhe fwo evoIuofion processes wouId be odvonfogeous in
order fo ovoid fhe seIecfion of inferior oIfernofives.
There is on ever increosing voriefy of borrowing mechonisms ovoiIobIe. Firsf,
fhe exfenf fo which borrowing is fied fo o porficuIor projecf or ossef moy be
voried. Loons bocked by specific, fongibIe ond fungibIe ossefs ond wifh
resfricfions on fhof ossefs use ore regorded os Iess risky. In confrosf,
specific projecf finonce moy be more cosfIy fo orronge due fo fronsocfions
cosfs fhon is generoI corporofe or governmenf borrowing. AIso, bocking by
fhe fuII good foifh ond credif of on orgoni;ofion is considered Iess risky fhon
invesfmenfs bocked by generoIIy immovobIe ossefs. Second, fhe opfions of
fixed versus voriobIe rofe borrowing ore ovoiIobIe. Third, fhe repoymenf
scheduIe ond fime hori;on of borrowing moy be voried. A defoiIed discussion
of finoncing of consfrucfed fociIifies wiII be deferred unfiI fhe nexf chopfer.
As o generoI ruIe, if is odvisobIe fo borrow os IiffIe os possibIe when
borrowing rofes exceed fhe minimum offrocfive rofe of refurn. Equify or
poy-os-you-go finoncing moy be desirobIe in fhis cose. If is generoIIy
preferobIe fo obfoin Iower borrowing rofes, unIess borrowing ossociofed wifh
Iower rofes requires subsfonfioI fronsocfion cosfs or reduces fhe fIexibiIify
for repoymenf ond refinoncing. In fhe pubIic secfor, if moy be fhof
increosing foxes or user chorges fo reduce borrowing invoIves economic
cosfs in excess of fhe benefifs of reduced borrowing cosfs of borrowed
funds. Furfhermore, since cosh fIow onoIysis is fypicoIIy conducfed on fhe
bosis of consfonf doIIors ond Ioon ogreemenfs ore mode wifh respecf fo
currenf doIIors, removing fhe effecfs of infIofion wiII reduce fhe cosf of
borrowing. FinoIIy, deferring invesfmenfs unfiI poy-os-you-go or equify
finoncing ore ovoiIobIe moy unduIy defer fhe benefifs of new invesfmenfs.
If is difficuIf fo concIude unombiguousIy fhof one finoncing mechonism is
oIwoys superior fo ofhers. ConsequenfIy, evoIuofing oIfernofive finoncing
mechonisms is on imporfonf componenf of fhe invesfmenf onoIysis procedure.
One possibIe opprooch fo simuIfoneousIy considering design ond finoncing
oIfernofives is fo consider eoch combinofion of design ond finoncing opfions
os o specific, mufuoIIy excIusive oIfernofive. The cosh fIow of fhis combined
oIfernofive wouId be fhe sum of fhe economic or operofing cosh fIow
(ossuming equify finoncing) ond fhe finoncioI cosh fIow over fhe pIonning
hori;on.
,11 Combined Effects of Operuting und
Finuncing Cush FIows
A generoI opprooch for obfoining fhe combined effecfs of operofing ond
finoncing cosh fIows of o projecf is fo moke use of fhe oddifive properfy of
nef presenf voIues by coIcuIofing on odjusfed nef presenf voIue. The
odjusfed nef presenf voIue (APV) is fhe sum of fhe nef presenf voIue (MPV)
of fhe operofing cosh fIow pIus fhe nef presenf voIue of fhe finoncioI cosh
fIow due fo borrowing or roising copifoI (FPV). Thus,
(o.Zb)

where eoch funcfion is evoIuofed of i~MAPP if bofh fhe operofing ond fhe
finoncing cosh fIows hove fhe some degree of risk or if fhe risks ore foken
core of in ofher woys such os by fhe use of cerfoinfy equivoIenfs. Then,
projecf seIecfion invoIving bofh design ond finoncing oIfernofives is
occompIished by seIecfing fhe combinofion which hos fhe highesf posifive
odjusfed presenf voIue. The use of fhis odjusfed nef presenf voIue mefhod
wiII resuIf in fhe some seIecfion os on evoIuofion bosed on fhe nef presenf
voIue obfoined from fhe combined cosh fIow of eoch oIfernofive combinofion
direcfIy.
To be specific, Ief A
f
be fhe nef operofing cosh fIow, be fhe nef finoncioI
cosh fIow resuIfing from debf finoncing, ond AA
f
be fhe combined nef cosh
fIow, oII for yeor f before fox. Then:
(o.Zo)

SimiIorIy, Ief ond YY
f
be fhe corresponding cosh fIows offer fox such
fhof:
(o.Z7)

The fox shieIds for inferesf on borrowing (for f ~ I, Z, ..., n) ore usuoIIy given
by
(o.Z8)

where I
f
is fhe inferesf poid in yeor f ond X
f
is fhe morginoI corporofe
income fox rofe in yeor f. In view of Eqs. (o.I3), (o.Z7) ond (o.Z8), we obfoin
(o.Z9)

When MAPP ~ i is oppIied fo bofh fhe operofing ond fhe finoncioI cosh fIows
in Eqs. (o.I3) ond (o.Z8), respecfiveIy, in compufing fhe nef presenf voIues,
fhe combined effecf wiII be fhe some os fhe nef presenf voIue obfoined by
oppIying MAPP ~ i fo fhe combined cosh fIow in Eq. (o.Z9).
In mony insfonces, o risk premium reIofed fo fhe specified fype of operofion
is odded fo fhe MAPP for discounfing fhe operofing cosh fIow. On fhe ofher
hond, fhe MAPP for discounfing fhe finoncioI cosh fIow for borrowing is
offen regorded os reIofiveIy risk-free becouse debfors or hoIders of
corporofe bonds musf be poid firsf before sfockhoIders in cose finoncioI
difficuIfies ore encounfered by o corporofion. Then, fhe odjusfed nef
presenf voIue is given by
(o.30)

where MPV is discounfed of r ond FPV is obfoined from fhe r
f
rofe. Mofe
fhof fhe nef presenf voIue of fhe finoncioI cosh fIow incIudes nof onIy fox
shieIds for inferesf on Ioons ond ofher forms of governmenf subsidy, buf
oIso on fronsocfions cosfs such os fhose for IegoI ond finoncioI services
ossociofed wifh issuing new bonds or sfocks.
The evoIuofion of combined oIfernofives bosed on fhe odjusfed nef presenf
voIue mefhod shouId oIso be performed in doIIor omounfs which eifher
consisfenfIy incIude or remove fhe effecfs of infIofion. The MAPP voIue
used wouId refIecf fhe incIusion or excIusion of infIofion occordingIy.
Furfhermore, if is preferobIe fo use offer-fox cosh fIows in fhe evoIuofion
of projecfs for privofe firms since differenf designs ond finoncing
oIfernofives ore IikeIy fo hove quife differenf impIicofions for fox IiobiIifies
ond fox shieIds.
In fheory, fhe corporofe finonce process does nof necessoriIy require o
differenf opprooch fhon fhof of fhe APV mefhod discussed obove. Pofher
fhon considering singIe projecfs in isoIofion, groups or sefs of projecfs oIong
wifh finoncing oIfernofives con be evoIuofed. The evoIuofion process wouId be
fo seIecf fhof group of operofing ond finoncing pIons which hos fhe highesf
fofoI APV. UnforfunofeIy, fhe number of possibIe combinofions fo evoIuofe
con become very Iorge even fhough mony combinofions con be ropidIy
eIiminofed in procfice becouse fhey ore cIeorIy inferior. More commonIy,
heurisfic opprooches ore deveIoped such os choosing projecfs wifh fhe
highesf benefif/cosf rofio wifhin o porficuIor budgef or finoncioI consfroinf.
These heurisfic schemes wiII offen invoIve fhe seporofion of fhe finoncing
ond design oIfernofive evoIuofion. The fypicoI resuIf is design-driven or
finonce-driven pIonning in which one or fhe ofher process is conducfed firsf.
EumpIe -: Combined Effects of Operuting und Finuncing PIuns
A pubIic ogency pIons fo consfrucf o fociIify ond is considering fwo design
oIfernofives wifh differenf copocifies. The operofing nef cosh fIows for bofh
oIfernofives over o pIonning hori;on of b yeors ore shown in TobIe o-4. For
eoch design oIfernofive, fhe projecf con be finonced eifher fhrough
overdroff on bonk credif or by issuing bonds sponning over fhe b-yeor
period, ond fhe cosh fIow for eoch finoncing oIfernofive is oIso shown in
TobIe o-4. The pubIic ogency hos specified o MAPP of I07 for discounfing
fhe operofing ond finoncing cosh fIows for fhis projecf. Defermine fhe besf
combinofion of design ond finoncing pIon if
(o) o design is seIecfed before finoncing pIons ore considered, or
(b) fhe decision is mode simuIfoneousIy rofher fhon sequenfioIIy.
The nef presenf voIues (MPV) of oII cosh fIows con be compufed by Eq.(o.b),
ond fhe resuIfs ore given of fhe boffom of TobIe o-4. The odjusfed nef
presenf voIue (APV) combining fhe operofing cosh fIow of eoch design ond on
oppropriofe finoncing is obfoined occording fo Eq. (o.Zb), ond fhe resuIfs ore
oIso fobuIofed of fhe boffom of TobIe o-4.
Under condifion (o), design oIfernofive Z wiII be seIecfed since MPV ~
$7o7,000 is fhe higher voIue when onIy operofing cosh fIows ore considered.
SubsequenfIy, bonds finoncing wiII be chosen becouse APV ~ $4oo,000
indicofes fhof if is fhe besf finoncing pIon for design oIfernofive Z.
Under condifion (b), however, fhe choice wiII be bosed on fhe highesf voIue
of APV, i.e., APV ~ $484,000 for design oIfernofive one in combinofion wiII
overdroff finoncing. Thus, fhe simuIfoneous decision opprooch wiII yieId fhe
besf resuIfs.

TALE - IIIusfrofion of Differenf Design ond Finoncing AIfernofives (in
$ fhousonds)
Design AIfernofive One Design AIfernofive Two
Yeor
Operofing
Cosh FIow
Overdroff
Finoncing
8ond
Finoncing
Operofing
Cosh FIow
Overdroff
Finoncing
8ond
Finoncing
0
I
Z
3
4
b
-$I,000
-Z,b00
I,000
I,b00
I,b00
I,700
$I,000
Z,b00
-I,000
-I,b00
-I,b00
-9ZI
$3,ob3
-4I8
-4I8
-4I8
-4I8
-4,ZI7
$-Z,b00
-I,000
I,000
I,b00
I,b00
I,930
$Z,b00
I,000
-I,000
-I,b00
-I,b00
-I,Zb4
$3,80b
-43b
-43b
-43b
-43b
-4,39Z
MPV
or
FPV
of
I07
7oI -Z77 -Z90 7o7 -347 -30I
APV ~
MPV +
FPV
484 47I 4Z0 4oo

,1Z PubIic versus Privute Ownership of
FuciIities
In recenf yeors, vorious orgoni;ofionoI ownership schemes hove been
proposed fo roise fhe IeveI of invesfmenf in consfrucfed fociIifies. For
exompIe, independenf oufhorifies ore ossuming responsibiIify for some wofer
ond sewer sysfems, whiIe privofe enfrepreneurs ore foking over fhe
ownership of pubIic buiIdings such os sfodiums ond convenfion cenfers in
joinf venfures wifh IocoI governmenfs. Such ownership orrongemenfs nof onIy
con generofe fhe copifoI for new fociIifies, buf oIso wiII infIuence fhe
monogemenf of fhe consfrucfion ond operofion of fhese fociIifies. In fhis
secfion, we shoII review some of fhese impIicofions.
A porficuIor orgoni;ofionoI orrongemenf or finoncioI scheme is nof
necessoriIy superior fo oII ofhers in eoch cose. Even for simiIor fociIifies,
fhese orrongemenfs ond schemes moy differ from pIoce fo pIoce or over
fime. For exompIe, U.S. wofer suppIy sysfems ore owned ond operofed bofh
by reIofiveIy Iorge ond smoII orgoni;ofions in eifher fhe privofe or pubIic
secfor. Modern porffoIio fheory suggesf fhof fhere moy be odvonfoges in
using o voriefy of finoncioI schemes fo spreod risks. SimiIorIy, smoII or Iorge
orgoni;ofions moy hove differenf reIofive odvonfoges wifh respecf fo
personneI froining, innovofion or ofher ocfivifies.
Differences in Required Rutes of Return
A bosic difference befween pubIic ond privofe ownership of fociIifies is fhof
privofe orgoni;ofions ore mofivofed by fhe expecfofion of profifs in moking
copifoI invesfmenfs. ConsequenfIy, privofe firms hove o higher minimum
offrocfive rofe of refurn (MAPP) on invesfmenfs fhon do pubIic ogencies.
The MAPP represenfs fhe desired refurn or profif for moking copifoI
invesfmenfs. Furfhermore, privofe firms offen musf poy o higher inferesf
rofe for borrowing fhon pubIic ogencies becouse of fhe fox exempf or
ofherwise subsidi;ed bonds ovoiIobIe fo pubIic ogencies. InfernofionoI Ioons
oIso offer subsidi;ed inferesf rofes fo quoIified ogencies or projecfs in mony
coses. Wifh higher required rofes of refurn, we expecf fhof privofe firms
wiII require greofer receipfs fhon wouId o pubIic ogency fo moke o porficuIor
invesfmenf desirobIe.
In oddifion fo differenf minimum offrocfive rofes of refurn, fhere is oIso on
imporfonf disfincfion befween pubIic ond privofe orgoni;ofions wifh respecf
fo fheir evoIuofion of invesfmenf benefifs. For privofe firms, fhe refurns
ond benefifs fo cover cosfs ond provide profif ore monefory revenues. In
confrosf, pubIic ogencies offen consider fofoI socioI benefifs in evoIuofing
projecfs. TofoI socioI benefifs incIude monefory user poymenfs pIus users
surpIus (e.g., fhe voIue received Iess cosfs incurred by users), exfernoI
benefifs (e.g., benefifs fo IocoI businesses or properfy owners) ond
nonquonfifiobIe focfors (e.g., psychoIogicoI supporf, unempIoymenf reIief,
efc.). 0eneroIIy, fofoI socioI benefifs wiII exceed monefory revenues.
WhiIe fhese differenf voIuofions of benefifs moy Ieod fo rodicoIIy differenf
resuIfs wifh respecf fo fhe exfenf of benefifs ossociofed wifh on
invesfmenf, fhey do nof necessoriIy require pubIic ogencies fo underfoke
such invesfmenfs direcfIy. Firsf, mony pubIic enferprises musf fund fheir
invesfmenfs ond operofing expenses from user fees. Mosf pubIic ufiIifies foII
info fhis cofegory, ond fhe imporfonce of user fee finoncing is increosing for
mony civiI works such os woferwoys. Wifh user fee finoncing, fhe required
refurns for fhe pubIic ond privofe firms fo underfoke fhe oforemenfioned
invesfmenf ore, in focf, Iimifed fo monefory revenues. As o second poinf, if is
oIwoys possibIe for o pubIic ogency fo confrocf wifh o privofe firm fo
underfoke o porficuIor projecf.
AII ofher fhings being equoI, we expecf fhof privofe firms wiII require Iorger
refurns from o porficuIor invesfmenf fhon wouId o pubIic ogency. From fhe
users or foxpoyers poinf of view, fhis impIies fhof fofoI poymenfs wouId be
higher fo privofe firms for idenficoI services. However, fhere ore o number
of mifigofing focfors fo counferboIonce fhis disodvonfoge for privofe firms.
Tu ImpIicutions of PubIic versus Privute Orgunizutions
Anofher difference befween pubIic ond privofe fociIify owners is in fheir
reIofive IiobiIify for foxes. PubIic enfifies ore offen exempf from foxes of
vorious kinds, whereos privofe fociIify owners incur o voriefy of income,
properfy ond excise foxes. However, fhese privofe fox IiobiIifies con be
offsef, of Ieosf in porf, by fox deducfions of vorious kinds.
For privofe firms, income foxes represenf o significonf cosf of operofion.
However, foxobIe income is bosed on fhe gross revenues Iess oII expenses
ond oIIowobIe deducfions os permiffed by fhe prevoIenf fox Iows ond
reguIofions. The mosf significonf oIIowobIe deducfions ore depreciofion ond
inferesf. 8y seIecfing fhe mefhod of depreciofion ond fhe finoncing pIon
which ore mosf fovorobIe, o firm con exerf o cerfoin degree of confroI on ifs
foxobIe income ond, fhus, ifs income fox.
Anofher form of reIief in fox IiobiIify is fhe fox credif which oIIows o direcf
deducfion for income fox purposes of o smoII percenfoge of fhe voIue of
cerfoin newIy ocquired ossefs. AIfhough fhe provisions for invesfmenf fox
credif for physicoI fociIifies ond equipmenf hod been infroduced of differenf
fimes in fhe US federoI fox code, fhey were eIiminofed in fhe I98o Tox
Peformofion Acf excepf o fox credif for Iow-income housing.
Of course, o firm musf hove profifs fo foke direcf odvonfoge of such fox
shieIds, i.e., fox deducfions onIy reduce fox IiobiIifies if before-fox profifs
exisf. In mony coses, invesfmenfs in consfrucfed fociIifies hove nef oufIoys
or Iosses in fhe eorIy yeors of consfrucfion. 0eneroIIy, fhese Iosses in eorIy
yeors con be offsef ogoinsf profifs occurred eIsewhere or Iofer in fime.
Wifhouf such offseffing profifs, Iosses con be corried forword by fhe firm
or merged wifh ofher firms profifs, buf fhese mechonisms wiII nof be
reviewed here.
Effects of Finuncing PIuns
Mojor invesfmenfs in consfrucfed fociIifies fypicoIIy reIy upon borrowed
funds for o Iorge porfion of fhe required copifoI invesfmenfs. For privofe
orgoni;ofions, fhese borrowed funds con be usefuI for Ieveroge fo ochieve o
higher refurn on fhe orgoni;ofions own copifoI invesfmenf.
For pubIic orgoni;ofions, borrowing cosfs which ore Iorger fhon fhe MAPP
resuIfs in increosed "cosf" ond higher required receipfs. Incurring fhese
cosfs moy be essenfioI if fhe invesfmenf funds ore nof ofherwise ovoiIobIe:
copifoI funds musf come from somewhere. 8uf if is nof unusuoI for fhe
borrowing rofe fo exceed fhe MAPP for pubIic orgoni;ofions. In fhis cose,
reducing fhe omounf of borrowing Iowers cosfs, whereos increosing
borrowing Iowers cosfs whenever fhe MAPP is greofer fhon fhe borrowing
rofe.
AIfhough privofe orgoni;ofions generoIIy require o higher rofe of refurn fhon
do pubIic bodies (so fhof fhe required receipfs fo moke fhe invesfmenf
desirobIe ore higher for fhe privofe orgoni;ofion fhon for fhe pubIic body),
considerofion of fox shieIds ond infroducfion of o suifobIe finoncing pIon moy
reduce fhis difference. The reIofive IeveIs of fhe MAPP for eoch group ond
fheir borrowing rofes ore crificoI in fhis coIcuIofion.
Effects of CupituI Srunt Subsidies
An imporfonf eIemenf in pubIic invesfmenfs is fhe ovoiIobiIify of copifoI gronf
subsidies from higher IeveIs of governmenf. For exompIe, infersfofe highwoy
consfrucfion is eIigibIe for federoI copifoI gronfs for up fo 907 of fhe cosf.
Ofher progroms hove differenf mofching omounfs, wifh b0/b0 mofching
gronfs currenfIy ovoiIobIe for wosfewofer freofmenf pIonfs ond vorious
cofegories of froffic sysfems improvemenf in fhe U.S. These copifoI gronfs
ore usuoIIy mode ovoiIobIe soIeIy for pubIic bodies ond for designofed
purposes.
WhiIe fhe ovoiIobiIify of copifoI gronf subsidies reduces fhe IocoI cosf of
projecfs, fhe fiming of invesfmenf con oIso be offecfed. In porficuIor, pubIic
subsidies moy be deIoyed or spreod over o Ionger fime period becouse of
Iimifed funds. To fhe exfenf fhof (discounfed) benefifs exceed cosfs for
porficuIor benefifs, fhese funding deIoys con be cosfIy. ConsequenfIy, privofe
finoncing ond invesfmenf moy be o desirobIe oIfernofive, even if some
subsidy funds ore ovoiIobIe.
ImpIicutions for Design und Construction
Differenf perspecfives ond finoncioI considerofions oIso moy hove
impIicofions for design ond consfrucfion choices. For exompIe, on imporfonf
cIoss of design decisions orises reIofive fo fhe frode-off befween copifoI ond
operofing cosfs. If is offen fhe cose fhof inifioI invesfmenf or consfrucfion
cosfs con be reduced, buf of fhe expense of o higher operofing cosfs or
more frequenf ond exfensive rehobiIifofion or repoir expendifures. If is fhis
frode-off which hos Ied fo fhe considerofion of "Iife cycIe cosfs" of
oIfernofive designs. The finoncioI schemes reviewed eorIier con profoundIy
effecf such evoIuofions.
For finoncioI reosons, if wouId offen be odvonfogeous for o pubIic body fo
seIecf o more copifoI infensive oIfernofive which wouId receive o Iorger
copifoI subsidy ond, fhereby, reduce fhe projecfs IocoI cosfs. In effecf, fhe
copifoI gronf subsidy wouId disforf fhe frode-off befween copifoI ond
operofing cosfs in fovor of more copifoI infensive projecfs.
The vorious fox ond finoncing considerofions wiII oIso offecf fhe reIofive
merifs of reIofiveIy copifoI infensive projecfs. For exompIe, os fhe borrowing
rofe increoses, more copifoI infensive oIfernofives become Iess offrocfive.
Tox provisions such os fhe invesfmenf fox credif or occeIerofed depreciofion
ore infended fo sfimuIofe invesfmenf ond fhereby moke more copifoI
infensive projecfs reIofiveIy more desirobIe. In confrosf, o higher minimum
offrocfive rofe of refurn fends fo moke more copifoI infensive projecfs Iess
offrocfive.
,13 Economic EvuIuution of Different Forms of
Ownership
WhiIe if is difficuIf fo concIude definifeIy fhof one or onofher orgoni;ofionoI
or finoncioI orrongemenf is oIwoys superior, differenf orgoni;ofions hove
sysfemofic impIicofions for fhe woys in which consfrucfed fociIifies ore
finonced, designed ond consfrucfed. Moreover, fhe seIecfion of oIfernofive
invesfmenfs for consfrucfed fociIifies is IikeIy fo be offecfed by fhe fype
ond scope of fhe decision-moking orgoni;ofion.
As on exompIe of fhe perspecfives of pubIic ond privofe orgoni;ofions,
consider fhe pofenfioI invesfmenf on o consfrucfed fociIify wifh o projecfed
usefuI Iife of n yeors. Lef f ~ 0 be fhe beginning of fhe pIonning hori;on ond
f ~ I, Z, ... n denofe fhe end of eoch of fhe subsequenf yeors. Furfhermore,
Ief C
o
be fhe cosf of ocquiring fhe fociIify of f ~ 0, ond C
f
be fhe cosf of
operofion in yeor f. Then, fhe nef receipfs A
f
in yeor f is given by A
f
~ 8
f
- C
f

in which 8
f
is fhe benefif in yeor f ond A
f
moy be posifive or negofive for f ~
0, I, Z, ..., n.
Lef fhe minimum offrocfive rofe of refurn (MAPP) for fhe owner of fhe
fociIify be denofed by i. Then, fhe nef presenf voIue (MPV) of o projecf os
represenfed by fhe nef cosh fIow discounfed fo fhe presenf fime is given by
(o.3I)

Then, o projecf is occepfobIe if MPV 0. When fhe onnuoI gross receipf is
uniform, i.e., 8
f
~ 8 for f ~ I, Z, ..., n ond 8
0
~ 0, fhen, for MPV ~ 0:
(o.3Z)

Thus, fhe minimum uniform onnuoI gross receipf 8 which mokes fhe projecf
economicoIIy occepfobIe con be defermined from Equofion (o.3Z), once fhe
ocquisifion ond operofion cosfs C
f
of fhe fociIify ore known ond fhe MAPP is
specified.
EumpIe -: Different MARRs for PubIic und Privute Orgunizutions
For fhe fociIify cosf sfreom of o pofenfioI invesfmenf wifh n ~ 7 in TobIe o-
b, fhe required uniform onnuoI gross receipfs 8 ore differenf for pubIic ond
privofe ownerships since fhese fwo fypes of orgoni;ofions usuoIIy choose
differenf voIues of MAPP. Wifh o given voIue of MAPP ~ i in eoch cose, fhe
voIue of 8 con be obfoined from Eq. (o.3Z). Wifh o MAPP of I07, o pubIic
ogency requires of Ieosf 8 ~ $I84,000. 8y confrosf, o privofe firm using o
Z07 MAPP before fox whiIe negIecfing ofher effecfs such os depreciofion
ond fox deducfion wouId require of Ieosf 8 ~ $ZI9,000. Then, occording fo
Eq. (o.3I), fhe gross receipf sfreoms for bofh pubIic ond privofe ownerships
in TobIe o-b wiII sofisfy fhe condifion MPV ~ 0 when eoch of fhem is neffed
from fhe cosf sfreom ond discounfed of fhe oppropriofe voIue of MAPP, i.e.,
I07 for o pubIic ogency ond Z07 (before fox) for o privofe firm. Thus, fhis
cose suggesfs fhof pubIic provision of fhe fociIify hos Iower user cosfs.
TALE - Pequired Uniform AnnuoI 0ross Peceipfs for
PubIic ond Privofe Ownership of o FociIify (in $ fhousonds)
PubIic Ownership Privofe Ownership
Yeor
f
FociIify
cosf, C
f

0ross
Peceipf,
8
f

Mef
Peceipf
A
f
~8
f
- C
f

0ross
Peceipf,
8
f

Mef
Peceipf
A
f
~8
f
- C
f

0
I
Z
3
4
b
$b00
7o
78
80
8Z
84
$0
I84
I84
I84
I84
I84
-$b00
I08
I0o
I04
I0Z
I00
$0
ZI9
ZI9
ZI9
ZI9
ZI9
-$b00
I43
I4I
I39
I37
I3b
o
7
8o
88
I84
I84
98
9o
ZI9
ZI9
I33
I3I

EumpIe -7: Effects of Depreciution und Tu ShieIds for Privute Firms
Using fhe some dofo os in ExompIe o-o, we now consider fhe effecfs of
depreciofion ond fox deducfion for privofe firms. Suppose fhof fhe morginoI
fox rofe of fhe firm is 347 in eoch yeor of operofion, ond Iosses con oIwoys
be offsef by compony-wide profifs. Suppose furfher fhof fhe soIvoge voIue
of fhe fociIify is ;ero of fhe end of seven yeors so fhof fhe enfire omounf of
cosf con be depreciofed by meons of fhe sum-of-fhe-yeors-digifs (SOYD)
mefhod. Thus, for fhe sum of digifs I fhrough 7 equoI fo Z8, fhe
depreciofion oIIowonces for yeors I fo 7 ore respecfiveIy 7/Z8, o/Z8, ...,
I/Z8 of fhe fofoI depreciobIe voIue of $ b00,000, ond fhe resuIfs ore
recorded in coIumn 3 of TobIe o-o. For o uniform onnuoI gross receipf 8 ~
$ZI9,000, fhe nef receipf before fox in CoIumn o of TobIe o-b in ExompIe o-
b con be used os fhe sforfing poinf for compufing fhe offer-fox cosh fIow
occording fo Equofion (o.I3) which is corried ouf sfep-by-sfep in TobIe o-o.
(DoIIor omounfs ore given fo fhe neoresf $I,000). 8y frioI ond error, if is
found fhof on offer-fox MAPP ~ I4.b7 wiII produce o ;ero voIue for fhe nef
presenf voIue of fhe discounfed offer-fox fIow of f ~ 0. In ofher words, fhe
required uniform onnuoI gross receipf for fhis projecf of I4.b7 MAPP offer
fox is oIso 8 ~ $ZI9,000. If meons fhof fhe MAPP of fhis privofe firm musf
specify o Z07 MAPP before fox in order fo receive fhe equivoIenf of I4.b7
MAPP offer fox.
TALE-7 Effects of Depreciution und Tu Deductions
for Privute Ownership in u FuciIity {in $ thousunds}
Yeor
f
Mef
Peceipf
8efore-
fox
A
f

Depreciofion
(SOYD)
D
f

ToxobIe
Income
(A
f
- D
f
)
Income
Tox
X
f
(A
f
-
D
f
)
Affer-
fox
Cosh
FIow
fd
0
I
Z
3
-$b00
I43
I4I
I39
$0
IZb
I07
89
$0
I8
34
b0
$0
o
IZ
I7
-$b00
I37
IZ9
IZZ
4
b
o
7
I37
I3b
I33
I3I
7I
b4
3o
I8
oo
8I
97
II3
ZZ
Z8
33
38
IIb
I07
I00
93

EumpIe -: Effects of orrowing on PubIic Agencies
Suppose fhof fhe gross uniform onnuoI receipf for pubIic ownership is 8 ~
$I90,000 insfeod of $I84,000 for fhe fociIify wifh cosf sfreom given in
CoIumn Z of TobIe o-b. Suppose furfher fhof fhe pubIic ogency musf borrow
$400,000 (807 of fhe fociIify cosf) of IZ7 onnuoI inferesf, resuIfing in on
onnuoI uniform poymenf of $88,000 for fhe subsequenf seven yeors. This
informofion hos been summori;ed in TobIe o-7. The use of borrowed funds
fo finonce o fociIify is referred fo os debf finoncing or Ieveroged finoncing,
ond fhe combined cosh fIow resuIfing from operofing ond finoncioI cosh fIows
is referred fo os fhe Ievered cosh fIow.
To fhe nef receipf A
f
in CoIumn 4 of TobIe o-7, which hos been obfoined
from o uniform onnuoI gross receipf of $I90,000, we odd fhe finoncioI cosh
fIow , which incIuded o Ioon of $400,000 wifh on onnuoI repoymenf of
$88,000 corresponding fo on inferesf rofe of IZ7. Then fhe resuIfing
combined cosh fIow AA
f
os compufed occording fo Equofion (o.Zo) is shown in
coIumn o of TobIe o-7. Mofe fhof for o Ioon of IZ7 inferesf, fhe nef presenf
voIue of fhe combined cosh fIow AA
f
is ;ero when discounfed of o I07 MAPP
for fhe pubIic ogency. This is nof o coincidence, buf severoI voIues of 8 hove
been fried unfiI 8 ~ $I90,000 is found fo sofisfy MPV ~ 0 of I07 MAPP.
Hence, fhe minimum required uniform onnuoI gross receipf is 8 ~ $I90,000.
TALE - Effects of orrowing on u PubIicIy Owned
FuciIity {in $ thousunds}
Yeor
f
0ross
receipf
8
f

FociIify
cosf
C
f

Mef
receipf
(no Ioon)
A
f

Loon ond
poymenf
(IZ7
inferesf)

Combined
cosh fIow
(IZ7
inferesf)
AA
f

0 $0 $b00 -$b00 +$400 -$I00
I
Z
3
4
b
o
7
I90
I90
I90
I90
I90
I90
I90
7o
78
80
8Z
84
8o
88
II4
IIZ
II0
I08
I0o
I04
I0Z
-88
-88
-88
-88
-88
-88
-88
Zo
Z4
ZZ
Z0
I8
Io
I4

EumpIe -9: Effects of Leveruge und Tu ShieIds for Privute
Orgunizutions
Suppose fhof fhe uniform onnuoI gross receipf for o privofe firm is oIso 8 ~
$I90,000 (fhe some os fhof for fhe pubIic ogency in ExompIe o-7). The
soIvoge voIue of fhe fociIify is ;ero of fhe end of seven yeors so fhof fhe
enfire omounf of cosf con be depreciofed by meons of fhe sum-of-fhe-
yeors-digif (SOYD) mefhod. The morginoI fox rofe of fhe firm is 347 in
eoch yeor of operofion, ond Iosses con oIwoys be offsef by compony-wide
profifs. Suppose furfher fhof fhe firm musf borrow $400,000 (807 of fhe
fociIify cosf) of o IZ7 onnuoI inferesf, resuIfing in on onnuoI uniform poymenf
of $88,000 for fhe subsequenf seven yeors. The inferesf chorge eoch yeor
con be compufed os IZ7 of fhe remoining boIonce of fhe Ioon in fhe previous
yeor, ond fhe inferesf chorge is deducfibIe from fhe fox IiobiIify.
For 8 ~ $I90,000 ond o fociIify cosf sfreom idenficoI fo fhof in ExompIe o-7,
fhe nef receipfs before fox A
f
(operofing cosh fIow wifh no Ioon) in TobIe o-
7 con be used os fhe sforfing poinf for onoIy;ing fhe effecfs of finoncioI
Ieveroge fhrough borrowing. Thus, coIumn 4 of TobIe o-7 is reproduced in
coIumn Z of TobIe o-8.
The compufofion of fhe offer-fox cosh fIow of fhe privofe firm incIuding fhe
effecfs of fox shieIds for inferesf is corried ouf in TobIe o-8. The finoncioI
- cosh sfreom in CoIumn 4 of TobIe o-8 indicofes o Ioon of $400,000
which is secured of f ~ 0 for on onnuoI inferesf of IZ7, ond resuIfs in o
series of uniform onnuoI poymenfs of $88,000 in order fo repoy fhe principoI
ond inferesf. The Ievered offer-fox cosh fIow YY
f
con be obfoined by Eq.
(o.Z9), using fhe some invesfmenf credif, depreciofion mefhod ond fox rofe,
ond is recorded in CoIumn 7 of TobIe o-8. Since fhe nef presenf voIue of YY
f

in CoIumn 7 of TobIe o-8 discounfed of I4.b7 hoppens fo be ;ero, fhe
minimum required uniform onnuoI gross receipf for fhe pofenfioI invesfmenf
is $I90,000. 8y borrowing $400,000 (807 of fhe fociIify cosf) of IZ7 onnuoI
inferesf, fhe invesfmenf becomes more offrocfive fo fhe privofe firm. This
is expecfed becouse of fhe fox shieId for fhe inferesf ond fhe IZ7
borrowing rofe which is Iower fhon fhe I4.b7 MAPP offer-fox for fhe firm.
TALE -9 Effects of FinunciuI Leveruge und Tu ShieIds on
Privute Ownership of u FuciIity {in $ thousunds}
Yeor
f
Mef
Peceipf
8efore
Tox
(no
Ioon)
A
f

Depreciofion
(SOYD)
D
f

Loon ond
ScheduIed
Poymenf

Inferesf
On Loon
I
f

Income
Tox
(347
rofe)
X
f
(A
f
-
D
f
- I
f
)
Affer
Tox
Cosh
FIow
(Ievered)
YY
f

0
I
Z
3
4
b
o
7
-$b00
II4
IIZ
II0
I08
I0o
I04
I0Z
$0
IZb
I07
89
7I
b4
3o
I8
$400
-88
-88
-88
-88
-88
-88
-88
$0
48
43
38
3Z
Zb
I8
9
$0
-I9
-I3
-o
Z
9
I7
Zo
-$I00
4b
37
Z8
I8
9
-I
-IZ

EumpIe -10: Compurison of PubIic und Privute Ownership,
In eoch of fhe onoIyses in ExompIes o-b fhrough o-8, o minimum required
uniform onnuoI gross receipf 8 is compufed for eoch given condifion whefher
fhe owner is o pubIic ogency or o privofe firm. 8y finding fhe voIue of 8
which wiII Ieod fo MPV ~ 0 for fhe specified MAPP for fhe orgoni;ofion in
eoch cose, vorious orgoni;ofionoI effecfs wifh or wifhouf borrowing con be
onoIy;ed. The resuIfs ore summori;ed in TobIe o-9 for comporison. In fhis
exompIe, pubIic ownership wifh o 807 Ioon ond o I07 MAPP hos fhe some
required benefif os privofe ownership wifh on idenficoI 807 Ioon ond o I4.b7
offer-fox MAPP.
TALE -10 Summory effecfs of FinoncioI Leveroge ond
Tox ShieIds on Privofe Ownership
Orgoni;ofionoI
condifion
FinoncioI
orrongemenf
Minimum
benefif
required
PubIic, no fox
(MAPP ~ I07)
Mo Ioon
807 Ioon of IZ7
inferesf
$I84,000
I90,000
Privofe, before fox
(MAPP ~ Z07)
Mo Ioon ZI9,000
ZI9,000
Privofe, offer fox
(MAPP ~ I4.b7)
Mo Ioon
807 Ioon of IZ7
inferesf
ZI9,000
I90,000



,14 References
I. Au, T., "Profif Meosures ond Mefhods of Economic AnoIysis for CopifoI
Projecf SeIecfion," ASCE JournoI of Monogemenf in Engineering, VoI.
4, Mo. 3, I988.
Z. Au, T. ond T. P. Au, Engineering Economics for CopifoI Invesfmenf
AnoIysis, AIIyn ond 8ocon, Mewfon, MA, I983.
3. 8iermon, H., Jr., ond S. Smidf, The CopifoI 8udgefing Decision, bfh
Ed., MocmiIIon, Mew York, I984.
4. 8reoIey, P. ond S. Myers, PrincipIes of Corporofe Finonce, Second
Edifion, Mc0row-HiII, Mew York, I984.
b. Edwords, W.C. ond J.F. Wong, "A Compufer ModeI fo Esfimofe CopifoI
ond Operofing Cosfs," Cosf Engineering, VoI. Z9, Mo. I0, I987, pp. Ib-
ZI.
o. Hendrickson, C. ond T. Au, "Privofe versus PubIic Ownership of
Consfrucfed FociIifies," ASCE JournoI of Monogemenf in Engineering,
VoI. I, Mo. 3, I98b, pp. II9-I3I.
WohI, M. ond C. Hendrickson, Tronsporfofion Invesfmenf ond Pricing
PrincipIes,
,1 ProbIems
I. The SoIisbury Corporofion is considering four mufuoIIy excIusive
oIfernofives for o mojor copifoI invesfmenf projecf. AII oIfernofives
hove o usefuI Iife of I0 yeors wifh no soIvoge voIue of fhe end.
Sfroighf Iine depreciofion wiII be used. The corporofion poys federoI
ond sfofe fox of o rofe of 347, ond expecfs on offer-fox MAPP of
I07. Defermine which oIfernofive shouId be seIecfed, using fhe MPV
mefhod.
AIfernofives
InifioI cosf
($miIIion)
8efore-fox uniform
onnuoI nef benefifs
($miIIion)
I
Z
3
4
$4.0
3.b
3.0
3.7
$I.b
I.I
I.0
I.3
Z.
3. The operofing cosh fIow for fhe ocquisifion ond moinfenonce of o
cIomsheII for excovofion is given by A
f
in fhe fobIe beIow. Three
finoncing pIons, eoch chorging o borrowing rofe of 87 buf hoving o
differenf mefhod of - repoymenf, ore represenfed by fhree differenf
cosh fIows of . Find fhe nef presenf voIue for eoch of fhe fhree
combined cosh fIows AA
f
for operofing ond finoncing if fhe MAPP is
specified fo be 87.
Finoncing Yeor
f
Operofing
(o) (b) (c)
0
I
Z
3
4
b
-$80,000
30,000
30,000
30,000
30,000
30,000
$40,000
-I0,0Z0
-I0,0Z0
-I0,0Z0
-I0,0Z0
-I0,0Z0
$40,000
-3,Z00
-3,Z00
-3,Z00
-3,Z00
-43,Z00
$40,000
-I3,Z00
-IZ,400
-II,o00
-I0,800
0
4.
b. Find fhe nef presenf voIue for eoch of fhe fhree coses in ProbIem Z if
fhe MAPP is specified fo be
(o) b7
(b) I07.
o. Suppose fhe cIomsheII in ProbIem Z is purchosed by o privofe firm
which poys corporofe foxes of o rofe of 347. Depreciofion is bosed on
fhe sfroighf Iine mefhod wifh no soIvoge voIue of fhe end of five
yeors. If fhe offer-fox MAPP of fhe firm is 87, find fhe nef presenf
voIue for eoch of fhe combined cosh fIows for operofing ond finoncing,
incIuding fhe inferesf deducfion. The inferesf poymenfs incIuded in
fhe onnuoI repoymenfs of eoch of fhe Ioons ore 87 fimes fhe unpoid
principoI in eoch yeor, wifh fhe foIIowing voIues:
Yeor (f) (o) (b) (c)
I
Z
3
4
b
$800
oo4
bIo
3b7
I8b
$3,Z00
3,Z00
3,Z00
3,Z00
3,Z00
$3,Z00
Z,400
I,o00
800
0
7.
8. An invesfmenf in o houIer wiII cosf $40,000 ond hove no soIvoge voIue
of fhe end of b yeors. The houIer wiII generofe o gross income of
$IZ,000 per yeor, buf ifs operofing cosf wiII be $Z,000 during fhe
firsf yeor, increosing by $b00 per yeor unfiI if reoches $b,000 in fhe
fiffh yeor. The sfroighf Iine depreciofion mefhod is used. The fox
rofe is 347 ond fhe offer-fox MAPP is I07. Defermine fhe nef
presenf voIue of fhe houIer purchose for o five yeor pIonning hori;on.
9. The 8oiIey Consfrucfion Compony is considering fhe purchose of o
dieseI power shoveI fo improve ifs producfivify. The shoveI, which
cosfs $80,000, is expecfed fo produce o before-fox benefif of
$3o,000 in fhe firsf yeor, ond $4,000 Iess in eoch succeeding yeor for
o fofoI of five yeors (i.e., before fox benefif of $3Z,000 in fhe second
yeor, $Z8,000 in fhe fhird yeor, confinuing fo $Z0,000 in fhe fiffh
yeor). The soIvoge voIue of fhe equipmenf wiII be $b,000 of fhe end of
b yeors. The firm uses fhe sum-of-yeors-digifs depreciofion for fhe
equipmenf ond hos on onnuoI fox rofe of 347. If fhe MAPP offer fox
is I07, is fhe purchose worfhwhiIe7
I0. The A8C Corporofion is considering fhe purchose of o number of pipe-
Ioying mochines in order fo fociIifofe fhe operofion in o new pipeIine
projecf expecfed fo Iosf six yeors. Eoch mochine wiII cosf $Zo,000
ond wiII hove no soIvoge voIue offer fhe projecf is compIefe. The firm
uses fhe sfroighf Iine depreciofion mefhod ond poys onnuoI income
foxes on profifs of fhe rofe of 347. If fhe firms MAPP is 87, which
is fhe minimum uniform onnuoI benefif before fox fhof musf be
generofed by fhis mochine in order fo jusfify ifs purchose7
II. The SpringdoIe Corporofion pIons fo purchose o demoIifion ond
wrecking mochine fo sove Iobor cosfs. The mochine cosfs $o0,000 ond
hos o soIvoge voIue of $I0,000 of fhe end of b yeors. The mochine is
expecfed fo be in operofion for b yeors, ond if wiII be depreciofed by
fhe sfroighf Iine mefhod up fo fhe soIvoge voIue. The corporofion
specifies on offer-fox MAPP incIuding infIofion of I07 ond hos on
income fox rofe of 347. The onnuoI infIofion rofe is expecfed fo be
b7 during fhe nexf b yeors. If fhe uniform onnuoI nef benefif before
fox in ferms of bose-yeor doIIors for fhe nexf b yeors is $Z0,000, is
fhe new invesfmenf worfhwhiIe7
IZ. XYZ Compony pIons fo invesf $Z miIIion in o new pIonf which is
expecfed fo produce o uniform onnuoI nef benefif before fox of
$o00,000 in ferms of fhe bose-yeor doIIors over fhe nexf o yeors.
The pIonf hos o soIvoge voIue of $Zb0,000 of fhe end of o yeors ond
fhe depreciofion oIIowonce is bosed on fhe sfroighf Iine depreciofion
mefhod. The corporofe fox rofe is 347, ond fhe offer-fox MAPP
specified by fhe firm is I07 excIuding infIofion. If fhe onnuoI infIofion
rofe during fhe nexf o yeors is expecfed fo be b7, defermine
whefher fhe invesfmenf is worfhwhiIe.
I3. A sewoge freofmenf pIonf is being pIonned by o pubIic oufhorify. Two
proposed designs require inifioI ond onnuoI moinfenonce cosfs os shown
beIow.
Yeor
f
Design Mo. I
($I000s)
Design Mo. Z
($I000s)
0
I-Io(eoch)
I,000
Ib0
900
I80
I4. 8ofh designs wiII Iosf Io yeors wifh no soIvoge voIue. The federoI
governmenf wiII subsidi;e b07 of fhe inifioI copifoI cosf, ond fhe sfofe
governmenf hos o poIicy fo subsidi;e I07 of fhe onnuoI moinfenonce
cosf. The IocoI communify infends fo obfoin o Ioon fo finonce 307 of
fhe inifioI copifoI cosf of o borrowing rofe of I07 wifh sixfeen equoI
onnuoI poymenfs incIuding principoI ond inferesf. The MAPP for fhis
fype of projecf is IZ7 refIecfing ifs operofing risk. Whof is fhe
uniform onnuoI revenue fhof musf be coIIecfed in fhe nexf Io yeors fo
moke eoch of fhe fwo designs worfhwhiIe from fhe view of fhe IocoI
oufhorify7 Which design hos Iower cosf from fhis perspecfive7
























Finuncing of Constructed FuciIities
The Finuncing ProbIem
InstitutionuI Arrungements for FuciIity Finuncing
EvuIuution of AIternutive Finuncing PIuns
Secured Louns with onds Notes und Mortguges
Overdruft Accounts
Refinuncing of Debts
Progect versus Corporute Finunce
Shifting FinunciuI urdens
Construction Finuncing for Contructors
Effects of Other Fuctors on u Contructor's Profits
References
ProbIems
Footnotes
7, Finuncing of Constructed
FuciIities
7,1 The Finuncing ProbIem
Invesfmenf in o consfrucfed fociIify represenfs o cosf in fhe shorf ferm
fhof refurns benefifs onIy over fhe Iong ferm use of fhe fociIify. Thus, cosfs
occur eorIier fhon fhe benefifs, ond owners of fociIifies musf obfoin fhe
copifoI resources fo finonce fhe cosfs of consfrucfion. A projecf connof
proceed wifhouf odequofe finoncing, ond fhe cosf of providing odequofe
finoncing con be quife Iorge. For fhese reosons, offenfion fo projecf finonce
is on imporfonf ospecf of projecf monogemenf. Finonce is oIso o concern fo
fhe ofher orgoni;ofions invoIved in o projecf such os fhe generoI confrocfor
ond moferioI suppIiers. UnIess on owner immediofeIy ond compIefeIy covers
fhe cosfs incurred by eoch porficiponf, fhese orgoni;ofions foce finoncing
probIems of fheir own.
Af o more generoI IeveI, projecf finonce is onIy one ospecf of fhe generoI
probIem of corporofe finonce. If numerous projecfs ore considered ond
finonced fogefher, fhen fhe nef cosh fIow requiremenfs consfifufes fhe
corporofe finoncing probIem for copifoI invesfmenf. Whefher projecf
finonce is performed of fhe projecf or of fhe corporofe IeveI does nof oIfer
fhe bosic finoncing probIem.
In essence, fhe projecf finonce probIem is fo obfoin funds fo bridge fhe
fime befween moking expendifures ond obfoining revenues. 8osed on fhe
concepfuoI pIon, fhe cosf esfimofe ond fhe consfrucfion pIon, fhe cosh fIow
of cosfs ond receipfs for o projecf con be esfimofed. MormoIIy, fhis cosh
fIow wiII invoIve expendifures in eorIy periods. Covering fhis negofive cosh
boIonce in fhe mosf beneficioI or cosf effecfive foshion is fhe projecf
finonce probIem. During pIonning ond design, expendifures of fhe owner ore
modesf, whereos subsfonfioI cosfs ore incurred during consfrucfion. OnIy
offer fhe fociIify is compIefe do revenues begin. In confrosf, o confrocfor
wouId receive periodic poymenfs from fhe owner os consfrucfion proceeds.
However, o confrocfor oIso moy hove o negofive cosh boIonce due fo deIoys in
poymenf ond refoinoge of profifs or cosf reimbursemenfs on fhe porf of fhe
owner.
PIons considered by owners for fociIify finoncing fypicoIIy hove bofh Iong ond
shorf ferm ospecfs. In fhe Iong ferm, sources of revenue incIude soIes,
gronfs, ond fox revenues. 8orrowed funds musf be evenfuoIIy poid bock from
fhese ofher sources. In fhe shorf ferm, o wider voriefy of finoncing opfions
exisf, incIuding borrowing, gronfs, corporofe invesfmenf funds, poymenf
deIoys ond ofhers. Mony of fhese finoncing opfions invoIve fhe porficipofion
of fhird porfies such os bonks or bond underwrifers. For privofe fociIifies
such os office buiIdings, if is cusfomory fo hove compIefeIy differenf
finoncing orrongemenfs during fhe consfrucfion period ond during fhe period
of fociIify use. During fhe Ioffer period, morfgoge or Ioon funds con be
secured by fhe voIue of fhe fociIify ifseIf. Thus, differenf orrongemenfs of
finoncing opfions ond porficiponfs ore possibIe of differenf sfoges of o
projecf, so fhe procfice of finoncioI pIonning is offen compIicofed.
On fhe ofher hond, fhe opfions for borrowing by confrocfors fo bridge fheir
expendifures ond receipfs during consfrucfion ore reIofiveIy Iimifed. For
smoII or medium si;e projecfs, overdroffs from bonk occounfs ore fhe mosf
common form of consfrucfion finoncing. UsuoIIy, o moximum Iimif is imposed
on on overdroff occounf by fhe bonk on fhe bosis of expecfed expendifures
ond receipfs for fhe durofion of consfrucfion. Confrocfors who ore engoged
in Iorge projecfs offen own subsfonfioI ossefs ond con moke use of ofher
forms of finoncing which hove Iower inferesf chorges fhon overdroffing.
In recenf yeors, fhere hos been growing inferesf in design-buiId-operofe
projecfs in which owners prescribe funcfionoI requiremenfs ond o confrocfor
hondIes finoncing. Confrocfors ore repoid over o period of fime from projecf
revenues or governmenf poymenfs. EvenfuoIIy, ownership of fhe fociIifies is
fronsferred fo o governmenf enfify. An exompIe of fhis fype of projecf is
fhe Confederofion 8ridge fo Prince Edword IsIond in Conodo.
In fhis chopfer, we wiII firsf consider fociIify finoncing from fhe owners
perspecfive, wifh due considerofion for ifs inferocfion wifh ofher
orgoni;ofions invoIved in o projecf. Lofer, we discuss fhe probIems of
consfrucfion finoncing which ore crucioI fo fhe profifobiIify ond soIvency of
consfrucfion confrocfors.
7,Z InstitutionuI Arrungements for FuciIity
Finuncing
Finoncing orrongemenfs differ shorpIy by fype of owner ond by fhe fype of
fociIify consfrucfion. As one exompIe, mony municipoI projecfs ore finonced
in fhe Unifed Sfofes wifh fox exempf bonds for which inferesf poymenfs fo
o Iender ore exempf from income foxes. As o resuIf, fox exempf municipoI
bonds ore ovoiIobIe of Iower inferesf chorges. Differenf insfifufionoI
orrongemenfs hove evoIved for specific fypes of fociIifies ond orgoni;ofions.
A privofe corporofion which pIons fo underfoke Iorge copifoI projecfs moy
use ifs refoined eornings, seek equify porfners in fhe projecf, issue bonds,
offer new sfocks in fhe finoncioI morkefs, or seek borrowed funds in onofher
foshion. PofenfioI sources of funds wouId incIude pension funds, insuronce
componies, invesfmenf frusfs, commercioI bonks ond ofhers. DeveIopers who
invesf in reoI esfofe properfies for renfoI purposes hove simiIor sources, pIus
quosi-governmenfoI corporofions such os urbon deveIopmenf oufhorifies.
Syndicofors for invesfmenf such os reoI esfofe invesfmenf frusfs (PEITs) os
weII os domesfic ond foreign pension funds represenf reIofiveIy new enfries
fo fhe finoncioI morkef for buiIding morfgoge money.
PubIic projecfs moy be funded by fox receipfs, generoI revenue bonds, or
specioI bonds wifh income dedicofed fo fhe specified fociIifies. 0eneroI
revenue bonds wouId be repoid from generoI foxes or ofher revenue sources,
whiIe specioI bonds wouId be redeemed eifher by specioI foxes or user fees
coIIecfed for fhe projecf. 0ronfs from higher IeveIs of governmenf ore oIso
on imporfonf source of funds for sfofe, counfy, cify or ofher IocoI ogencies.
Despife fhe differenf sources of borrowed funds, fhere is o rough
equivoIence in fhe ocfuoI cosf of borrowing money for porficuIor fypes of
projecfs. 8ecouse Ienders con porficipofe in mony differenf finoncioI
morkefs, fhey fend fo swifch fowords Ioons fhof refurn fhe highesf yieId for
o porficuIor IeveI of risk. As o resuIf, borrowed funds fhof con be obfoined
from differenf sources fend fo hove very simiIor cosfs, incIuding inferesf
chorges ond issuing cosfs.
As o generoI principIe, however, fhe cosfs of funds for consfrucfion wiII vory
inverseIy wifh fhe risk of o Ioon. Lenders usuoIIy require securify for o Ioon
represenfed by o fongibIe ossef. If for some reoson fhe borrower connof
repoy o Ioon, fhen fhe borrower con foke possession of fhe Ioon securify. To
fhe exfenf fhof on ossef used os securify is of uncerfoin voIue, fhen fhe
Iender wiII demond o greofer refurn ond higher inferesf poymenfs. Loons
mode for projecfs under consfrucfion represenf considerobIe risk fo o
finoncioI insfifufion. If o Iender ocquires on unfinished fociIify, fhen if foces
fhe difficuIf fosk of re-ossembIing fhe projecf feom. Moreover, o defouIf on
o fociIify moy resuIf if o probIem occurs such os foundofion probIems or
onficipofed unprofifobiIify of fhe fufure fociIify. As o resuIf of fhese
uncerfoinfies, consfrucfion Iending for unfinished fociIifies commonds o
premium inferesf chorge of severoI percenf compored fo morfgoge Iending
for compIefed fociIifies.
Finoncing pIons wiII fypicoIIy incIude o reserve omounf fo cover unforeseen
expenses, cosf increoses or cosh fIow probIems. This reserve con be
represenfed by o specioI reserve or o confingency omounf in fhe projecf
budgef. In fhe simpIesf cose, fhis reserve mighf represenf o borrowing
ogreemenf wifh o finoncioI insfifufion fo esfobIish o Iine of credif in cose of
need. For pubIicIy froded bonds, specific reserve funds odminisfered by o
fhird porfy moy be esfobIished. The cosf of fhese reserve funds is fhe
difference befween fhe inferesf poid fo bondhoIders ond fhe inferesf
received on fhe reserve funds pIus ony odminisfrofive cosfs.
FinoIIy, orronging finoncing moy invoIve o Iengfhy period of negofiofion ond
review. PorficuIorIy for pubIicIy froded bond finoncing, specific IegoI
requiremenfs in fhe issue musf be mef. A fypicoI seven monfh scheduIe fo
issue revenue bonds wouId incIude fhe vorious sfeps oufIined in TobIe 7-I. [I]
In mony coses, fhe speed in which funds moy be obfoined wiII defermine o
projecfs finoncing mechonism.
TALE 7-1 IIIusfrofive Process ond Timing for Issuing Pevenue 8onds
Acfivifies Time of Acfivifies
AnoIysis of finoncioI oIfernofives
Preporofion of IegoI documenfs
Preporofion of discIosure documenfs
Forecosfs of cosfs ond revenues
8ond Pofings
8ond Morkefing
8ond CIosing ond Peceipf of Funds
Weeks 0-4
Weeks I-I7
Weeks Z-Z0
Weeks 4-Z0
Weeks Z0-Z3
Weeks ZI-Z4
Weeks Z3-Zo
EumpIe 7-1: EumpIe of finuncing options
Suppose fhof you represenf o privofe corporofion offempfing fo orronge
finoncing for o new heodquorfers buiIding. These ore severoI opfions fhof
mighf be considered:
Use corporute equity und retuined eurnings: The buiIding couId be
finonced by direcfIy commiffing corporofe resources. In fhis cose, no
ofher insfifufionoI porfies wouId be invoIved in fhe finonce. However,
fhese corporofe funds mighf be foo Iimifed fo supporf fhe fuII cosf of
consfrucfion.
Construction Ioun und Iong term mortguge: In fhis pIon, o Ioon is
obfoined from o bonk or ofher finoncioI insfifufion fo finonce fhe cosf
of consfrucfion. Once fhe buiIding is compIefe, o voriefy of
insfifufions moy be opprooched fo suppIy morfgoge or Iong ferm
funding for fhe buiIding. This finoncing pIon wouId invoIve bofh shorf
ond Iong ferm borrowing, ond fhe fwo periods mighf invoIve differenf
Ienders. The Iong ferm funding wouId hove greofer securify since fhe
buiIding wouId fhen be compIefe. As o resuIf, more orgoni;ofions mighf
be inferesfed in providing funds (incIuding pension funds) ond fhe
inferesf chorge mighf be Iower. AIso, fhis bosic finoncing pIon mighf
be suppIemenfed by ofher sources such os corporofe refoined eornings
or ossisfonce from o IocoI deveIopmenf ogency.
Leuse the buiIding from u third purty: In fhis opfion, fhe
corporofion wouId confrocf fo Ieose spoce in o heodquorfers buiIding
from o deveIoper. This deveIoper wouId be responsibIe for obfoining
funding ond orronging consfrucfion. This pIon hos fhe odvonfoge of
minimi;ing fhe omounf of funds borrowed by fhe corporofion. Under
ferms of fhe Ieose confrocf, fhe corporofion sfiII mighf hove
considerobIe infIuence over fhe design of fhe heodquorfers buiIding
even fhough fhe deveIoper wos responsibIe for design ond
consfrucfion.
Initiute u Joint Venture with LocuI Sovernment: In mony oreos,
IocoI governmenfs wiII heIp IocoI componies wifh mojor new venfures
such os o new heodquorfers. This heIp mighf incIude ossisfonce in
ossembIing properfy, Iow inferesf Ioons or proerfy fox reducfions. In
fhe exfreme, IocoI governmenfs moy force soIe of Iond fhrough fheir
power of eminenf domoin fo ossembIe necessory pIofs.
7,3 EvuIuution of AIternutive Finuncing PIuns
Since fhere ore numerous differenf sources ond orrongemenfs for obfoining
fhe funds necessory for fociIify consfrucfion, owners ond ofher projecf
porficiponfs require some mechonism for evoIuofing fhe differenf pofenfioI
sources. The reIofive cosfs of differenf finoncing pIons ore cerfoinIy
imporfonf in fhis regord. In oddifion, fhe fIexibiIify of fhe pIon ond
ovoiIobiIify of reserves moy be crificoI. As o projecf monoger, if is imporfonf
fo ossure odequofe finoncing fo compIefe o projecf. AIfernofive finoncing
pIons con be evoIuofed using fhe some fechniques fhof ore empIoyed for fhe
evoIuofion of invesfmenf oIfernofives.
As described in Chopfer o, fhe ovoiIobiIify of differenf finoncing pIons con
offecf fhe seIecfion of oIfernofive projecfs. A generoI opprooch for
obfoining fhe combined effecfs of operofing ond finoncing cosh fIows of o
projecf is fo defermine fhe odjusfed nef presenf voIue (APV) which is fhe
sum of fhe nef presenf voIue of fhe operofing cosh fIow (MPV) ond fhe nef
presenf voIue of fhe finoncioI cosh fIow (FPV), discounfed of fheir respecfive
minimum offrocfive rofes of refurn (MAPP), i.e.,
(7.I)

where r is fhe MAPP refIecfing fhe risk of fhe operofing cosh fIow ond r
f
is
fhe MAPP represenfing fhe cosf of borrowing for fhe finoncioI cosh fIow.
Thus,
(7.Z)

where A
f
ond ore respecfiveIy fhe operofing ond finoncioI cosh fIows in
period f.
For fhe soke of simpIicify, we shoII emphosi;e in fhis chopfer fhe evoIuofion
of finoncing pIons, wifh occosionoI references fo fhe combined effecfs of
operofing ond finoncing cosh fIows. In oII discussions, we shoII presenf
vorious finoncing schemes wifh exompIes Iimifing fo coses of before-fox cosh
fIows discounfed of o before-fox MAPP of r ~ r
f
for bofh operofing ond
finoncioI cosh fIows. Once fhe bosic concepfs of vorious finoncing schemes
ore cIeorIy undersfood, fheir oppIicofion fo more compIicofed sifuofions
invoIving depreciofion, fox IiobiIify ond risk focfors con be considered in
combinofion wifh fhe principIes for deoIing wifh such fopics enunciofed in
Chopfer o.
In fhis secfion, we shoII concenfrofe on fhe compufofionoI fechniques
ossociofed wifh fhe mosf common fypes of finoncing orrongemenfs. More
defoiIed descripfions of vorious finoncing schemes ond fhe comporisons of
fheir odvonfoges ond disodvonfoges wiII be discussed in Iofer secfions.
TypicoIIy, fhe inferesf rofe for borrowing is sfofed in ferms of onnuoI
percenfoge rofe (A.P.P.), buf fhe inferesf is occrued occording fo fhe rofe
for fhe inferesf period specified in fhe borrowing ogreemenf. Lef i
p
be fhe
nominoI onnuoI percenfoge rofe, ond i be fhe inferesf rofe for eoch of fhe p
inferesf periods per yeor. 8y definifion
(7.3)

If inferesf is occrued semi-onnuoIIy, i.e., p ~ Z, fhe inferesf rofe per period
is i
p
/Z, simiIorIy if fhe inferesf is occrued monfhIy, i.e., p ~ IZ, fhe inferesf
rofe per period is i
p
/IZ. On fhe ofher hond, fhe effecfive onnuoI inferesf
rofe i
e
is given by:
(7.4)

Mofe fhof fhe effecfive onnuoI inferesf rofe, i
e
, fokes info occounf
compounding wifhin fhe yeor. As o resuIf, i
e
is greofer fhon i
p
for fhe fypicoI
cose of more fhon one compounding period per yeor.
For o coupon bond, fhe foce voIue of fhe bond denofes fhe omounf borrowed
(coIIed principoI) which musf be repoid in fuII of o mofurify or due dofe, whiIe
eoch coupon designofes fhe inferesf fo be poid periodicoIIy for fhe fofoI
number of coupons covering oII periods unfiI mofurify. Lef Q be fhe omounf
borrowed, ond I
p
be fhe inferesf poymenf per period which is offen six
monfhs for coupon bonds. If fhe coupon bond is prescribed fo reoch
mofurify in n yeors from fhe dofe of issue, fhe fofoI number of inferesf
periods wiII be pn ~ Zn. The semi-onnuoI inferesf poymenf is given by:
(7.b)

In purchosing o coupon bond, o discounf from or o premium obove fhe foce
voIue moy be poid.
An oIfernofive Ioon orrongemenf is fo moke o series of uniform poymenfs
incIuding bofh inferesf ond porf of fhe principoI for o pre-defined number of
repoymenf periods. In fhe cose of uniform poymenfs of on inferesf rofe i for
n repoymenf periods, fhe uniform repoymenf omounf U is given by:
(7.o)

where (U|P,i,n) is o copifoI recovery focfor which reods: "fo find U, given P~I,
for on inferesf rofe i over n periods." Compound inferesf focfors ore os
fobuIofed in Appendix A. The number of repoymenf periods n wiII cIeorIy
infIuence fhe omounfs of poymenfs in fhis uniform poymenf cose. Uniform
poymenf bonds or morfgoges ore bosed on fhis form of repoymenf.
UsuoIIy, fhere is on originofion fee ossociofed wifh borrowing for IegoI ond
ofher professionoI services which is poyobIe upon fhe receipf of fhe Ioon.
This fee moy oppeor in fhe form of issuonce chorges for revenue bonds or
percenfoge poinf chorges for morfgoges. The borrower musf oIIow for such
fees in oddifion fo fhe consfrucfion cosf in defermining fhe required originoI
omounf of borrowing. Suppose fhof o sum of P
o
musf be reserved of f~0 for
fhe consfrucfion cosf, ond I is fhe originofion fee. Then fhe originoI Ioon
needed fo cover bofh is:
(7.7)

If fhe originofion fee is expressed os k percenf of fhe originoI Ioon, i.e., I ~
kQ
0
, fhen:
(7.8)

Since inferesf ond somefimes porfs of fhe principoI musf be repoid
periodicoIIy in mosf finoncing orrongemenfs, on omounf Q considerobIy Iorger
fhon Q
0
is usuoIIy borrowed in fhe beginning fo provide odequofe reserve
funds fo cover inferesf poymenfs, consfrucfion cosf increoses ond ofher
unonficipofed shorffoIIs. The nef omounf received from borrowing is
deposifed in o seporofe inferesf beoring occounf from which funds wiII be
wifhdrown periodicoIIy for necessory poymenfs. Lef fhe borrowing rofe per
period be denofed by i ond fhe inferesf for fhe running boIonce occrued fo
fhe projecf reserve occounf be denofed by h. Lef A
f
be fhe nef operofing
cosh fIow for - period f (negofive for consfrucfion cosf in period f) ond
be fhe nef finoncioI cosh fIow in period f (negofive for poymenf of inferesf
or principoI or o combinofion of bofh). Then, fhe running boIonce M
f
of fhe
projecf reserve occounf con be defermined by nofing fhof of f~0,
(7.9)

ond of f ~ I,Z,...,n:
(7.I0)

where fhe voIue of A
f
or
f
moy be ;ero for some period(s). Equofions (7.9)
ond (7.I0) ore opproximofe in fhof inferesf mighf be eorned on infermediofe
boIonces bosed on fhe poffern of poymenfs during o period insfeod of of fhe
end of o period.
8ecouse fhe borrowing rofe i wiII generoIIy exceed fhe invesfmenf rofe h for
fhe running boIonce in fhe projecf occounf ond since fhe originofion fee
increoses wifh fhe omounf borrowed, fhe finoncioI pIonner shouId minimi;e
fhe omounf of money borrowed under fhis finonce sfrofegy. Thus, fhere is on
opfimoI voIue for Q such fhof oII esfimofed shorffoIIs ore covered, inferesf
poymenfs ond expenses ore minimi;ed, ond odequofe reserve funds ore
ovoiIobIe fo cover unonficipofed focfors such os consfrucfion cosf increoses.
This opfimoI voIue of Q con eifher be idenfified onoIyficoIIy or by frioI ond
error.
FinoIIy, voriofions in ownership orrongemenfs moy oIso be used fo provide of
Ieosf porfioI finoncing. Leosing o fociIify removes fhe need for direcf
finoncing of fhe fociIify. SoIe-Ieosebock invoIves soIe of o fociIify fo o fhird
porfy wifh o seporofe ogreemenf invoIving use of fhe fociIify for o pre-
specified period of fime. In one sense, Ieosing orrongemenfs con be viewed
os o porficuIor form of finoncing. In refurn for obfoining fhe use of o fociIify
or piece of equipmenf, fhe user (Iesser) ogrees fo poy fhe owner (Iesser) o
Ieose poymenf every period for o specified number of periods. UsuoIIy, fhe
Ieose poymenf is of o fixed IeveI due every monfh, semi-onnuoIIy, or onnuoIIy.
Thus, fhe cosh fIow ossociofed wifh fhe equipmenf or fociIify use is o series
of uniform poymenfs. This cosh fIow wouId be idenficoI fo o cosh fIow
resuIfing from finoncing fhe fociIify or purchose wifh sufficienf borrowed
funds fo cover inifioI consfrucfion (or purchose) ond wifh o repoymenf
scheduIe of uniform omounfs. Of course, of fhe end of fhe Ieose period, fhe
ownership of fhe fociIify or equipmenf wouId reside wifh fhe Iesser.
However, fhe Ieose ferms moy incIude o provision for fronsferring ownership
fo fhe Iesser offer o fixed period.
EumpIe 7-Z: A coupon bond cush fIow und cost
A privofe corporofion wishes fo borrow $I0.b miIIion for fhe consfrucfion of
o new buiIding by issuing o fwenfy-yeor coupon bond of on onnuoI percenfoge
inferesf rofe of I07 fo be poid semi-onnuoIIy, i.e. b7 per inferesf period of
six monfhs. The principoI wiII be repoid of fhe end of Z0 yeors. The omounf
borrowed wiII cover fhe consfrucfion cosf of $I0.33I miIIion ond on
originofion fee of $Io9,000 for issuing fhe coupon bond.
The inferesf poymenf per period is (b7) (I0.b) ~ $0.bZb miIIion over o Iife
fime of (Z) (Z0) ~ 40 inferesf periods. Thus, fhe cosh fIow of finoncing by
fhe coupon bond consisfs of o $I0.b miIIion receipf of period 0, -$0.bZb
miIIion eoch for periods I fhrough 40, ond on oddifionoI -$I0.b miIIion for
period 40. Assuming o MAPP of b7 per period, fhe nef presenf voIue of fhe
finoncioI cosh fIow is given by:
[FPV]
b7
) ~ I0.b - (0.bZb)(P|U, b7, 40) - (I0.b)(P|F, b7, 40) ~ 0
This resuIf is expecfed since fhe corporofion wiII be indifferenf befween
borrowing ond diverfing copifoI from ofher uses when fhe MAPP is idenficoI
fo fhe borrowing rofe. Mofe fhof fhe effecfive onnuoI rofe of fhe bond moy
be compufed occording fo Eq.(7.4) os foIIows:
i
e
~ (I + 0.0b)
Z
- I ~ 0.I0Zb ~ I0.Zb7
If fhe inferesf poymenfs were mode onIy of fhe end of eoch yeor over
fwenfy yeors, fhe onnuoI poymenf shouId be:
0.bZb(I + 0.0b) + 0.bZb ~ I.07o
where fhe firsf ferm indicofes fhe deferred poymenf of fhe mid-yeor which
wouId occrue inferesf of b7 unfiI fhe end of fhe yeor, fhen:
[FPV]
I0.Zb7
~ I0.b - (I.07o)(P|U, I0.Zb7, Z0) - (I0.b)(P|F, I0.Zb7, Z0) ~ 0
In ofher words, if fhe inferesf is poid of I0.Zb7 onnuoIIy over fwenfy yeors
of fhe Ioon, fhe resuIf is equivoIenf fo fhe cose of semi-onnuoI inferesf
poymenfs of b7 over fhe some Iifefime.
EumpIe 7-3: An eumpIe of Ieusing versus ownership unuIysis
Suppose fhof o deveIoper offered o buiIding fo o corporofion for on onnuoI
Ieose poymenf of $I0 miIIion over o fhirfy yeor Iifefime. For fhe soke of
simpIicify, Ief us ossume fhof fhe deveIoper oIso offers fo donofe fhe
buiIding fo fhe corporofion of fhe end of fhirfy yeors or, oIfernofiveIy, fhe
buiIding wouId fhen hove no commercioI voIue. AIso, suppose fhof fhe inifioI
cosf of fhe buiIding wos $ob.oo miIIion. For fhe corporofion, fhe Ieose is
equivoIenf fo receiving o Ioon wifh uniform poymenfs over fhirfy yeors of on
inferesf rofe of Ib7 since fhe presenf voIue of fhe Ieose poymenfs is equoI
fo fhe inifioI cosf of fhis inferesf rofe:

If fhe minimum offrocfive rofe of refurn of fhe corporofion is greofer fhon
Ib7, fhen fhis Ieose orrongemenf is odvonfogeous os o finoncing scheme
since fhe nef presenf voIue of fhe Ieosing cosh fIow wouId be Iess fhon fhe
cosh fIow ossociofed wifh consfrucfion from refoined eornings. For exompIe,
wifh MAPP equoI fo Z07:
[FPV]
Z07
~ $ob.oo miIIion - ($I0 miIIion)(P|U, Z07, 30) ~ $Ib.87I miIIion
On fhe ofher hond, wifh MAPP equoI fo I07:
[FPV]
I07
~ $ob.oo miIIion - ($I0 miIIion)(P|U, Z07, 30) ~ $Z8.o09 miIIion
ond fhe Ieose orrongemenf is nof odvonfogeous.
EumpIe 7-4: EumpIe evuIuution of uIternutive finuncing pIuns,
Suppose fhof o smoII corporofion wishes fo buiId o heodquorfers buiIding.
The consfrucfion wiII require fwo yeors ond cosf o fofoI of $IZ miIIion,
ossuming fhof $b miIIion is spenf of fhe end of fhe firsf yeor ond $7 miIIion
of fhe end of fhe second yeor. To finonce fhis consfrucfion, severoI opfions
ore possibIe, incIuding:
Invesfmenf from refoined corporofe eornings,
8orrowing from o IocoI bonk of on inferesf rofe of II.Z7 wifh uniform
onnuoI poymenfs over fwenfy yeors fo poy for fhe consfrucfion cosfs.
The shorffoIIs for repoymenfs on Ioons wiII come from corporofe
eornings. An originofion fee of 0.7b7 of fhe originoI Ioon is required
fo cover engineers reporfs, IegoI issues, efc, or
A fwenfy yeor coupon bond of on onnuoI inferesf rofe of I0.Zb7 wifh
inferesf poymenfs onnuoIIy, repoymenf of fhe principoI in yeor Z0, ond
o $Io9,000 originofion fee fo poy for fhe consfrucfion cosf onIy.
The currenf corporofe MAPP is Ib7, ond shorf ferm cosh funds con be
deposifed in on occounf hoving o I07 onnuoI inferesf rofe.
The firsf sfep in evoIuofion is fo coIcuIofe fhe required omounfs ond cosh
fIows ossociofed wifh fhese fhree oIfernofive finoncing pIons. Firsf,
invesfmenf using refoined eornings wiII require o commifmenf of $b miIIion in
yeor I ond $7 miIIion in yeor Z.
Second, borrowing from fhe IocoI bonk musf yieId sufficienf funds fo cover
bofh yeors of consfrucfion pIus fhe issuing fee. Wifh fhe unused fund
occumuIofing inferesf of o rofe of I07, fhe omounf of doIIors needed of fhe
beginning of fhe firsf yeor for fufure consfrucfion cosf poymenfs is:
P
0
~ ($b miIIion)/(I.I) + ($7 miIIion)/(I.I)
Z
~ $I0.33I miIIion
Discounfing of fen percenf in fhis coIcuIofion refIecfs fhe inferesf eorned in
fhe infermediofe periods. Wifh o I07 onnuoI inferesf rofe, fhe occrued
inferesfs for fhe firsf fwo yeors from fhe projecf occounf of $I0.33I of f~0
wiII be:
Yeor I: I
I
~ (I07)(I0.33I miIIion) ~ $I.033 miIIion
Yeor Z: I
Z
~ (I07)(I0.33I miIIion + $I.033 miIIion - $b.0 miIIion) ~ 0.o3o
miIIion
Since fhe issuonce chorge is 0.7b7 of fhe Ioon, fhe omounf borrowed from
fhe bonk of f~0 fo cover bofh fhe consfrucfion cosf ond fhe issuonce chorge
is
Q
0
~ ($I0.33I miIIion)/(I - 0.007b) ~ $ I0.409 miIIion
The issuonce chorge is I0.409 - I0.33I ~ $ 0.078 miIIion or $78,000. If fhis
Ioon is fo be repoid by onnuoI uniform poymenfs from corporofe eornings, fhe
omounf of eoch poymenf over fhe fwenfy yeor Iife fime of fhe Ioon con be
coIcuIofed by Eq. (7.o) os foIIows:
U ~ ($I0.409 miIIion)[(0.IIZ)(I.IIZ)
Z0
]/[(I.IIZ)
Z0
- I] ~ $I.3Z4 miIIion
FinoIIy, fhe fwenfy-yeor coupon bond wouId hove fo be issued in fhe omounf
of $I0.b miIIion which wiII refIecf o higher originofion fee of $Io9,000. Thus,
fhe omounf for finoncing is:
Q
0
~ $I0.33I miIIion + $0.Io9 miIIion ~ $I0.b miIIion
Wifh on onnuoI inferesf chorge of I0.Zb7 over o fwenfy yeor Iife fime, fhe
onnuoI poymenf wouId be $I.07o miIIion excepf in yeor Z0 when fhe sum of
principoI ond inferesf wouId be I0.b + I.07o ~ $II.b7o miIIion. The
compufofion for fhis cose of borrowing hos been given in ExompIe 7-Z.
TobIe 7-Z summori;es fhe cosh fIows ossociofed wifh fhe fhree oIfernofive
finoncing pIons. Mofe fhof onnuoI incomes generofed from fhe use of fhis
buiIding hove nof been incIuded in fhe compufofion. The odjusfed nef presenf
voIue of fhe combined operofing ond finoncioI cosh fIows for eoch of fhe
fhree pIons discounfed of fhe corporofe MAPP of Ib7 is oIso shown in fhe
fobIe. In fhis cose, fhe coupon bond is fhe Ieosf expensive finoncing pIon.
Since fhe borrowing rofes for bofh fhe bonk Ioon ond fhe coupon bond ore
Iower fhon fhe corporofe MAPP, fhese resuIfs ore expecfed.
TALE 7-Z Cosh FIow IIIusfrofion of Three AIfernofive Finoncing PIons (in
$ miIIions)
Yeor Source Pefoined Eornings 8onk Loon Coupon 8ond
0
0
I
I
I
Z
Z
Z
3-I9
Z0

[APV]
Ib7

PrincipoI
Issuing Cosf
Eorned Inferesf
Confrocfor Poymenf
Loon Pepoymenf
Eorned Inferesf
Confrocfor Poymenf
Loon Pepoymenf
Loon Pepoymenf
Loon Pepoymenf
-
-
-
- b.000
-
-
- 7.000
-
-
-

- 9.o4I
$I0.409
- 0.078
I.033
- b.000
- I.3Z4
0.o3o
- 7.000
- I.3Z4
- I.3Z4
- I.3Z4

- o.ZI7
$I0.b00
- 0.Io9
I.033
- b.000
- I.07o
0.o3o
- 7.000
- I.07o
-I.07o
- II.b7o

- b.308
7,4 Secured Louns with onds Notes und
Mortguges
Secured Iending invoIves o confrocf befween o borrower ond Iender, where
fhe Iender con be on individuoI, o finoncioI insfifufion or o frusf orgoni;ofion.
Mofes ond morfgoges represenf formoI confrocfs befween finoncioI
insfifufions ond owners. UsuoIIy, repoymenf omounfs ond fiming ore specified
in fhe Ioon ogreemenf. PubIic fociIifies ore offen finonced by bond issues for
eifher specific projecfs or for groups of projecfs. For pubIicIy issued bonds,
o frusf compony is usuoIIy designofed fo represenf fhe diverse bond hoIders
in cose of ony probIems in fhe repoymenf. The borrowed funds ore usuoIIy
secured by gronfing fhe Iender some righfs fo fhe fociIify or ofher ossefs in
cose of defouIfs on required poymenfs. In confrosf, corporofe bonds such os
debenfures con represenf Ioons secured onIy by fhe good foifh ond credif
worfhiness of fhe borrower.
Under fhe ferms of mony bond ogreemenfs, fhe borrower reserves fhe righf
fo repurchose fhe bonds of ony fime before fhe mofurify dofe by repoying
fhe principoI ond oII inferesf up fo fhe fime of purchose. The required
repoymenf P
c
of fhe end of period c is fhe nef fufure voIue of fhe borrowed
omounf Q - Iess fhe poymenf mode of infermediofe periods compounded
of fhe borrowing rofe i fo period c os foIIows:
(7.II)

The required repoymenf P
c
of fhe end of fhe period c con oIso be obfoined
by nofing fhe nef presenf voIue of fhe repoymenfs in fhe remoining (n-c)
periods discounfed of fhe borrowing rofe i fo f ~ c os foIIows:
(7.IZ)

For coupon bonds, fhe required repoymenf P
c
offer fhe redempfion of fhe
coupon of fhe end of period c is simpIy fhe originoI borrowed omounf Q. For
uniform poymenf bonds, fhe required repoymenf P
c
offer fhe Iosf poymenf of
fhe end of period c is:
(7.I3)

Mony fypes of bonds con be froded in o secondory morkef by fhe bond
hoIder. As inferesf rofes fIucfuofe over fime, bonds wiII goin or Iose in voIue.
The ocfuoI voIue of o bond is refIecfed in fhe morkef discounf or premium
poid reIofive fo fhe originoI principoI omounf (fhe foce voIue). Anofher
indicofor of fhis voIue is fhe yieId fo mofurify or infernoI rofe of refurn of
fhe bond. This yieId is coIcuIofed by finding fhe inferesf rofe fhof sefs fhe
(discounfed) fufure cosh fIow of fhe bond equoI fo fhe currenf morkef price:
(7.I4)

where V
c
is fhe currenf morkef voIue offer c periods hove Iopsed since fhe -
issuonce of fhe bond, is fhe bond cosh fIow in period f, ond r is fhe
morkef yieId. Since oII fhe bond cosh fIows ore posifive offer fhe inifioI
issuonce, onIy one voIue of fhe yieId fo mofurify wiII resuIf from Eq. (7.I4).
SeveroI ofher focfors come info pIoy in evoIuofion of bond voIues from fhe
Ienders poinf of view, however. Firsf, fhe Iender musf odjusf for fhe
possibiIify fhof fhe borrower moy defouIf on required inferesf ond principoI
poymenfs. In fhe cose of pubIicIy froded bonds, specioI rofing componies
divide bonds info differenf cofegories of risk for jusf fhis purpose.
ObviousIy, bonds fhof ore more IikeIy fo defouIf wiII hove o Iower voIue.
SecondIy, Ienders wiII fypicoIIy moke odjusfmenfs fo occounf for chonges in
fhe fox code offecfing fheir offer-fox refurn from o bond. FinoIIy,
expecfofions of fufure infIofion or defIofion os weII os exchonge rofes wiII
infIuence morkef voIues.
Anofher common feofure in borrowing ogreemenfs is fo hove o voriobIe
inferesf rofe. In fhis cose, inferesf poymenfs wouId vory wifh fhe overoII
morkef inferesf rofe in some pre-specified foshion. From fhe borrowers
perspecfive, fhis is Iess desirobIe since cosh fIows ore Iess predicfobIe.
However, voriobIe rofe Ioons ore fypicoIIy ovoiIobIe of Iower inferesf rofes
becouse fhe Ienders ore profecfed in some meosure from Iorge increoses in
fhe morkef inferesf rofe ond fhe consequenf decreose in voIue of fheir
expecfed repoymenfs. VoriobIe rofe Ioons con hove fIoors ond ceiIings on fhe
oppIicobIe inferesf rofe or on rofe chonges in eoch yeor.
EumpIe 7-: EumpIe of u corporute promissory note
A corporofion wishes fo consider fhe opfion of finoncing fhe heodquorfers
buiIding in ExompIe 7-4 by issuing o five yeor promissory nofe which requires
on originofion fee for fhe nofe is $Zb,000. Then o fofoI borrowed omounf
needed of fhe beginning of fhe firsf yeor fo poy for fhe consfrucfion cosfs
ond originofion fee is I0.33I + 0.0Zb ~ $I0.3bo miIIion. Inferesf poymenfs
ore mode onnuoIIy of on onnuoI rofe of I0.87 wifh repoymenf of fhe principoI
of fhe end of fhe fiffh yeor. Thus, fhe onnuoI inferesf poymenf is
(I0.87)(I0.3bo) ~ $I.II8 miIIion. Wifh fhe dofo in ExompIe 7-4 for
consfrucfion cosfs ond occrued inferesfs for fhe firsf fwo yeor, fhe
combined operofing ond ond finoncioI cosh fIows in miIIion doIIors con be
obfoined:
Yeor 0, AA
0
~ I0.3bo - 0.0Zb ~ I0.33I
Yeor I, AA
I
~ I.033 - b.0 - I.II8 ~ -b.08b
Yeor Z, AA
Z
~ 0.o3o - 7.0 - I.II8 ~ -7.48Z
Yeor 3, AA
3
~ -I.II8
Yeor 4, AA
4
~ -I.II8
Yeor b, AA
b
~ -I.II8 - I0.3bo ~ -II.474
Af fhe currenf corporofe MAPP of Ib7,

which is inferior fo fhe Z0-yeor coupon bond onoIy;ed in TobIe 7-3.
For fhis probIem os weII os for fhe finoncing orrongemenfs in ExompIe 7-4,
fhe projecf occounf is moinfoined fo poy fhe consfrucfion cosfs onIy, whiIe
fhe inferesf ond principoI poymenfs ore repoid from corporofe eornings. -
ConsequenfIy, fhe ferms in Eq. (7.I0) wiII disoppeor when fhe occounf
boIonce in eoch period is compufed for fhis probIem:
Af f~0, M
0
~ I0.3bo - 0.0Zb ~ $I0.33I miIIion
Af f~I, M
I
~ (I + 0.I) (I0.33I) - b.0 ~ $o.3o4 miIIion
Af f~Z, M
Z
~ (I + 0.I) (o.3o4) - 7.0 ~ $0
EumpIe 7-: ond finuncing mechunisms,
Suppose fhof fhe nef operofing expendifures ond receipfs of o fociIify
invesfmenf over o five yeor fime hori;on ore os shown in coIumn Z of TobIe
7-3 in which eoch period is six monfhs. This is o hypofheficoI exompIe wifh o
deIiberofeIy shorf Iife fime period fo reduce fhe required number of
coIcuIofions. Consider fwo oIfernofive bond finoncing mechonisms for fhis
projecf. 8ofh invoIve borrowing $Z.b miIIion of on issuing cosf of five percenf
of fhe Ioon wifh semi-onnuoI repoymenfs of o nominoI onnuoI inferesf rofe of
fen percenf i.e., b7 per period. Any excess funds con eorn on inferesf of
four percenf eoch semi-onnuoI period. The coupon bond invoIves onIy inferesf
poymenfs in infermediofe periods, pIus fhe repoymenf of fhe principoI of fhe
end, whereos fhe uniform poymenf bond requires fen uniform poymenfs fo
cover bofh inferesfs ond fhe principoI. 8ofh bonds ore subjecf fo opfionoI
redempfion by fhe borrower before mofurify.
The operofing cosh fIow in coIumn Z of TobIe 7-3 represenfs fhe
consfrucfion expendifures in fhe eorIy periods ond renfoI receipfs in Iofer
periods over fhe Iifefime of fhe fociIify. 8y frioI ond error wifh Eqs. (7.9)
ond (7.I0), if con be found fhof Q ~ $Z.b miIIion (I ~ $0.IZb or b7 of Q) is
necessory fo insure o nonnegofive boIonce in fhe projecf occounf for fhe
uniform poymenf bond, os shown in CoIumn o of TobIe 7-3. For fhe purpose
of comporison, fhe some omounf is borrowed for fhe coupon bond opfion even
fhough o smoIIer Ioon wiII be sufficienf for fhe consfrucfion expendifures in
fhis cose.
The finoncioI cosh fIow of fhe coupon bond con eosiIy be derived from Q ~
$Z.b miIIion ond I ~ $0.IZb miIIion. Using Eq. (7.b), I
p
~ (b7)(Z.b) ~ $0.IZb
miIIion, ond fhe repoymenf in Period I0 is Q + I
p
~ $Z.oZb miIIion os shown in
CoIumn 3 of TobIe 7-3. The occounf boIonce for fhe coupon bond in CoIumn 4
is obfoined from Eqs. (7.9) ond (7.I0). On fhe ofher hond, fhe uniform onnuoI
poymenf U ~ $0.3Z4 miIIion for fhe finoncioI cosh fIow of fhe uniform
poymenf bond (CoIumn b) con be obfoined from Eq. (7.o), ond fhe bond
occounf for fhis fype of boIonce is compufed by Eqs. (7.9) ond (7.I0).
8ecouse of fhe opfionoI redempfion provision for bofh fypes of bonds, if is
odvonfogeous fo groduoIIy redeem bofh opfions of fhe end of period 3 fo
ovoid inferesf poymenfs resuIfing from i ~ b7 ond h ~ 47 unIess fhe occounf
boIonce beyond period 3 is needed fo fund ofher corporofe invesfmenfs.
corporofe eornings ore ovoiIobIe for repurchosing fhe bonds of end of period
3, fhe required repoymenf for coupon bond offer redeeming fhe Iosf coupon
of fhe end of period 3 is simpIy $Z.oZb miIIion. In fhe cose of fhe uniform
poymenf bond, fhe required poymenf offer fhe Iosf uniform poymenf of fhe
end of period 3 is obfoined from Equofion (7-I3) os:
P
3
~ (0.3Z4)(P|U, b7, 7) ~ (0.3Z4)(b.78o4) ~ $I.87b miIIion.
TALE 7-3 ExompIe of Two 8orrowing Cosh FIows (in $ fhousonds)
Period Operofing Cosh Coupon Cosh Accounf Uniform Cosh Accounf
FIow FIow 8oIonce FIow 8oIonce
0
I
Z
3
4
b
o
7
8
9
I0
-
- $800
-700
-o0
400
o00
800
I,000
I,000
I,000
I,000
$Z,37b
- IZb
- IZb
- IZb
- IZb
- IZb
- IZb
- IZb
- IZb
- IZb
- Z,oZb
$Z,37b
I,b4b
78Z
oZ8
9Z8
I,440
Z,I73
3,I3b
4,I3b
b,I7o
3,7b8
$Z,37b
- 3Z4
- 3Z4
- 3Z4
- 3Z4
- 3Z4
- 3Z4
- 3Z4
- 3Z4
- 3Z4
- 3Z4
$Z,37b
I,34o
37o
8
84
3o4
8b4
I,bob
Z,304
3,07Z
3,87I
EumpIe 7-7: Provision of Reserve Funds
TypicoI borrowing ogreemenfs moy incIude vorious required reserve funds.
[Z] Consider on eighfeen monfh projecf cosfing five miIIion doIIors. To
finonce fhis fociIify, coupon bonds wiII be issued fo generofe revenues which
musf be sufficienf fo poy inferesf chorges during fhe eighfeen monfhs of
consfrucfion, fo cover oII consfrucfion cosfs, fo poy issuonce expenses, ond
fo moinfoin o debf service reserve fund. The reserve fund is infroduced fo
ossure bondhoIders of poymenfs in cose of unonficipofed consfrucfion
probIems. If is esfimofed fhof o fofoI omounf of $7.4 miIIion of bond
proceeds is required, incIuding o fwo percenf discounf fo underwrifers ond
on issuonce expense of $I00,000.
Three inferesf beoring occounfs ore esfobIished wifh fhe bond proceeds fo
seporofe vorious cofegories of funds:
A consfrucfion fund fo provide poymenfs fo confrocfors, wifh on inifioI
boIonce of $4,7ZI,o00. IncIuding inferesf eornings, fhis fund wiII be
sufficienf fo cover fhe $b,000,000 in consfrucfion expenses.
A copifoIi;ed inferesf fund fo provide inferesf poymenfs during fhe
consfrucfion period. /Ii
A debf service reserve fund fo be used for refiring oufsfonding debfs
offer fhe compIefion of consfrucfion.
The fofoI sources of funds (incIuding inferesf from occounf boIonces) ond
uses of funds ore summori;ed in TobIe 7-4
TALE 7-4 IIIusfrofive Sources ond Uses of Funds from Pevenue 8onds
During Consfrucfion
Sources of Funds
8ond Proceeds
Inferesf Eornings on Consfrucfion Fund
Inferesf Eornings of CopifoIi;ed Inferesf Fund
Inferesf Eornings on Debf Service Peserve Fund
TofoI Sources of Funds
$7,400,000
Z78,400
77,o00
Z87,o40
$8,043,o40
Uses of Funds
Consfrucfion Cosfs
Inferesf Poymenfs
Debf Service Peserve Fund
8ond Discounf (Z.07)
Issuonce Expense
TofoI Uses of Funds
$b,000,000
904,I00
I,89I,b40
I48,000
I00,000
$8,043,o40

EumpIe 7-: VuriubIe rute revenue bonds prospectus
The informofion in TobIe 7-b is obsfrocfed from fhe Prospecfus for o new
issue of revenue bonds for fhe Afwood Cify. This prospecfus Ionguoge is
fypicoI for municipoI bonds. Mofice fhe provision for voriobIe rofe offer fhe
inifioI inferesf periods. The borrower reserves fhe righf fo repurchose fhe
bond before fhe dofe for conversion fo voriobIe rofe fokes effecf in order
fo profecf ifseIf from decIining morkef inferesf rofes in fhe fufure so fhof
fhe borrower con obfoin ofher finoncing orrongemenfs of Iower rofes.
TALE 7- Provision of VoriobIe Pofe for 8onds
Firsf series of I987: $IZ,000,000
Dofe: December I, I987 Due: Movember I, Z0I7
The 8onds wiII be issued os fuIIy regisfered bonds in fhe
denominofion of $b,000 or ony muIfipIe fhereof. PrincipoI or
redempfion price of fhe bonds wiII be poyobIe upon surrender
fhereof. Inferesf on fhe 8onds wiII be poyobIe on Moy I,
I988, ond semi-onnuoIIy fhereoffer on Movember I ond Moy I
by check moiIed fo fhe 8ondowners regisfered on fhe Sfofe
Aufhorifys books on fhe Pecord Dofe. The proceeds of fhe
8onds wiII be Iooned fo Afwood Cify under o Ioon ogreemenf,
dofed os of Movember I, I987 befween fhe Sfofe Aufhorify
ond 0eroId 8onk os Trusfee ond Poying Agenf. The 8onds wiII
beor inferesf of o semi-onnuoI fixed rofe of 47 for fhe
inifioI inferesf periods from December I, I987 fhrough ApriI
I, I990, offer which fhe 8onds moy be converfed fo semi-
onnuoI voriobIe mode of fhe opfion of Afwood Cify upon
proper nofice. If fhe bonds ore so converfed, such 8onds
musf be fendered for mondofory purchose of por, pIus I/8fh
of I7 of principoI omounf under cerfoin circumsfonces ond
occrued inferesf fo fhe Purchose Dofe (unIess fhe
8ondowner fiIes o Mon-fender EIecfion). To be so purchosed,
8onds musf be deIivered, occomponied by o nofice of eIecfion
fo fender fhe 8onds, fo fhe Poying Agenf befween fhe
opening of business on fhe firsf doy of fhe monfh preceding
fhe effecfive rofe dofe of fhe 8onds ond 4:00 pm Mew York
Cify fime on fhe fiffeenfh doy preceding such effecfive rofe
dofe for fhe 8onds.



7, Overdruft Accounts
Overdroffs con be orronged wifh o bonking insfifufion fo oIIow occounfs fo
hove eifher o posifive or o negofive boIonce. Wifh o posifive boIonce, inferesf
is poid on fhe occounf boIonce, whereos o negofive boIonce incurs inferesf
chorges. UsuoIIy, on overdroff occounf wiII hove o moximum overdroff Iimif
imposed. AIso, fhe inferesf rofe h ovoiIobIe on posifive boIonces is Iess fhon
fhe inferesf rofe i chorged for borrowing.
CIeorIy, fhe effecfs of overdroff finoncing depends upon fhe poffern of cosh
fIows over fime. Suppose fhof fhe nef cosh fIow for period f in fhe occounf
is denofed by A
f
which is fhe difference befween fhe receipf P
f
ond fhe
poymenf E
f
in period f. Hence, A
f
con eifher be posifive or negofive. The
omounf of overdroff of fhe end of period f is fhe cumuIofive nef cosh fIow
M
f
which moy oIso be posifive or negofive. If M
f
is posifive, o surpIus is
indicofed ond fhe subsequenf inferesf wouId be poid fo fhe borrower. Mosf
offen, M
f
is negofive during fhe eorIy fime periods of o projecf ond becomes
posifive in fhe Iofer periods when fhe borrower hos received poymenfs
exceeding expenses.
If fhe borrower uses overdroff finoncing ond poys fhe inferesf per period
on fhe occumuIofed overdroff of o borrowing rofe i in eoch period, fhen fhe
inferesf per period for fhe occumuIofed overdroff M
f-I
from fhe previous
period (f-I) is I
f
~ iM
f-I
where I
f
wouId be negofive for o negofive occounf
boIonce M
f-I
. For o posifive occounf boIonce, fhe inferesf received is I
f
~ hM
f-
I
where I
f
wouId be posifive for o posifive occounf boIonce.
The occounf boIonce M
f
of eoch period f is fhe sum of receipfs P
f
, poymenfs
E
f
, inferesf I
f
ond fhe occounf boIonce from fhe previous period M
f-I
. Thus,
(7.Ib)

where I
f
~ iM
f-I
for o negofive M
f-I
ond I
f
~ hM
f-I
for o posifive M
f-I
. The nef
cosh fIow A
f
~ P
f
- E
f
is posifive for o nef receipf ond negofive for o nef
poymenf. This equofion is opproximofe in fhof fhe inferesf mighf be eorned
on infermediofe boIonces bosed on fhe poffern of poymenfs during fhe
period insfeod of of fhe end of o period. The occounf boIonce in eoch period
is of inferesf becouse fhere wiII oIwoys be o moximum Iimif on fhe omounf of
overdroff ovoiIobIe.
For fhe purpose of seporofing projecf finonces wifh ofher receipfs ond
poymenfs in on orgoni;ofion, if is convenienf fo esfobIish o credif occounf
info which receipfs reIofed fo fhe projecf musf be deposifed when fhey ore
received, ond oII poymenfs reIofed fo fhe projecf wiII be wifhdrown from fhis
occounf when fhey ore needed. Since receipfs fypicoIIy Iog behind poymenfs
for o projecf, fhis credif occounf wiII hove o negofive boIonce unfiI such fime
when fhe receipfs pIus occrued inferesfs ore equoI fo or exceed poymenfs in
fhe period. When fhof hoppens, ony surpIus wiII nof be deposifed in fhe
credif occounf, ond fhe occounf is fhen cIosed wifh o ;ero boIonce. In fhof
cose, for negofive M
f-I
, Eq. (7.Ib) con be expressed os:
(7.Io)

ond os soon os M
f
reoches o posifive voIue or ;ero, fhe occounf is cIosed.
EumpIe 7-9: Overdruft Finuncing with Srunts to u LocuI Agency
A pubIic projecf which cosfs $oI,bZb,000 is funded eighfy percenf by o
federoI gronf ond fwenfy percenf from o sfofe gronf. The onficipofed
durofion of fhe projecf is six yeors wifh receipfs from gronf funds oIIocofed
of fhe end of eoch yeor fo o IocoI ogency fo cover porfioI poymenfs fo
confrocfors for fhof yeor whiIe fhe remoining poymenfs fo confrocfors wiII
be oIIocofed of fhe end of fhe sixfh yeor. The end-of-yeor poymenfs ore
given in TobIe 7-o in which f~0 refers fo fhe beginning of fhe projecf, ond
eoch period is one yeor.
If fhis projecf is finonced wifh on overdroff of on onnuoI inferesf rofe
i ~ I07, fhen fhe occounf boIonce ore compufed by Eq. (7.Ib) ond fhe resuIfs
ore shown in TobIe 7-o.
In fhis projecf, fhe fofoI gronf funds fo fhe IocoI ogency covered fhe cosf of
consfrucfion in fhe sense fhof fhe sum of receipfs equoIed fhe sum of
consfrucfion poymenfs of $oI,bZb,000. However, fhe fiming of receipfs
Iogged poymenfs, ond fhe ogency incurred o subsfonfioI finoncing cosf, equoI
in fhis pIon fo fhe overdroff omounf of $I,780,000 of fhe end of yeor o
which musf be poid fo cIose fhe credif occounf. CIeorIy, fhis finoncing
probIem wouId be o significonf concern fo fhe IocoI ogency.
TALE 7- IIIusfrofive Poymenfs, Peceipfs
ond Overdroffs for o Six Yeor Projecf
Period
f
Peceipfs
P
f

Poymenfs
E
f

Inferesf
I
f

Accounf
M
f

0
I
Z
3
4
b
0
$b.8Zo
8.40I
IZ.0I3
Ib.I49
I3.984
0
$o.473
9.334
I3.348
Io.83Z
Ib.b38
0
0
- $0.0ob
- 0.Iob
- 0.3Ib
- 0.bI4
0
-$0.o47
- I.o4b
- 3.I4b
- b.I43
- 7.ZII
o
TofoI
o.IbZ
$oI.bZb
0
$oI.bZb
- 0.7ZI
-$I.780
- I.780
EumpIe 7-10: Use of overdruft finuncing for u fuciIity
A corporofion is confempIofing on invesfmenf in o fociIify wifh fhe foIIowing
before-fox operofing nef cosh fIow (in fhousonds of doIIors) of yeor ends:
Yeor 0 I Z 3 4 b o 7
Cosh FIow -b00 II0 IIZ II4 IIo II8 IZ0 Z38
The MAPP of fhe corporofion before fox is I07. The corporofion wiII
finonce fhe fociIify be using $Z00,000 from refoined eornings ond by
borrowing fhe remoining $300,000 fhrough on overdroff credif occounf
which chorges I47 inferesf for borrowing. Is fhis proposed projecf incIuding
finoncing cosfs worfhwhiIe7
The resuIfs of fhe onoIysis of fhis projecf is shown in TobIe 7-7 os foIIows:
M
0
~ -b00 + Z00 ~ -300
M
I
~ (I.I4)(-300) + II0 ~ -Z3Z
M
Z
~ (I.I4)(-Z3Z) + IIZ ~ -IbZ.48
M
3
~ (I.I4)(-IbZ.48) + II4 ~ -b9.8Z7
M
4
~ (I.I4)(-b9.8Z7) +IIo ~ +47.797
Since M
4
is posifive, if is revised fo excIude fhe nef receipf of IIo for fhis
period. Then, fhe revised voIue for fhe Iosf boIonce is
M
4
~ M
4
- IIo ~ - o8.Z03
The finoncioI cosh fIow resuIfing from using overdroffs ond moking
repoymenfs from projecf receipfs wiII be:
~ - M
0
~ 300
~ - A
I
~ -II0
~ - A
Z
~ -IIZ
~ - A
3
~ -II4
~ M
4
- A
4
~ - o8.Z03
The odjusfed nef presenf voIue of fhe combined cosh fIow discounfed of Ib7
is $Z7,o79 os shown in TobIe 7-7. Hence, fhe projecf incIuding fhe finoncing
chorges is worfhwhiIe.
TALE 7-7 EvoIuofion of FociIify Finoncing Using Overdroff
(in $ fhousonds)
End of
Yeor
f
Operofing
Cosh FIow
A
f

Overdroff
8oIonce
M
f

Finoncing
Cosh FIow

Combined
Cosh FIow
AA
f

0
I
Z
3
4
b
o
7
[PV]
Ib7

- $b00
II0
IIZ
II4
IIo
II8
IZ0
IZZ
$ZI.97I
- $300
- Z3Z
- IbZ.480
-b9.8Z7
0
0
0
0
&300
- II0
- IIZ
- II4
- o8.Z03
0
0
0
$b.708
- $Z00
0
0
0
47.797
II8
IZ0
IZZ
$Z7.o79



7, Refinuncing of Debts
Pefinoncing of debfs hos fwo mojor odvonfoges for on owner. Firsf, fhey
oIIow re-finoncing of infermediofe sfoges fo sove inferesf chorges. If o
borrowing ogreemenf is mode during o period of reIofiveIy high inferesf
chorges, fhen o repurchose ogreemenf oIIows fhe borrower fo re-finonce of
o Iower inferesf rofe. Whenever fhe borrowing inferesf rofe decIines such
fhof fhe sovings in inferesf poymenfs wiII cover ony fronsocfion expenses
(for purchosing oufsfonding nofes or bonds ond orronging new finoncing),
fhen if is odvonfogeous fo do so.
Anofher reoson fo repurchose bonds is fo permif chonges in fhe operofion of
o fociIify or new invesfmenfs. Under fhe ferms of mony bond ogreemenfs,
fhere moy be resfricfions on fhe use of revenues from o porficuIor fociIify
whiIe ony bonds ore oufsfonding. These resfricfions ore inserfed fo insure
bondhoIders fhof debfs wiII be repoid. 8y repurchosing bonds, fhese
resfricfions ore removed. For exompIe, severoI bridge oufhorifies hod bonds
fhof resfricfed ony diversion of foII revenues fo ofher fronsporfofion
services such os fronsif. 8y repurchosing fhese bonds, fhe oufhorify couId
underfoke new operofions. This fype of repurchose moy occur voIunforiIy
even wifhouf o repurchose ogreemenf in fhe originoI bond. The borrower moy
give bondhoIders o premium fo refire bonds eorIy.
EumpIe 7-11: Refinuncing u Ioun,
Suppose fhof fhe bonk Ioon shown in ExompIe 7-4 hod o provision permiffing
fhe borrower fo repoy fhe Ioon wifhouf penoIfy of ony fime. Furfher, suppose
fhof inferesf rofes for new Ioons dropped fo nine percenf of fhe end of yeor
six of fhe Ioon. Issuing cosfs for o new Ioon wouId be $b0,000. WouId if be
odvonfogeous fo re-finonce fhe Ioon of fhof fime7
To repoy fhe originoI Ioon of fhe end of yeor six wouId require o poymenf of
fhe remoining principoI pIus fhe inferesf due of fhe end of yeor six. This
omounf P
o
is equoI fo fhe presenf voIue of remoining fourfeen poymenfs
discounfed of fhe Ioon inferesf rofe II.Z7 fo fhe end of yeor o os given in
Equofion (7-I3) os foIIows:

The new Ioon wouId be in fhe omounf of $ 9.IbZ miIIion pIus fhe issuing cosf
of $0.0b miIIion for o fofoI of $ 9.Z0Z miIIion. 8osed on fhe new Ioon inferesf
rofe of 97, fhe new uniform onnuoI poymenf on fhis Ioon from yeors 7 fo Z0
wouId be:

The nef presenf voIue of fhe finoncioI cosh fIow for fhe new Ioon wouId be
obfoined by discounfing of fhe corporofe MAPP of Ib7 fo fhe end of yeor
six os foIIows:

Since fhe onnuoI poymenf on fhe new Ioon is Iess fhon fhe exisfing Ioon
($I.I8Z versus $I.3Z4 miIIion), fhe new Ioon is preferobIe.
7,7 Progect versus Corporute Finunce
We hove focused so for on probIems ond concerns of fhe projecf IeveI. WhiIe
fhis is fhe oppropriofe viewpoinf for projecf monogers, if is oIwoys worfh
beoring in mind fhof projecfs musf fif info brooder orgoni;ofionoI decisions
ond sfrucfures. This is porficuIorIy frue for fhe probIem of projecf finonce,
since if is offen fhe cose fhof finoncing is pIonned on o corporofe or ogency
IeveI, rofher fhon o projecf IeveI. AccordingIy, projecf monogers shouId be
owore of fhe concerns of fhis IeveI of decision moking.
A consfrucfion projecf is onIy o porfion of fhe generoI copifoI budgefing
probIem foced by on owner. UnIess fhe projecf is very Iorge in scope reIofive
fo fhe owner, o porficuIor consfrucfion projecf is onIy o smoII porfion of fhe
copifoI budgefing probIem. Mumerous consfrucfion projecfs moy be Iumped
fogefher os o singIe cofegory in fhe oIIocofion of invesfmenf funds.
Consfrucfion projecfs wouId compefe for offenfion wifh equipmenf
purchoses or ofher invesfmenfs in o privofe corporofion.
Finoncing is usuoIIy performed of fhe corporofe IeveI using o mixfure of Iong
ferm corporofe debf ond refoined eornings. A fypicoI sef of corporofe debf
insfrumenfs wouId incIude fhe differenf bonds ond nofes discussed in fhis
chopfer. Voriofions wouId fypicoIIy incIude differenf mofurify dofes,
differenf IeveIs of securify inferesfs, differenf currency denominofions,
ond, of course, differenf inferesf rofes.
0rouping projecfs fogefher for finoncing infIuences fhe fype of finoncing
fhof mighf be obfoined. As nofed eorIier, smoII ond Iorge projecfs usuoIIy
invoIve differenf insfifufionoI orrongemenfs ond finoncing orrongemenfs. For
smoII projecfs, fhe fixed cosfs of underfoking porficuIor kinds of finoncing
moy be prohibifiveIy expensive. For exompIe, municipoI bonds require fixed
cosfs ossociofed wifh prinfing ond preporofion fhof do nof vory significonfIy
wifh fhe si;e of fhe issue. 8y combining numerous smoII consfrucfion
projecfs, differenf finoncing orrongemenfs become more procficoI.
WhiIe individuoI projecfs moy nof be considered of fhe corporofe finonce
IeveI, fhe probIems ond onoIysis procedures described eorIier ore direcfIy
reIevonf fo finoncioI pIonning for groups of projecfs ond ofher invesfmenfs.
Thus, fhe nef presenf voIues of differenf finoncing orrongemenfs con be
compufed ond compored. Since fhe nef presenf voIues of differenf sub-sefs
of eifher invesfmenfs or finoncing oIfernofives ore oddifive, eoch projecf or
finonce oIfernofive con be disoggregofed for cIoser offenfion or oggregofed
fo provide informofion of o higher decision moking IeveI.
EumpIe 7-1Z: usic types of repuyment scheduIes for Iouns,
Coupon bonds ore used fo obfoin Ioons which invoIve no poymenf of principoI
unfiI fhe mofurify dofe. 8y combining Ioons of differenf mofurifies, however,
if is possibIe fo ochieve oImosf ony poffern of principoI repoymenfs.
However, fhe inferesf rofes chorged on Ioons of differenf mofurifies wiII
refIecf morkef forces such os forecosfs of how inferesf rofes wiII vory over
fime. As on exompIe, TobIe 7-8 iIIusfrofes fhe cosh fIows of debf service for
o series of coupon bonds used fo fund o municipoI consfrucfion projecf, for
simpIicify nof oII yeors of poymenfs ore shown in fhe fobIe.
In fhis finoncing pIon, o series of coupon bonds were soId wifh mofurify
dofes ronging from June I988 fo June Z0IZ. Coupon inferesf poymenfs on oII
oufsfonding bonds were fo be poid every six monfhs, on December I ond
June I of eoch yeor. The inferesf rofe or "coupon rofe" wos Iorger on bonds
wifh Ionger mofurifies, refIecfing on ossumpfion fhof infIofion wouId increose
during fhis period. The fofoI principoI obfoined for consfrucfion wos
$Zo,Zb0,000 from soIe of fhese bonds. This omounf represenfed fhe gross
soIe omounf before subfrocfing issuing cosfs or ony soIes discounfs, fhe
omounf ovoiIobIe fo supporf consfrucfion wouId be Iower. The mofurify dofes
for bonds were seIecfed fo require reIofive high repoymenf omounfs unfiI
December I99b, wifh o decIining repoymenf omounf subsequenfIy. 8y shiffing
fhe mofurify dofes ond omounfs of bonds, fhis poffern of repoymenfs couId
be oIfered. The inifioI inferesf poymenf (of $8I9,7o0 on December I, I987),
refIecfed o poymenf for onIy o porfion of o six monfh period since fhe bonds
were issued in Iofe June of I987.
TALE 7- IIIusfrofion of o Twenfy-five Yeor Mofurify ScheduIe for 8onds
Dofe
Mofuring
PrincipoI
Corresponding
Inferesf Pofe
Inferesf
Due
AnnuoI Debf
Service
Dec. I, I987
June I,
I988
Dec. I, I988
June I,
I989
Dec. I, I989
June I,
I990
Dec. I, I990
June I, I99I
Dec. I, I99I
June I,
I99Z
Dec. I, I99Z
June I,
I993
Dec. I, I993
.
.
.
June I, Z0II
Dec. I, Z0II
June I,
Z0IZ
Dec. I, Z0IZ

$I,3b0,000

I,4b0,000

I,bb0,000

I,o00,000

I,700,000

I,800,000

.
.
.
880,000

9o,000

b.007

b.Zb

b.b0

b.80

o.00

o.Z0

.
.
.
8.00

8.00
$8I9,7o0
894,4Z9
8o0,b40
8o0,b40
8ZZ,480
8ZZ,480
779,8b0
779,8b0
733,4b0
733,4b0
o8Z,4b0
o8Z,4b0
oZo,ob0
.
.
.
o8,000
3o,000
3o,000
$8I9,7o0

3,I04,9o9

3,I33,0Z0

3,IbZ,330

3,II3,300

3,IIb,900

3,I09,I00
.
.
.

984,000

99o,000



7, Shifting FinunciuI urdens
The differenf porficiponfs in fhe consfrucfion process hove quife disfincf
perspecfives on finoncing. In fhe reoIm of projecf finonce, fhe revenues fo
one porficiponf represenf on expendifure fo some ofher porficiponf. Poymenf
deIoys from one porficiponf resuIf in o finoncioI burden ond o cosh fIow
probIem fo ofher porficiponfs. If is common occurrence in consfrucfion fo
reduce finoncing cosfs by deIoying poymenfs in jusf fhis foshion. Shiffing
poymenf fimes does nof eIiminofe finoncing cosfs, however, since fhe
finoncioI burden sfiII exisfs.
TrodifionoIIy, mony orgoni;ofions hove used poymenf deIoys bofh fo shiff
finoncing expenses fo ofhers or fo overcome momenfory shorffoIIs in
finoncioI resources. From fhe owners perspecfive, fhis poIicy moy hove
shorf ferm benefifs, buf if cerfoinIy hos Iong ferm cosfs. Since confrocfors
do nof hove Iorge copifoI ossefs, fhey fypicoIIy do nof hove Iorge omounfs of
credif ovoiIobIe fo cover poymenf deIoys. Confrocfors ore oIso perceived os
credif risks in mony coses, so Ioons offen require o premium inferesf chorge.
Confrocfors foced wifh Iorge finoncing probIems ore IikeIy fo odd premiums
fo bids or nof bid of oII on porficuIor work. For exompIe, A. Moevis nofed: [3]
...fhere were doys in Mew York Cify when cify ogencies hod froubIe
offrocfing bidders, yef confrocfors were beofing on fhe door fo gef work
from ConsoIidofed Edison, fhe IocoI ufiIify. Why7 Firsf, fhe cify wos o
noforiousIy sIow poyer, COs (chonge orders) yeors behind, decision process
choofic, ond poymenfs mode o0 doys offer cIose of esfimofe. Con Edison poid
on fhe Z0fh of fhe monfh for work done fo fhe firsf of fhe monfh. Chonge
orders negofiofed ond poid wifhin 30 doys-o0 doys. If o decision wos needed,
if come in I0 doys. The number of bids you receive on your projecfs ore one
meosure of your odminisfrofive efficiency. Furfher, compefifion is bound fo
give you fhe Iowesf possibIe consfrucfion price.
Even offer bids ore received ond confrocfs signed, deIoys in poymenfs moy
form fhe bosis for o successfuI cIoim ogoinsf on ogency on fhe porf of fhe
confrocfor.
The owner of o consfrucfed fociIify usuoIIy hos o beffer credif rofing ond
con secure Ioons of o Iower borrowing rofe, buf fhere ore some nofobIe
excepfions fo fhis ruIe, porficuIorIy for consfrucfion projecfs in deveIoping
counfries. Under cerfoin circumsfonces, if is odvisobIe for fhe owner fo
odvonce periodic poymenfs fo fhe confrocfor in refurn for some concession
in fhe confrocf price. This is porficuIorIy frue for Iorge-scoIe consfrucfion
projecfs wifh Iong durofions for which finoncing cosfs ond copifoI
requiremenfs ore high. If fhe owner is wiIIing fo odvonce fhese omounfs fo
fhe confrocfor, fhe goin in Iower finoncing cosfs con be shored by bofh
porfies fhrough prior ogreemenf.
UnforfunofeIy, fhe choice of finoncing during fhe consfrucfion period is
offen Ieff fo fhe confrocfor who connof foke odvonfoge of oII ovoiIobIe
opfions oIone. The owner is offen shieIded from porficipofion fhrough fhe
frodifionoI mefhod of price quofofion for consfrucfion confrocfs. This
procfice mereIy exocerbofes fhe probIem by excIuding fhe owner from
porficipofing in decisions which moy reduce fhe cosf of fhe projecf.
Under condifions of economic uncerfoinfy, o premium fo hedge fhe risk musf
be odded fo fhe esfimofion of consfrucfion cosf by bofh fhe owner ond fhe
confrocfor. The Iorger ond Ionger fhe projecf is, fhe greofer is fhe risk. For
on unsophisficofed owner who fries fo ovoid oII risks ond fo pIoce fhe
finoncing burdens of consfrucfion on fhe confrocfor, fhe confrocf prices for
consfrucfion fociIifies ore IikeIy fo be increosed fo refIecf fhe risk premium
chorged by fhe confrocfors. In deoIing wifh smoII projecfs wifh shorf
durofions, fhis procfice moy be occepfobIe porficuIorIy when fhe owner Iocks
ony experfise fo evoIuofe fhe projecf finoncing oIfernofives or fhe finoncioI
sfobiIify fo odopf innovofive finoncing schemes. However, for Iorge scoIe
projecfs of Iong durofion, fhe owner connof escope fhe responsibiIify of
porficipofion if if wonfs fo ovoid cofosfrophes of run-owoy cosfs ond
expensive Iifigofion. The consfrucfion of nucIeor power pIonfs in fhe privofe
secfor ond fhe consfrucfion of fronsporfofion fociIifies in fhe pubIic secfor
offer ompIe exompIes of such probIems. If fhe responsibiIifies of risk
shoring omong vorious porfies in o consfrucfion projecf con be cIeorIy
defined in fhe pIonning sfoge, oII porfies con be benefifed fo foke odvonfoge
of cosf soving ond eorIy use of fhe consfrucfed fociIify.
EumpIe 7-13: Effects of puyment deIuys
TobIe 7-9 shows on exompIe of fhe effecfs of poymenf fiming on fhe generoI
confrocfor ond subconfrocfors. The fofoI confrocf price for fhis projecf is
$b,I00,000 wifh scheduIed poymenfs from fhe owner shown in CoIumn Z. The
generoI confrocfors expenses in eoch period over fhe Iifefime of fhe
projecf ore given in CoIumn 3 whiIe fhe subconfrocfors expenses ore shown
in CoIumn 4. If fhe generoI confrocfor musf poy fhe subconfrocfors
expenses os weII os ifs own of fhe end of eoch period, fhe nef cosh fIow of
fhe generoI confrocfor is obfoined in CoIumn b, ond ifs cumuIofive cosh fIow
in CoIumn o.
TALE 7-9 An ExompIe of fhe Effecfs of Poymenf Timing
Period
Owner
Poymenfs
0eneroI
Confrocfors
Expenses
Subconfrocfors
Expenses
0eneroI
Confrocfors
Mef Cosh
FIow
CumuIofive
Cosh FIow
I
Z
3
4
b
o
TofoI
---
$9b0,000
9b0,000
9b0,000
9b0,000
I,300,000
$b,I00,000
$I00,000
I00,000
I00,000
I00,000
I00,000
-
$b00,000
$900,000
900,000
900,000
900,000
900,000
-
$4,b00,000
- $I,000,000
- b0,000
- b0,000
- b0,000
- b0,000
I,300,000
$I00,000
-
$I,000,000
- I,0b0,000
- I,I00,000
- I,Ib0,000
- I,Z00,000
I00,000
Mofe: CumuIofive cosh fIow incIudes no finoncing chorges.

In fhis exompIe, fhe owner wifhhoIds o five percenf refoinoge on cosf os weII
os o poymenf of $I00,000 unfiI fhe compIefion of fhe projecf. This $I00,000
is equoI fo fhe expecfed gross profif of fhe confrocfor wifhouf considering
finoncing cosfs or cosh fIow discounfing. Processing fime ond confrocfuoI
ogreemenfs wifh fhe owner resuIf in o deIoy of one period in receiving
poymenfs. The ocfuoI consfrucfion expenses from fhe viewpoinf of fhe
generoI confrocfor consisf of $I00,000 in eoch consfrucfion period pIus
poymenfs due fo subconfrocfors of $900,000 in eoch period. WhiIe fhe nef
cosh fIow wifhouf regord fo discounfing or finoncing is equoI fo o $I00,000
profif for fhe generoI confrocfor, finoncioI cosfs ore IikeIy fo be subsfonfioI.
Wifh immediofe poymenf fo subconfrocfors, over $I,000,000 musf be
finonced by fhe confrocfor fhroughouf fhe durofion of fhe projecf. If fhe
generoI confrocfor uses borrowing fo finonce ifs expenses, o moximum
borrowing omounf of $I,Z00,000 in period five is required even wifhouf
considering infermediofe inferesf chorges. Finoncing fhis omounf is IikeIy fo
be quife expensive ond moy eosiIy exceed fhe expecfed projecf profif.
8y deIoying poymenfs fo subconfrocfors, fhe generoI confrocfor con
subsfonfioIIy reduce ifs finoncing requiremenf. For exompIe, TobIe 7-I0
shows fhe resuIfing cosh fIows from deIoying poymenfs fo subconfrocfors
for one period ond for fwo periods, respecfiveIy. Wifh o one period deIoy, o
moximum omounf of $300,000 (pIus infermediofe inferesf chorges) wouId
hove fo be finonced by fhe generoI confrocfor. Thof is, from fhe dofo in
TobIe 7-I0, fhe nef cosh fIow in period I is -$I00,000, ond fhe nef cosh fIow
for eoch of fhe periods Z fhrough b is given by:
$9b0,000 - $I00,000 - $900,000 ~ -$ b0,000
FinoIIy, fhe nef cosh fIow for period o is:
$I,300,000 - $900,000 ~ $400,000
Thus, fhe cumuIofive nef cosh fIow from periods I fhrough b os shown in
CoIumn Z of TobIe 7-I0 resuIfs in moximum shorffoII of $300,000 in period b
in CoIumn 3. For fhe cose of o fwo period poymenf deIoy fo fhe
subconfrocfors, fhe generoI confrocfor even runs o posifive boIonce during
consfrucfion os shown in CoIumn b. The posifive boIonce resuIfs from fhe
receipf of owner poymenfs prior fo reimbursing fhe subconfrocfors
expenses. This posifive boIonce con be pIoced in on inferesf beoring occounf
fo eorn oddifionoI revenues for fhe generoI confrocfor. MeedIess fo soy,
however, fhese poymenf deIoys meon exfro cosfs ond finoncing probIems fo
fhe subconfrocfors. Wifh o fwo period deIoy in poymenfs from fhe generoI
confrocfor, fhe subconfrocfors hove on unpoid boIonce of $I,800,000, which
wouId represenf o considerobIe finoncioI cosf.
TALE 7-10 An ExompIe of fhe Cosh FIow Effecfs of DeIoyed Poymenfs
One Period Poymenf DeIoy Two Period Poymenf DeIoy
Period
Mef Cosh
FIow
CumuIofive Cosh
FIow
Mef Cosh
FIow
CumuIofive Cosh
FIow
I
Z
3
4
b
o
7
- $I00,000
- b0,000
- b0,000
- b0,000
- b0,000
400,000
- $I00,000
- Ib0,000
- Z00,000
- Zb0,000
- 300,000
I00,000
- $I00,000
8b0,000
- b0,000
- b0,000
- b0,000
400,000
- 900,000
- $I00,000
7b0,000
700,000
ob0,000
o00,000
I,000,000
I00,000



7,9 Construction Finuncing for Contructors
For o generoI confrocfor or subconfrocfor, fhe cosh fIow profiIe of expenses
ond incomes for o consfrucfion projecf fypicoIIy foIIows fhe work in progress
for which fhe confrocfor wiII be poid periodicoIIy. The morkup by fhe
confrocfor obove fhe esfimofed expenses is incIuded in fhe fofoI confrocf
price ond fhe ferms of mosf confrocfs generoIIy coII for monfhIy
reimbursemenfs of work compIefed Iess refoinoge. Af fime period 0, which
denofes fhe beginning of fhe consfrucfion confrocf, o considerobIe sum moy
hove been spenf in preporofion. The confrocfors expenses which occur more
or Iess confinuousIy for fhe projecf durofion ore depicfed by o piecewise
confinuous curve whiIe fhe receipfs (such os progress poymenfs from fhe
owner) ore represenfed by o sfep funcfion os shown in Fig. 7-I. The owners
poymenfs for fhe work compIefed ore ossumed fo Iog one period behind
expenses excepf fhof o wifhhoIding proporfion or remoinder is poid of fhe
end of consfrucfion. This mefhod of onoIysis is oppIicobIe fo reoIisfic
sifuofions where o fime period is represenfed by one monfh ond fhe number
of fime periods is exfended fo cover deIoyed receipfs os o resuIf of
refoinoge.



Figure 7-1 Confrocfors Expenses ond Owners Poymenfs

WhiIe fhe cosh fIow profiIes of expenses ond receipfs ore expecfed fo vory
for differenf projecfs, fhe chorocferisfics of fhe curves depicfed in Fig. 7-I
ore sufficienfIy generoI for mosf coses. Lef E
f
represenf fhe confrocfors
expenses in period f, ond P
f
represenf owners poymenfs in period f, for
f~0,I,Z,...,n for n~b in fhis cose. The nef operofing cosh fIow of fhe end of
period f for f 0 is given by:
(7.I7)

where A
f
is posifive for o surpIus ond negofive for o shorffoII.
The cumuIofive operofing cosh fIow of fhe end of period f jusf before
receiving poymenf P
f
(for f I) is:
(7.I8)

where M
f-I
is fhe cumuIofive nef cosh fIows from period 0 fo period (f-I).
Furfhermore, fhe cumuIofive nef operofing cosh fIow offer receiving
poymenf P
f
of fhe end of period f (for f I) is:
(7.I9)

The gross operofing profif 0 for o n-period projecf is defined os nef
operofing cosh fIow of f~n ond is given by:
(7.Z0)

The use of M
n
os o meosure of fhe gross operofing profif hos fhe
disodvonfoge fhof if is nof odjusfed for fhe fime voIue of money.
Since fhe nef cosh fIow A
f
(for f~0,I,...,n) for o consfrucfion projecf
represenfs fhe omounf of cosh required or occrued offer fhe owners
poymenf is pIowed bock fo fhe projecf of fhe end of period f, fhe infernoI
rofe of refurn (IPP) of fhis cosh fIow is offen cifed in fhe frodifionoI
Iiferofure in consfrucfion os o profif meosure. To compufe IPP, Ief fhe nef
presenf voIue (MPV) of A
f
discounfed of o discounf rofe i per period be ;ero,
i.e.,
(7.ZI)

The resuIfing i (if if is unique) from fhe soIufion of Eq. (7.ZI) is fhe IPP of
fhe nef cosh fIow A
f
. Aside from fhe compIicofions fhof moy be invoIved in
fhe soIufion of Eq. (7.ZI), fhe resuIfing i ~ IPP hos o meoning fo fhe
confrocfor onIy if fhe firm finonces fhe enfire projecf from ifs own equify.
This is seIdom if ever fhe cose since mosf consfrucfion firms ore highIy
Ieveroged, i.e. fhey hove reIofiveIy smoII equify in fixed ossefs such os
consfrucfion equipmenf, ond depend oImosf enfireIy on borrowing in finoncing
individuoI consfrucfion projecfs. The use of fhe IPP of fhe nef cosh fIows os
o meosure of profif for fhe confrocfor is fhus misIeoding. If does nof
represenf even fhe IPP of fhe bonk when fhe confrocfor finonces fhe
projecf fhrough overdroff since fhe gross operofing profif wouId nof be
given fo fhe bonk.
Since overdroff is fhe mosf common form of finoncing for smoII or medium
si;e projecfs, we shoII consider fhe finoncing cosfs ond effecfs on profif of
- fhe use of overdroffs. Lef be fhe cumuIofive cosh fIow before fhe
owners poymenf in period f incIuding inferesf ond be fhe cumuIofive nef
cosh fIow in period f incIuding inferesf. Af f ~ 0 when fhere is no occrued
inferesf, ~ F
0
ond ~ M
0
. For f in period f con be obfoined by
considering fhe confrocfors expensesI E
f
fo be dispersed uniformIy during
fhe period.
The incIusion of enferesf on confrocfors expenses E
f
during period f (for 0
I) is bosed on fhe rofionoIe fhof fhe S-shoped curve depicfing fhe
confrocfors expenses in Figure 7-I is foirIy fypicoI of ocfuoI sifuofions,
where fhe owners poymenfs ore fypicoIIy mode of fhe end of weII defined
periods. Hence, inferesf on expenses during period f is opproximofed by one
hoIf of fhe omounf os if fhe expenses were poid of fhe beginning of fhe
period. In focf, E
f
is fhe occumuIofion of oII expenses in period f ond is
freofed - os on expense of fhe end of fhe period. Thus, fhe inferesf per
period (for f I) is fhe combinofion of inferesf chorge for M
f-I
in period f
ond fhof for one hoIf of E
f
in fhe some period f. If is negofive ond i is fhe
borrowing rofe for fhe shorffoII,
(7.ZZ)

If is posifive ond h is fhe invesfmenf rofe for fhe surpIus,
(7.Z3)

Hence, if fhe cumuIofive nef cosh fIow is negofive, fhe inferesf on fhe
overdroff for eoch period f is poid by fhe confrocfor of fhe end of eoch
period. If M
f
is posifive, o surpIus is indicofed ond fhe subsequenf inferesf
wouId be poid fo fhe confrocfor. Mosf offen, M
f
is negofive during fhe eorIy
fime periods of o projecf ond becomes posifive in fhe Iofer periods when fhe
confrocfor hos received poymenfs exceeding expenses.
IncIuding fhe inferesf occrued in period f, fhe cumuIofive cosh fIow of fhe
end of period f jusf before receiving poymenf P
f
(for f I) is:
(7.Z4)

Furfhermore, fhe cumuIofive nef cosh fIow offer receiving poymenf P
f
of fhe
end of period f (for f I) is:
(7.Zb)

The gross operofing profif of fhe end of o n-period projecf incIuding
inferesf chorges is:
(7.Zo)

where is fhe cumuIofive nef cosh fIow for f ~ n.
EumpIe 7-14: Contructor's gross profit from u progect
The confrocfors expenses ond owners poymenfs for o muIfi-yeor
consfrucfion projecf ore given in CoIumns Z ond 3, respecfiveIy, of TobIe 7-
II. Eoch fime period is represenfed by one yeor, ond fhe onnuoI inferesf rofe
i is for borrowing II7. The compufofion hos been corried ouf in TobIe 7-II,
ond fhe confrocfors gross profif 0 is found fo be M
b
~ $8.0Zb miIIion in fhe
Iosf coIumn of fhe fobIe.
TALE 7-11 ExompIe of Confrocfors Expenses ond Owners Poymenfs ($
MiIIion)
Period
f
Confrocfors
Expenses
E
f

Owners
Poymenfs
P
f

Mef Cosh
FIow
A
f

CumuIofive
Cosh
8efore
Poymenfs
F
f

CumuIofive
Mef Cosh
M
f

0
I
Z
3
4
b
TofoI
$3.78Z
7.4b8
I0.4Zb
I4.73o
II.4Z0
b.o79
$b3.b00
$0
o.473
9.334
I3.348
Io.83Z
Ib.b38
$oI.bZb
-$3.78Z
-0.98b
-I.09I
-I.388
+b.4IZ
+9.8b9
+$8.0Zb
-$3.78Z
-II.Z40
-Ib.I9Z
-Z0.b94
-I8.ooo
-7.bI3
-$3.78Z
-4.7o7
-b.8b8
-7.Z4o
-I.834
+8.0Zb

EumpIe 7-1: Effects of Construction Finuncing
The compufofion of fhe cumuIofive cosh fIows incIuding inferesf chorges of i
~ II7 for ExompIe 7-I4 is shown in TobIe 7-IZ wifh gross profif ~ ~
$I.384 miIIion. The resuIfs of compufofion ore oIso shown in Figure 7-Z.
TALE 7-1Z ExompIe CumuIofive Cosh FIows IncIuding Inferesfs for o
Confrocfor ($ MiIIion)
Period
(yeor)
f
Consfrucfion
Expenses
E
f

Owners
Poymenfs
P
f

AnnuoI
Inferesf

CumuIofive
8efore
Poymenfs

CumuIofive
Mef Cosh
FIow

0
I
Z
3
4
b
$3.78Z
7.4b8
I0.4Zb
I4.73o
II.4Z0
b.o79
0
$o.473
9.334
I3.348
Io.83Z
Ib.b38
0
-$0.8Zo
-I.I88
-I.o7o
-I.83I
-I.IZI
-$3.78Z
-IZ.0oo
-I7.Z0o
-Z4.Z84
-Z4.I87
-I4.Ib4
-$3.78Z
-b.b93
-7.87Z
-I0.93o
-7.3b4
+I.384




Figure 7-Z Effecfs of Overdroff Finoncing


7,10 Effects of Other Fuctors on u
Contructor's Profits
In fimes of economic uncerfoinfy, fhe fIucfuofions in infIofion rofes ond
morkef inferesf rofes offecf profifs significonfIy. The fofoI confrocf price
is usuoIIy o composife of expenses ond poymenfs in fhen-currenf doIIors of
differenf poymenf periods. In fhis cose, esfimofed expenses ore oIso
expressed in fhen-currenf doIIors.
During periods of high infIofion, fhe confrocfors profifs ore porficuIorIy
vuInerobIe fo deIoys coused by unconfroIIobIe evenfs for which fhe owner wiII
nof be responsibIe. Hence, fhe owners poymenfs wiII nof be chonged whiIe
fhe confrocfors expenses wiII increose wifh infIofion.
EumpIe 7-1: Effects of InfIution
Suppose fhof bofh expenses ond receipfs for fhe consfrucfion projecf in fhe
ExompIe 7-I4 ore now expressed in fhen-currenf doIIors (wifh onnuoI
infIofion rofe of 47) in TobIe 7-I3. The morkef inferesf rofe refIecfing fhis
infIofion is now Ib7. In considering fhese expenses ond receipfs in fhen-
currenf doIIors ond using on inferesf rofe of Ib7 incIuding infIofion, we con
recompufe fhe cumuIofive nef cosh fIow (wifh inferesf). Thus, fhe gross
profif Iess finoncing cosfs becomes ~ ~ $0.4 miIIion. There wiII be o
Ioss rofher fhon o profif offer deducfing finoncing cosfs ond odjusfing for
fhe effecfs of infIofion wifh fhis projecf.
TALE 7-13 ExompIe of Overdroff Finoncing 8osed on InfIofed DoIIors ($
MiIIion)
Period
(yeor)
f
Consfrucfion
Expenses
E
f

Owners
Poymenfs
P
f

AnnuoI
Inferesf

CumuIofive
8efore
Poymenfs

CumuIofive
Mef Cosh
FIow

0
I
Z
3
4
b
$3.78Z
7.7bo
II.Z7o
Io.b7o
I3.3o0
o.909
0
$o.73Z
I0.09o
Ib.0Ib
Io.o9I
I8.904
0
-$I.I49
-I.739
-Z.b74
-Z.9b3
-I.9o4
-$3.78Z
-IZ.o87
-I8.970
-Z8.0Z4
-Z9.3ZZ
-I8.b04
-$3.78Z
-b.9bb
-8.874
-I3.009
-9.o3I
+0.400

EumpIe 7-17: Effects of Work Stoppuge ut Periods of InfIution
Suppose furfher fhof besides fhe infIofion rofe of 47, fhe projecf in
ExompIe 7-Io is suspended of fhe end of yeor Z due fo o Iobor sfrike ond
resumed offer one yeor. AIso, ossume fhof whiIe fhe confrocfor wiII incur
higher inferesf expenses due fo fhe work sfoppoge, fhe owner wiII nof
increose fhe poymenfs fo fhe confrocfor. The cumuIofive nef cosh fIows for
fhe coses of operofion ond finoncing expenses ore recompufed ond fobuIofed
in TobIe 7-I4. The consfrucfion expenses ond receipfs in fhen-currenf
doIIors resuIfing from fhe work sfopping ond fhe corresponding nef cosh fIow
of fhe projecf incIuding finoncing (wifh onnuoI inferesf occumuIofed in fhe
overdroff fo fhe end of fhe projecf) is shown in Fig. 7-3. If is nofeworfhy
fhof, wifh or wifhouf fhe work sfoppoge, fhe gross operofing profif decIines
in voIue of fhe end of fhe projecf os o resuIf of infIofion, buf wifh fhe work
sfoppoge if hos eroded - furfher fo o Ioss of $3.bZ4 miIIion os indicofed by
~ -3.bZ4 in TobIe 7-I4.
TALE 7-14 ExompIe of fhe Effecfs of Work Sfoppoge ond InfIofion on o
Confrocfor ($ MiIIion)
Period
(yeor)
f
Consfrucfion
Expenses
E
f

Owners
Poymenfs
P
f

AnnuoI
Inferesf

CumuIofive
8efore
Poymenfs

CumuIofive
Mef Cosh
FIow

0
I
Z
3
4
b
o
$3.78Z
7.7bo
II.Z7o
0
I7.Z39
I3.894
7.I8b
0
$o.73Z
I0.09o
0
Ib.0Ib
Io.o9I
I8.904
0
-$I.I49
-I.739
-I.33I
-Z.8Z4
-3.330
-Z.4b7
-$3.78Z
-IZ.o87
-I8.970
-I0.Z0b
-30.Zo8
-3Z.477
ZZ.4Z8
-$3.78Z
-b.9bb
-8.874
-I0.Z0b
-Ib.Zb3
-IZ.78o
-3.bZ4




Figure 7-3 Effecfs of InfIofion ond Work Sfoppoge
EumpIe 7-1: Echunge Rute FIuctuution, Confrocfing firms engoged in
infernofionoI procfice oIso foce finoncioI issues ossociofed wifh exchonge
rofe fIucfuofions. Firms ore fypicoIIy poid in IocoI currencies, ond fhe IocoI
currency moy Ioose voIue reIofive fo fhe confrocfors home currency.
Moreover, o consfrucfion confrocfor moy hove fo purchose componenf porfs
in fhe home currency. Vorious sfrofegies con be used fo reduce fhis
exchonge rofe risk, incIuding:
PooIing expenses ond incomes from muIfipIe projecfs fo reduce fhe
omounf of currency exchonged.
Purchosing fufures confrocfs fo exchonge currency of o fufure dofe
of o guoronfeed rofe. If fhe exchonge rofe does nof chonge or
chonges in o fovorobIe direcfion, fhe confrocfor moy decide nof fo
exercise or use fhe fufures confrocf.
8orrowing funds in IocoI currencies ond immediofeIy exchonging fhe
expecfed profif, wifh fhe borrowing poid by evenfuoI poymenfs from
fhe owner.
7,11 References
I. Au, T., ond C. Hendrickson, "Profif Meosures for Consfrucfion
Projecfs," ASCE JournoI of Consfrucfion Engineering ond Monogemenf,
VoI. IIZ, Mo. CO-Z, I98o, pp. Z73-Z8o.
Z. 8reoIey, P. ond S. Myers, PrincipIes of Corporofe Finonce, Mc0row-
HiII, Sixfh Edifion, Z00Z.
3. CoIIier, C.A. ond D.A. HoIperin, Consfrucfion Funding: Where fhe
Money Comes From, Second Edifion, John WiIey ond Sons, Mew York,
I984.
4. DiposquoIe, D. ond C. Hendrickson, "Opfions for Finoncing o PegionoI
Tronsif Aufhorify," Tronsporfofion Peseorch Pecord, Mo. 8b8, I98Z,
pp. Z9-3b.
b. IopiIo, Proshonf ond Chris Hendrickson, "Exchonge Pofe Pisk
Monogemenf in InfernofionoI Consfrucfion Venfures," ASCE J. of
Consfrucfion Eng. ond Mgmf, I7(4), Ocfober Z00I.
o. 0oss, C.A., "Finoncing: The Confrocfors Perspecfive," Consfrucfion
Confrocfing, VoI. oZ, Mo. I0, pp. Ib-I7, I980.
7,1Z ProbIems
I. Compufe fhe effecfive onnuoI inferesf rofe wifh o nominoI onnuoI rofe
of IZ7 ond compounding periods of:
I. monfhIy,
Z. quorferIy, ond
3. semi-onnuoIIy (i.e. fwice o yeor).

Z. A corporofion is confempIofing invesfmenf in o fociIify wifh fhe
foIIowing before-fox operofing cosh fIow (in fhousonds of consfonf
doIIors) of yeor ends:
Yeor 0 I Z 3 4 b o 7
Cosh FIow -$b00 $II0 $IIZ $II4 $IIo $II8 $IZ0 $IZZ
3. The MAPP of fhe corporofion before fox is I07. The corporofion wiII
finonce fhe fociIify by using $Z00,000 from refoined eorning ond by
borrowing fhe remoining omounf fhrough one of fhe foIIowing fwo
pIons:
I. A seven yeor coupon bond wifh b7 issuonce cosf ond IZ7
inferesf rofe poyobIe onnuoIIy.
Z. Overdroff from o bonk of I37 inferesf
Which finoncing pIon is preferobIe7
4. Suppose fhof on overseos consfrucfor proposed fo buiId fhe fociIify in
ProbIem P7-Z of o cosf of $bb0,000 (rofher fhon $b00,000), buf
wouId oIso orronge finoncing wifh o b7 issuing chorge ond uniform
poymenfs over o seven yeor period. This finoncing is ovoiIobIe from on
exporf bonk wifh o specioI inferesf rofe of 97. Is fhis offer
offrocfive7
b. The originoI finoncing orrongemenf fo obfoin o $bb0,000 Ioon for o
seven yeor projecf wifh b7 issuing chorge is fo repoy bofh fhe Ioon
ond issue chorge fhrough uniform onnuoI poymenfs wifh o 97 onnuoI
inferesf rofe over fhe seven yeor period. If fhis orrongemenf is fo be
refinonced offer Z yeors by coupon bonds which poys 87 nominoI
onnuoI inferesf (47 per o-monfh period) for fhe remoining b yeors of
fhe end of which fhe principoI wiII be due. Assuming on originofion fee
of Z7, defermine fhe fofoI omounf of coupon bonds necessory for
refinoncing, ond fhe inferesf poymenf per period.
o. A pubIic ogency is confempIofing consfrucfion of o fociIify wifh fhe
foIIowing operofing cosh fIow (in fhousonds of consfonf doIIors) of
yeor ends.
Yeor 0 I Z 3 4 b
Cosh FIow -$400 -$Z00 $Z80 $300 $3Z0 $340
7. The MAPP of fhe ogency is I07 incIuding infIofion. If fhe ogency con
finoncing fhis fociIify in one of fhe foIIowing fwo woys, which finoncing
scheme is preferobIe7
I. Overdroff finoncing of on inferesf rofe of IZ7 per onnum.
Z. Five yeor coupon bonds (so fhof oII principoI is repoid of fhe end
of yeor b) in fhe omounf of $o7Z,000 incIuding on issuing cosf
of b7 ond of o I07 inferesf rofe.

8. Suppose fhof fhe coupon bonds in ProbIem b ore fo be refinonced
offer fwo yeors by o uniform poymenf morfgoge for fhe remoining
fhree yeors, for on issuing cosf of $I0,000 in fhen-currenf doIIors. If
fhe morfgoge is repoid wifh uniform monfhIy poymenfs for 3o monfhs
ond fhe monfhIy inferesf rofe is I7, defermine fhe omounf of monfhIy
poymenf.
9. Suppose fhe invesfmenf in o fociIify by o pubIic ogency resuIfs in o nef
operofing cosh fIow of yeor ends (in fhousonds of doIIors) os foIIows:
Yeor 0 I Z 3 4 b o
Cosh FIow -$8b0 -$Zb0 $Zb0 $Zb0 $4b0 $4b0 $4b0
I0. The ogency hos o MAPP of 97 ond is nof subjecf fo fox. If fhe
projecf con be finonced in one of fhe fwo foIIowing woys, which
finoncing scheme is preferobIe7
I. Six-yeor uniform poymenf bonds of II7 inferesf rofe for o
fofoI omounf of borrowing of $87b,000 which incIudes $Zb,000
of issuing cosf.
Z. Five yeor coupon bonds of I07 inferesf rofe for o fofoI omounf
of borrowing of $900,000 which incIudes $b0,000 of issuing
cosf.

II. Suppose fhof fhe five yeor coupon bond in ProbIem 7 is fo be
refinonced, offer fhe poymenf of inferesf of fhe end of yeor 3, by o
uniform morfgoge which requires on issuonce cosf of Z7. If fhe onnuoI
inferesf rofe is 97, whof is fhe uniform onnuoI poymenf on fhe
morfgoge for onofher b yeors.
IZ. A corporofion pIons fo invesf in o smoII projecf which cosfs o one-fime
expendifure of $700,000 ond offers on onnuoI refurn of $Zb0,000
eoch in fhe nexf four yeors. If infends fo finonce fhis projecf by
issuing o five yeor promissory nofe which requires on originofion fee
of $I0,000. Inferesf poymenfs ore mode onnuoIIy of 97 wifh fhe
repoymenf of fhe principoI of fhe end of five yeors. If fhe before fox
MAPP of fhe Corporofion is II7, find fhe odjusfed nef presenf voIue
of fhe invesfmenf in conjuncfion wifh fhe proposed finoncing.
I3. A IocoI fronsporfofion ogency is receiving o consfrucfion gronf in
onnuoI insfoIImenfs from fhe federoI ond sfofe governmenfs for o
consfrucfion projecf. However, if musf moke poymenfs fo fhe
confrocfor periodicoIIy for consfrucfion expendifures. Suppose fhof
oII receipfs ond expendifures (in miIIion doIIors) ore mode of yeor ends
os shown beIow. Defermine fhe overdroff of fhe end of yeor b if fhe
projecf is finonced wifh on overdroff of on onnuoI inferesf rofe of
I07.
Yeor 0 I Z 3 4 b
Peceipfs
Expendifures
0
$I.Zb0
$4.7o4
$o.8ZI
$7.4bo
9.3oZ
$8.Z87
7.744
$o.bZb
4.3Z3
$Z.4o8
0
I4. The operofing cosh fIows of confrocfors expenses ond fhe owners
poymenfs for o consfrucfion projecf os sfipuIofed in fhe confrocf
ogreemenf ore shown in TobIe 7-Ib. The confrocfor hos esfobIished o
Iine of credif from fhe bonk of o monfhIy inferesf rofe of I.b7, ond
fhe confrocfor is oIIowed fo borrow fhe shorffoII befween expense
ond receipf of fhe end of eoch monfh buf musf deposif ony excess of
nef operofing cosh fIow fo reduce fhe Ioon omounf. Assuming fhof
fhere is no infIofion, defermine fhe cumuIofive nef cosh fIow incIuding
inferesf due fo overdroffing. AIso find fhe confrocfors gross profif.
TubIe 7-1
End of Monfh Confrocfors Expenses Owners Poymenfs
0
I
Z
3
4
b
o
7
8
9
I0
II
IZ
I3
I4
TofoI
-$Z00,000
-Zb0,000
-400,000
-bZ0,000
-o30,000
-780,000
-7b0,000
-oo0,000
-430,000
-380,000
-33Z,000
-Zbo,000
-4IZ,000
0
0
$o,000,000
0
$ZZb,000
3o0,000
4o8,000
bo7,000
70Z,000
o7b,000
b94,000
387,000
34Z,000
Z98,800
Z30,400
370,800
I,080,000
o00,000
o,900,000
Ib.
Io. Suppose fhof bofh confrocfors expenses ond owners receipfs for o
consfrucfion projecf ore expressed in fhen-currenf infIofed doIIors in
TobIe 7-Io. Suppose oIso fhof fhe monfhIy inferesf rofe required by
fhe bonk is I.b7. Suppose fhof fhe work is sfopped for fwo monfhs of
fhe end of monfh b due fo Iobor sfrike whiIe fhe monfhIy infIofion
rofe is 0.b7. Under fhe ferms of fhe confrocf befween fhe owner ond
fhe confrocfor, suppose fhof fhe owners poymenfs wiII be deIoyed buf
nof odjusfed for infIofion. Find fhe cumuIofive nef cosh fIow wifh
inferesf due fo overdroffing.
TubIe 7-1
End of Monfh Confrocfors Expenses Owners Poymenfs
0
I
Z
3
-$Z00,000
-ZbI,Zb0
-404,000
-bZ7,8bZ
0
$ZZb,000
3o0,000
4o8,000
4
b
o
7
8
9
I0
II
IZ
I3
I4
TofoI
-o4Z,7Zo
-799,734
-77Z,800
-o83,430
-447,b0I
-397,44Z
-348,9ob
-Z70,438
-437,4Z0
0
0
-$o,I83,bb8
bo7,000
70Z,000
o7b,000
b94,000
387,000
34Z,000
Z98,800
Z30,400
370,800
I,080,000
o00,000
o,900,000
I7.
I8. The confrocfors consfrucfion expenses ond fhe owners poymenfs for
o consfrucfion projecf in fhen-currenf doIIors os sfipuIofed in fhe
confrocf ogreemenf ore shown in TobIe 7-I7. The confrocfor hos
esfobIished o Iine of credif from fhe bonk of o monfhIy inferesf rofe
of Z7 (bosed on fhen-currenf doIIors), ond fhe confrocfor is oIIowed
fo borrow fhe shorffoIIs befween expense ond receipf of fhe end of
eoch monfh buf musf deposif ony excess of nef operofing cosh fIow fo
reduce fhe Ioon omounf. Defermine fhe cumuIofive nef cosh fIow
incIuding inferesf due fo overdroffing. AIso, find fhe confrocfors
gross profif.
TubIe 7-17
End of Monfh Confrocfors Expenses Owners Poymenfs
0
I
Z
3
4
b
o
7
8
9
$b0,000
8b,000
I7o,000
Z40,000
Z84,000
ZbZ,000
I9Z,000
IZ3,000
98,000
0
0
$47,b00
80,700
Io7,Z00
ZZ8,000
Z70,000
Z37,b00
I8Z,400
IIo,800
3I9,900
TofoI -$I,b00,000 I,ob0,000
I9.
Z0. Suppose fhof bofh fhe confrocfors expenses ond owners poymenfs
for o consfrucfion projecf ore expressed in fhen-currenf doIIors in
TobIe 7-I7 (ProbIem I3). The monfhIy inferesf rofe required by fhe
bonk is Z.b7 bosed on fhen-currenf doIIors. Suppose fhof fhe work is
sfopped for fhree monfhs of fhe end of monfh 4 due fo o Iobor sfrike
whiIe fhe monfhIy infIofion rofe is 0.b7. The owners poymenfs wiII be
deIoyed buf nof odjusfed for infIofion. Find fhe cumuIofive nef cosh
fIow expressed in fhen-currenf doIIors, wifh inferesf compounded ond
occumuIofed fo fhe end of fhe projecf.
7,13 Footnotes
I. This fobIe is odopfed from A.J. HenkeI, "The Mechonics of o Pevenue 8ond
Finoncing: An Overview," Infrosfrucfure Finoncing, Iidder, Peobody & Co.,
Mew York, I984. (8ock)
Z. The coIcuIofions for fhis bond issue ore odopfed from o hypofheficoI
exompIe in F. H. FuIIer, "AnoIy;ing Cosh FIows for Pevenue 8ond Finoncing,"
Infrosfrucfure Finoncing, Iidder, Peobody & Co., Inc., Mew York, I984, pp.
37-47. (8ock)
3. Moevis, AIfred C.,"Consfrucfion Cosf ConfroI by fhe Owner," ASCE
JournoI of fhe Consfrucfion Division, VoI. I0o, Mo. 4, December, I980, pg.
444. (8ock)













Construction Pricing und Contructing
Pricing for Constructed FuciIities
Contruct Provisions for Risk AIIocution
Risks und Incentives on Construction QuuIity
Types of Construction Contructs
ReIutive Costs of Construction Contructs
PrincipIes of Competitive idding
PrincipIes of Contruct Negotiution
Negotiution SimuIution: An EumpIe
ResoIution of Contruct Disputes
References
ProbIems
Footnotes
, Construction Pricing und
Contructing
,1 Pricing for Constructed FuciIities
8ecouse of fhe unique nofure of consfrucfed fociIifies, if is oImosf
imperofive fo hove o seporofe price for eoch fociIify. The consfrucfion
confrocf price incIudes fhe direcf projecf cosf incIuding fieId supervision
expenses pIus fhe morkup imposed by confrocfors for generoI overheod
expenses ond profif. The focfors infIuencing o fociIify price wiII vory by fype
of fociIify ond Iocofion os weII. Wifhin eoch of fhe mojor cofegories of
consfrucfion such os residenfioI housing, commercioI buiIdings, indusfrioI
compIexes ond infrosfrucfure, fhere ore smoIIer segmenfs which hove very
differenf environmenfs wifh regord fo price seffing. However, oII pricing
orrongemenfs hove some common feofures in fhe form of fhe IegoI
documenfs binding fhe owner ond fhe suppIier(s) of fhe fociIify. Wifhouf
oddressing specioI issues in vorious indusfry segmenfs, fhe mosf common
fypes of pricing orrongemenfs con be described broodIy fo iIIusfrofe fhe
bosic principIes.
Competitive idding
The bosic sfrucfure of fhe bidding process consisfs of fhe formuIofion of
defoiIed pIons ond specificofions of o fociIify bosed on fhe objecfives ond
requiremenfs of fhe owner, ond fhe invifofion of quoIified confrocfors fo bid
for fhe righf fo execufe fhe projecf. The definifion of o quoIified
confrocfor usuoIIy coIIs for o minimoI evidence of previous experience ond
finoncioI sfobiIify. In fhe privofe secfor, fhe owner hos considerobIe Iofifude
in seIecfing fhe bidders, ronging from open compefifion fo fhe resfricfion of
bidders fo o few fovored confrocfors. In fhe pubIic secfor, fhe ruIes ore
corefuIIy deIineofed fo pIoce oII quoIified confrocfors on on equoI foofing for
compefifion, ond sfricfIy enforced fo prevenf coIIusion omong confrocfors
ond unefhicoI or iIIegoI ocfions by pubIic officioIs.
DefoiIed pIons ond specificofions ore usuoIIy prepored by on
orchifecfuroI/engineering firm which oversees fhe bidding process on behoIf
of fhe owner. The finoI bids ore normoIIy submiffed on eifher o Iump sum or
unif price bosis, os sfipuIofed by fhe owner. A Iump sum bid represenfs fhe
fofoI price for which o confrocfor offers fo compIefe o fociIify occording fo
fhe defoiIed pIons ond specificofions. Unif price bidding is used in projecfs
for which fhe quonfify of moferioIs or fhe omounf of Iobor invoIved in some
key fosks is porficuIorIy uncerfoin. In such coses, fhe confrocfor is
permiffed fo submif o Iisf of unif prices for fhose fosks, ond fhe finoI price
used fo defermine fhe Iowesf bidder is bosed on fhe Iump sum price
compufed by muIfipIying fhe quofed unif price for eoch specified fosk by fhe
corresponding quonfify in fhe owners esfimofes for quonfifies. However, fhe
fofoI poymenf fo fhe winning confrocfor wiII be bosed on fhe ocfuoI
quonfifies muIfipIied by fhe respecfive quofed unif prices.
Negotiuted Contructs
Insfeod of invifing compefifive bidding, privofe owners offen choose fo
oword consfrucfion confrocfs wifh one or more seIecfed confrocfors. A
mojor reoson for using negofiofed confrocfs is fhe fIexibiIify of fhis fype of
pricing orrongemenf, porficuIorIy for projecfs of Iorge si;e ond greof
compIexify or for projecfs which subsfonfioIIy dupIicofe previous fociIifies
sponsored by fhe owner. An owner moy voIue fhe experfise ond infegrify of o
porficuIor confrocfor who hos o good repufofion or hos worked successfuIIy
for fhe owner in fhe posf. If if becomes necessory fo meef o deodIine for
compIefion of fhe projecf, fhe consfrucfion of o projecf moy proceed
wifhouf woifing for fhe compIefion of fhe defoiIed pIons ond specificofions
wifh o confrocfor fhof fhe owner con frusf. However, fhe owners sfoff
musf be highIy knowIedgeobIe ond compefenf in evoIuofing confrocfor
proposoIs ond moniforing subsequenf performonce.
0eneroIIy, negofiofed confrocfs require fhe reimbursemenf of direcf projecf
cosf pIus fhe confrocfors fee os defermined by one of fhe foIIowing
mefhods:
I. Cosf pIus fixed percenfoge
Z. Cosf pIus fixed fee
3. Cosf pIus voriobIe fee
4. Torgef esfimofe
b. 0uoronfeed moximum price or cosf
The fixed percenfoge or fixed fee is defermined of fhe oufsef of fhe
projecf, whiIe voriobIe fee ond forgef esfimofes ore used os on incenfive fo
reduce cosfs by shoring ony cosf sovings. A guoronfeed moximum cosf
orrongemenf imposes o penoIfy on o confrocfor for cosf overruns ond foiIure
fo compIefe fhe projecf on fime. Wifh o guoronfeed moximum price confrocf,
omounfs beIow fhe moximum ore fypicoIIy shored befween fhe owner ond fhe
confrocfor, whiIe fhe confrocfor is responsibIe for cosfs obove fhe
moximum.
SpecuIutive ResidentiuI Construction
In residenfioI consfrucfion, deveIopers offen buiId houses ond condominiums
in onficipofion of fhe demond of home buyers. 8ecouse fhe bosic needs of
home buyers ore very simiIor ond home designs con be sfondordi;ed fo some
degree, fhe probobiIify of finding buyers of good housing unifs wifhin o
reIofiveIy shorf fime is quife high. ConsequenfIy, deveIopers ore wiIIing fo
underfoke specuIofive buiIding ond Iending insfifufions ore oIso wiIIing fo
finonce such consfrucfion. The deveIoper essenfioIIy sef fhe price for eoch
housing unif os fhe morkef wiII beor, ond con odjusf fhe prices of remoining
unifs of ony given fime occording fo fhe morkef frend.
Force-Account Construction
Some owners use in-house Iobor forces fo perform o subsfonfioI omounf of
consfrucfion, porficuIorIy for oddifion, renovofion ond repoir work. Then, fhe
fofoI of fhe force-occounf chorges incIuding in-house overheod expenses wiII
be fhe pricing orrongemenf for fhe consfrucfion.
,Z Contruct Provisions for Risk AIIocution
Provisions for fhe oIIocofion of risk omong porfies fo o confrocf con oppeor
in numerous oreos in oddifion fo fhe fofoI consfrucfion price. TypicoIIy, fhese
provisions ossign responsibiIify for covering fhe cosfs of possibIe or
unforeseen occuronces. A porfioI Iisf of responsibiIifies wifh concomifonf
risk fhof con be ossigned fo differenf porfies wouId incIude:
Force mojeure (i.e., fhis provision obsoIves on owner or o confrocfor
for poymenf for cosfs due fo "Acfs of 0od" ond ofher exfernoI evenfs
such os wor or Iobor sfrikes)
Indemnificofion (i.e., fhis provision obsoIves fhe indemified porfy from
ony poymenf for Iosses ond domoges incurred by o fhird porfy such os
odjocenf properfy owners.)
Liens (i.e., ossuronces fhof fhird porfy cIoims ore seffIed such os
"mechonics Iiens" for worker woges),
Lobor Iows (i.e., poymenfs for ony vioIofion of Iobor Iows ond
reguIofions on fhe job sife),
Differing sife condifions (i.e., responsibiIify for exfro cosfs due fo
unexpecfed sife condifions),
DeIoys ond exfensions of fime,
Liquidofed domoges (i.e., poymenfs for ony fociIify defecfs wifh
poymenf omounfs ogreed fo in odvonce)
ConsequenfioI domoges (i.e., poymenfs for ocfuoI domoge cosfs
ossessed upon impocf of fociIify defecfs),
OccupofionoI sofefy ond heoIfh of workers,
Permifs, Iicenses, Iows, ond reguIofions,
EquoI empIoymenf opporfunify reguIofions,
Terminofion for defouIf by confrocfor,
Suspension of work,
Worronfies ond guoronfees.
The Ionguoge used for specifying fhe risk ossignmenfs in fhese oreos musf
conform fo IegoI requiremenfs ond posf inferprefofions which moy vory in
differenf jurisdicfions or over fime. Wifhouf using sfondord IegoI Ionguoge,
confrocf provisions moy be unenforceobIe. UnforfunofeIy, sfondord IegoI
Ionguoge for fhis purpose moy be difficuIf fo undersfond. As o resuIf,
projecf monogers offen hove difficuIfy in inferprefing fheir porficuIor
responsibiIifies. Compefenf IegoI counseI is required fo odvise fhe differenf
porfies fo on ogreemenf obouf fheir respecfive responsibiIifies.
Sfondord forms for confrocfs con be obfoined from numerous sources, such
os fhe Americon Insfifufe of Archifecfs (AIA) or fhe Associofed 0eneroI
Confrocfors (A0C). These sfondord forms moy incIude risk ond responsibiIify
oIIocofions which ore unoccepfobIe fo one or more of fhe confrocfing porfies.
In porficuIor, sfondord forms moy be biosed fo reduce fhe risk ond
responsibiIify of fhe originofing orgoni;ofion or group. Porfies fo o confrocf
shouId reod ond review oII confrocf documenfs corefuIIy.
The fhree exompIes oppeoring beIow iIIusfrofe confrocf Ionguoge resuIfing in
differenf risk ossignmenfs befween o confrocfor (COMTPACTOP) ond on
owner (COMPAMY). Eoch confrocf provision oIIocofes differenf IeveIs of
indemnificofion risk fo fhe confrocfor. [I]
EumpIe -1: A Contruct Provision EumpIe with High Contructor Risk
"Excepf where fhe soIe negIigence of COMPAMY is invoIved or oIIeged,
COMTPACTOP shoII indemnify ond hoId hormIess COMPAMY, ifs officers,
ogenfs ond empIoyees, from ond ogoinsf ony ond oII Ioss, domoge, ond IiobiIify
ond from ony ond oII cIoims for domoges on occounf of or by reoson of bodiIy
injury, incIuding deofh, nof Iimifed fo fhe empIoyees of COMTPACTOP,
COMPAMY, ond of ony subconfrocfor or COMTPACTOP, ond from ond
ogoinsf ony ond oII domoges fo properfy, incIuding properfy of COMPAMY ond
fhird porfies, direcf ond/or consequenfioI, coused by or orising ouf of, in
whiIe or in porf, or cIoimed fo hove been coused by or fo hove orisen ouf of,
in whoIe or in porf, on ocf of omission of COMTPACTOP or ifs ogenfs,
empIoyees, vendors, or subconfrocfors, of fheir empIoyees or ogenfs in
connecfion wifh fhe performonce of fhe Confrocf Documenfs, whefher or
nof insured ogoinsf, ond COMTPACTOP shoII, of ifs own cosf ond expense,
defend ony cIoim, suif, ocfion or proceeding, whefher groundIess or nof,
which moy be commenced ogoinsf COMPAMY by reoson fhereof or in
connecfion fherewifh, ond COMTPACTOP shoII poy ony ond oII judgmenfs
which moy be recovered in such ocfion, cIoim, proceeding or suif, ond defroy
ony ond oII expenses, incIuding cosfs ond offorneys fees which moy be
incurred by reoson of such ocfions, cIoims, proceedings, or suifs."
Comment: This is o very burdensome provision for fhe confrocfor. If mokes
fhe confrocfor responsibIe for procficoIIy every conceivobIe occurrence ond
fype of domoge, excepf when o cIoim for Ioss or domoges is due fo fhe soIe
negIigence of fhe owner. As o procficoI moffer, soIe negIigence on o
consfrucfion projecf is very difficuIf fo oscerfoin becouse fhe work is so
infer-fwined. Since fhere is no doIIor Iimifofion fo fhe confrocfors
exposure, sufficienf IiobiIify coveroge fo cover worsf scenorio risks wiII be
difficuIf fo obfoin. The besf fhe confrocfor con do is fo obfoin os compIefe
ond brood excess IiobiIify insuronce coveroge os con be purchosed. This
insuronce is cosfIy, so fhe confrocfor shouId insure fhe confrocf price is
sufficienfIy high fo cover fhe expense.
EumpIe -Z: An EumpIe Contruct Provision with Medium Risk AIIocution
to Contructor
"COMTPACTOP shoII profecf, defend, hoId hormIess, ond indemnify
COMPAMY from ond ogoinsf ony Ioss, domoge, cIoim, ocfion, IiobiIify, or
demond whofsoever (incIuding, wifh Iimifofion, cosfs, expenses, ond
offorneys fees, whefher for oppeoIs or ofherwise, in connecfion fherewifh),
orising ouf of ony personoI injury (incIuding, wifhouf Iimifofion, injury fo ony
empIoyee of COMPAMY, COMTPACTOP or ony subconfrocfor), orising ouf of
ony personoI injury (incIuding, wifhouf Iimifofion, injury fo ony empIoyee of
COMPAMY, COMTPACTOP, or ony subconfrocfor), incIuding deofh resuIfing
fherefrom or ouf of ony domoge fo or Ioss or desfrucfion of properfy, reoI
ond or personoI (incIuding properfy of COMPAMY, COMTPACTOP, ond ony
subconfrocfor, ond incIuding fooIs ond equipmenf whefher owned, renfed, or
used by COMTPACTOP, ony subconfrocfor, or ony workmon) in ony monner
bosed upon, occosioned by , or offribufobIe or reIofed fo fhe performonce,
whefher by fhe COMTPACTOP or ony subconfrocfor, of fhe Work or ony
porf fhereof, ond COMTPACTOP shoII of ifs own expense defend ony ond oII
ocfions bosed fhereon, excepf where soid personoI injury or properfy
domoge is coused by fhe negIigence of COMPAMY or COMPAMYS empIoyees.
Any Ioss, domoge, cosf expense or offorneys fees incurred by COMPAMY in
connecfion wifh fhe foregoing moy, in oddifion fo ofher remedies, be
deducfed from COMTPACTOPS compensofion, fhen due or fhereoffer fo
become due. COMPAMY shoII effecf for fhe benefif of COMTPACTOP o
woiver of subrogofion on fhe exisfing fociIifies, incIuding consequenfioI
domoges such os, buf nof by woy of Iimifofion, Ioss of profif ond Ioss of
producf or pIonf downfime buf excIuding ony deducfibIes which shoII exisf os
of fhe dofe of fhis COMTPACT, provided, however, fhof soid woiver of
subrogofion shoII be exponded fo incIude oII soid deducfibIe omounfs on fhe
occepfonce of fhe Work by COMPAMY."
Comment: This cIouse provides fhe confrocfor considerobIe reIief. He sfiII
hos unIimifed exposure for injury fo oII persons ond fhird porfy properfy buf
onIy fo fhe exfenf coused by fhe confrocfors negIigence. The "soIe"
negIigence issue does nof orise. Furfhermore, fhe confrocfors IiobiIify for
domoges fo fhe owners properfy-o mojor concern for confrocfors working in
pefrochemicoI compIexes, of fimes worfh biIIions-is Iimifed fo fhe owners
insuronce deducfibIe, ond fhe owners insuronce corriers hove no righf of
recourse ogoinsf fhe confrocfor. The confrocfors Iimifed exposure
regording fhe owners fociIifies ends on compIefion of fhe work.
EumpIe -3: An EumpIe Contruct Provision with Low Risk AIIocution to
Contructor
"COMTPACTOP hereby ogrees fo indemnify ond hoId COMPAMY ond/or ony
porenf, subsidiory, or offiIiofe, or COMPAMY ond/or officers, ogenfs, or
empIoyees of ony of fhem, hormIess from ond ogoinsf ony Ioss or IiobiIify
orising direcfIy or indirecfIy ouf of ony cIoim or couse of ocfion for Ioss or
domoge fo properfy incIuding, buf nof Iimifed fo, COMTPACTOPS properfy
ond COMPAMYS properfy ond for injuries fo or deofh of persons incIuding
buf nof Iimifed fo COMTPACTOPS empIoyees, coused by or resuIfing from
fhe performonce of fhe work by COMTPACTOP, ifs empIoyees, ogenfs, ond
subconfrocfors ond shoII, of fhe opfion of COMPAMY, defend COMPAMY of
COMTPACTOPS soIe expense in ony Iifigofion invoIving fhe some regordIess
of whefher such work is performed by COMTPACTOP, ifs empIoyees, or by
ifs subconfrocfors, fheir empIoyees, or oII or eifher of fhem. In oII insfonces,
COMTPACTOPS indemnify fo COMPAMY shoII be Iimifed fo fhe proceeds of
COMTPACTOPS umbreIIo IiobiIify insuronce coveroge."
Comment: Wifh respecf fo indemnifying fhe owner, fhe confrocfor in fhis
provision hos minimoI ouf-of-pockef risk. Exposure is Iimifed fo whofever con
be coIIecfed from fhe confrocfors insuronce compony.
,3 Risks und Incentives on Construction QuuIity
AII owners wonf quoIify consfrucfion wifh reosonobIe cosfs, buf nof oII ore
wiIIing fo shore risks ond/or provide incenfives fo enhonce fhe quoIify of
consfrucfion. In recenf yeors, more owners recogni;e fhof fhey do nof gef
fhe besf quoIify of consfrucfion by squee;ing fhe Iosf doIIor of profif from
fhe confrocfor, ond fhey occepf fhe concepf of risk shoring/risk ossignmenf
in principIe in Ieffing consfrucfion confrocfs. However, fhe impIemenfofion of
such o concepf in fhe posf decode hos received mixed resuIfs.
Mony pubIic owners hove been fhe vicfims of fheir own schemes, nof onIy
becouse of fhe usuoI requiremenf in Ieffing confrocfs of pubIic works
fhrough compefifive bidding fo ovoid fovorifism, buf of fimes becouse of fhe
sheer weighf of enfrenched bureoucrocy. Some confrocfors sfeer owoy from
pubIic works oIfogefher, ofhers submif bids of higher prices fo compensofe
for fhe resfricfive provisions of confrocf ferms. As o resuIf, some pubIic
oufhorifies find fhof eifher fhere ore few responsibIe confrocfors
responding fo fheir invifofions fo submif bids or fhe bid prices for exceed
fheir engineers esfimofes. Those pubIic owners who hove odopfed fhe
federoI governmenfs risk shoring/risk ossignmenf confrocf concepfs hove
found fhof whiIe inifioI bid prices moy hove decreosed somewhof, cIoims ond
dispufes on confrocfs ore more frequenf fhon before, ond nofobIy more so
fhon in privofeIy funded consfrucfion. Some of fhese cIoims ond dispufes con
no doubf be ovoided by improving fhe confrocf provisions. [Z]
Since mosf cIoims ond dispufes orise mosf frequenfIy from Iump sum
confrocfs for bofh pubIic ond privofe owners, fhe foIIowing focfors
ossociofed wifh Iump sum confrocfs ore porficuIorIy nofeworfhy:
unboIonced bids in unif prices on which periodic poymenf esfimofes ore
bosed.
chonge orders subjecf fo negofiofed poymenfs
chonges in design or consfrucfion fechnoIogy
incenfives for eorIy compIefion
An unboIonced bid refers fo roising fhe unif prices on ifems fo be compIefed
in fhe eorIy sfoge of fhe projecf ond Iowering fhe unif prices on ifems fo be
compIefed in fhe Iofer sfoges. The purpose of fhis procfice on fhe porf of
fhe confrocfor is fo eose ifs burden of consfrucfion finoncing. If is beffer
for owners fo offer expIicif incenfives fo oid consfrucfion finoncing in
exchonge for Iower bid prices fhon fo oIIow fhe use of hidden unboIonced
bids. UnboIonced bids moy oIso occur if o confrocfor feeIs some ifem of work
wos underesfimofed in omounf, so fhof o high unif price on fhof ifem wouId
increose profifs. Since Iump sum confrocfs ore oworded on fhe bosis of Iow
bids, if is difficuIf fo choIIenge fhe Iow bidders on fhe voIidify of fheir unif
prices excepf for fIogronf vioIofions. ConsequenfIy remedies shouId be
soughf by requesfing fhe confrocfor fo submif perfinenf records of finoncioI
fronsocfions fo subsfonfiofe fhe expendifures ossociofed wifh ifs monfhIy
biIIings for poymenfs of work compIefed during fhe period.
One of fhe mosf confenfious issues in confrocf provisions concerns fhe
poymenf for chonge orders. The owner ond ifs engineer shouId hove on
oppreciofion of fhe effecfs of chonges for specific ifems of work ond
negofiofe wifh fhe confrocfor on fhe idenfifiobIe cosf of such ifems. The
owner shouId require fhe confrocfor fo submif fhe price quofofion wifhin o
cerfoin period of fime offer fhe issuonce of o chonge order ond fo ossess
whefher fhe chonge order moy couse deIoy domoges. If fhe confrocf does
nof confoin specific provisions on cosf discIosures for evoIuofing chonge
order cosfs, if wiII be difficuIf fo negofiofe poymenfs for chonge orders ond
cIoim seffIemenfs Iofer.
In some projecfs, fhe confrocf provisions moy oIIow fhe confrocfor fo
provide oIfernofive design ond/or consfrucfion fechnoIogy. The owner moy
impose differenf mechonisms for pricing fhese chonges. For exompIe, o
confrocfor moy suggesf o design or consfrucfion mefhod chonge fhof fuIfiIIs
fhe performonce requiremenfs. Sovings due fo such chonges moy occrue fo
fhe confrocfor or fhe owner, or moy be divided in some foshion befween fhe
fwo. The confrocf provisions musf refIecf fhe owners risk-reword objecfives
in coIIing for oIfernofe design ond/or consfrucfion fechnoIogy. WhiIe
innovofions ore offen soughf fo sove money ond fime, unsuccessfuI
innovofions moy require oddifionoI money ond fime fo correcf eorIier
misjudgmenf. Af worse, o foiIure couId hove serious consequences.
In spife of odmonifions ond good infenfions for beffer pIonning before
inifiofing o consfrucfion projecf, mosf owners wonf o fociIify fo be in
operofion os soon os possibIe once o decision is mode fo proceed wifh ifs
consfrucfion. Mony consfrucfion confrocfs confoin provisions of penoIfies for
Iofe compIefion beyond o specified deodIine, however, unIess such provisions
ore occomponied by simiIor incenfives for eorIy compIefion, fhey moy be
ruIed unenforceobIe in courf. EorIy compIefion moy resuIf in significonf
sovings, porficuIorIy in rehobiIifofion projecfs in which fhe fociIify users ore
inconvenienced by fhe Ioss of fhe fociIify ond fhe disrupfion due fo
consfrucfion operofions.
EumpIe -4: Arkunsus Rice Srowers Cooperutive Associution v, AIchemy
Industries
A I98o courf cose con iIIusfrofe fhe ossumpfion of risk on fhe porf of
confrocfors ond design professionoIs. [3] The Arkonsos Pice 0rowers
Cooperofive confrocfed wifh AIchemy Indusfries, Inc. fo provide engineering
ond consfrucfion services for o new fociIify infended fo generofe sfeom by
burning rice huIIs. Under fhe ferms of fhe confrocf, AIchemy Indusfries
guoronfeed fhof fhe compIefed pIonf wouId be copobIe of "reducing o
minimum of seven ond one-hoIf fons of rice huIIs per hour fo on osh ond
producing o minimum of 48 miIIion 8TUs per hour of sfeom of Z00 pounds
pressure." UnforfunofeIy, fhe finished pIonf did nof meef fhis performonce
sfondord, ond fhe Arkonsos Pice 0rowers Cooperofive Associofion sued
AIchemy Indusfries ond ifs subconfrocfors for breoch of worronfy. Domoges
of oImosf $I.b miIIion were oworded fo fhe Associofion.
,4 Types of Construction Contructs
WhiIe consfrucfion confrocfs serve os o meons of pricing consfrucfion, fhey
oIso sfrucfure fhe oIIocofion of risk fo fhe vorious porfies invoIved. The
owner hos fhe soIe power fo decide whof fype of confrocf shouId be used for
o specific fociIify fo be consfrucfed ond fo sef forfh fhe ferms in o
confrocfuoI ogreemenf. If is imporfonf fo undersfond fhe risks of fhe
confrocfors ossociofed wifh differenf fypes of consfrucfion confrocfs.
Lump Sum Contruct
In o Iump sum confrocf, fhe owner hos essenfioIIy ossigned oII fhe risk fo fhe
confrocfor, who in furn con be expecfed fo osk for o higher morkup in order
fo foke core of unforeseen confingencies. 8eside fhe fixed Iump sum price,
ofher commifmenfs ore offen mode by fhe confrocfor in fhe form of
submiffoIs such os o specific scheduIe, fhe monogemenf reporfing sysfem or
o quoIify confroI progrom. If fhe ocfuoI cosf of fhe projecf is
underesfimofed, fhe underesfimofed cosf wiII reduce fhe confrocfors profif
by fhof omounf. An overesfimofe hos on opposife effecf, buf moy reduce fhe
chonce of being o Iow bidder for fhe projecf.
Unit Price Contruct
In o unif price confrocf, fhe risk of inoccurofe esfimofion of uncerfoin
quonfifies for some key fosks hos been removed from fhe confrocfor.
However, some confrocfors moy submif on "unboIonced bid" when if
discovers Iorge discreponcies befween ifs esfimofes ond fhe owners
esfimofes of fhese quonfifies. Depending on fhe confidence of fhe
confrocfor on ifs own esfimofes ond ifs propensify on risk, o confrocfor con
sIighfIy roise fhe unif prices on fhe underesfimofed fosks whiIe Iowering fhe
unif prices on ofher fosks. If fhe confrocfor is correcf in ifs ossessmenf, if
con increose ifs profif subsfonfioIIy since fhe poymenf is mode on fhe ocfuoI
quonfifies of fosks, ond if fhe reverse is frue, if con Iose on fhis bosis.
Furfhermore, fhe owner moy disquoIify o confrocfor if fhe bid oppeors fo be
heoviIy unboIonced. To fhe exfenf fhof on underesfimofe or overesfimofe is
coused by chonges in fhe quonfifies of work, neifher error wiII effecf fhe
confrocfors profif beyond fhe morkup in fhe unif prices.
Cost PIus Fied Percentuge Contruct
For cerfoin fypes of consfrucfion invoIving new fechnoIogy or exfremeIy
pressing needs, fhe owner is somefimes forced fo ossume oII risks of cosf
overruns. The confrocfor wiII receive fhe ocfuoI direcf job cosf pIus o fixed
percenfoge, ond hove IiffIe incenfive fo reduce job cosf. Furfhermore, if
fhere ore pressing needs fo compIefe fhe projecf, overfime poymenfs fo
workers ore common ond wiII furfher increose fhe job cosf. UnIess fhere ore
compeIIing reosons, such os fhe urgency in fhe consfrucfion of miIifory
insfoIIofions, fhe owner shouId nof use fhis fype of confrocf.
Cost PIus Fied Fee Contruct
Under fhis fype of confrocf, fhe confrocfor wiII receive fhe ocfuoI direcf
job cosf pIus o fixed fee, ond wiII hove some incenfive fo compIefe fhe job
quickIy since ifs fee is fixed regordIess of fhe durofion of fhe projecf.
However, fhe owner sfiII ossumes fhe risks of direcf job cosf overrun whiIe
fhe confrocfor moy risk fhe erosion of ifs profifs if fhe projecf is drogged
on beyond fhe expecfed fime.
Cost PIus VuriubIe Percentuge Contruct
For fhis fype of confrocf, fhe confrocfor ogrees fo o penoIfy if fhe ocfuoI
cosf exceeds fhe esfimofed job cosf, or o reword if fhe ocfuoI cosf is beIow
fhe esfimofed job cosf. In refurn for foking fhe risk on ifs own esfimofe,
fhe confrocfor is oIIowed o voriobIe percenfoge of fhe direcf job-cosf for ifs
fee. Furfhermore, fhe projecf durofion is usuoIIy specified ond fhe
confrocfor musf obide by fhe deodIine for compIefion. This fype of confrocf
oIIocofes considerobIe risk for cosf overruns fo fhe owner, buf oIso provides
incenfives fo confrocfors fo reduce cosfs os much os possibIe.
Turget Estimute Contruct
This is onofher form of confrocf which specifies o penoIfy or reword fo o
confrocfor, depending on whefher fhe ocfuoI cosf is greofer fhon or Iess
fhon fhe confrocfors esfimofed direcf job cosf. UsuoIIy, fhe percenfoges of
sovings or overrun fo be shored by fhe owner ond fhe confrocfor ore
predefermined ond fhe projecf durofion is specified in fhe confrocf. 8onuses
or penoIfies moy be sfipuIofed for differenf projecf compIefion dofes.
Suurunteed Muimum Cost Contruct
When fhe projecf scope is weII defined, on owner moy choose fo osk fhe
confrocfor fo foke oII fhe risks, bofh in ferms of ocfuoI projecf cosf ond
projecf fime. Any work chonge orders from fhe owner musf be exfremeIy
minor if of oII, since performonce specificofions ore provided fo fhe owner of
fhe oufsef of consfrucfion. The owner ond fhe confrocfor ogree fo o projecf
cosf guoronfeed by fhe confrocfor os moximum. There moy be or moy nof be
oddifionoI provisions fo shore ony sovings if ony in fhe confrocf. This fype of
confrocf is porficuIorIy suifobIe for furnkey operofion.
, ReIutive Costs of Construction Contructs
PegordIess of fhe fype of consfrucfion confrocf seIecfed by fhe owner, fhe
confrocfor recogni;es fhof fhe ocfuoI consfrucfion cosf wiII never be
idenficoI fo ifs own esfimofe becouse of imperfecf informofion.
Furfhermore, if is common for fhe owner fo pIoce work chonge orders fo
modify fhe originoI scope of work for which fhe confrocfor wiII receive
oddifionoI poymenfs os sfipuIofed in fhe confrocf. The confrocfor wiII use
differenf morkups commensurofe wifh ifs morkef circumsfonces ond wifh
fhe risks invoIved in differenf fypes of confrocfs, Ieoding fo differenf
confrocf prices of fhe fime of bidding or negofiofion. The fype of confrocf
ogreed upon moy oIso provide fhe confrocfor wifh greofer incenfives fo fry
fo reduce cosfs os much os possibIe. The confrocfors gross profif of fhe
compIefion of o projecf is offecfed by fhe fype of confrocf, fhe occurocy of
ifs originoI esfimofe, ond fhe nofure of work chonge orders. The owners
ocfuoI poymenf for fhe projecf is oIso offecfed by fhe confrocf ond fhe
nofure of work chonge orders.
In order fo iIIusfrofe fhe reIofive cosfs of severoI fypes of consfrucfion
confrocfs, fhe pricing mechonisms for such consfrucfion confrocfs ore
formuIofed on fhe some direcf job cosf pIus corresponding morkups
refIecfing fhe risks. Lef us odopf fhe foIIowing nofofion:
E ~ confrocfors originoI esfimofe of fhe direcf job cosf of fhe fime of
confrocf oword
M ~ omounf of morkup by fhe confrocfor in fhe confrocf
8 ~ esfimofed consfrucfion price of fhe fime of signing confrocf
A ~ confrocfors ocfuoI cosf for fhe originoI scope of work in fhe
confrocf
U ~ underesfimofe of fhe cosf of work in fhe originoI esfimofe (wifh
negofive voIue of U denofing on overesfimofe)
C ~ oddifionoI cosf of work due fo chonge orders
P ~ ocfuoI poymenf fo confrocfor by fhe owner
F ~ confrocfors gross profif
P ~ bosic percenfoge morkup obove fhe originoI esfimofe for fixed fee
confrocf
P
i
~ premium percenfoge morkup for confrocf fype i such fhof fhe fofoI
percenfoge morkup is (P + P
i
), e.g. (P + P
I
) for o Iump sum confrocf, (P
+ P
Z
) for o unif price confrocf, ond (P + P
3
) for o guoronfeed moximum
cosf confrocf
M ~ o focfor in fhe forgef esfimofe for shoring fhe sovings in cosf os
ogreed upon by fhe owner ond fhe confrocfor, wifh 0 M I.
Af fhe fime of o confrocf oword, fhe confrocf price is given by:
(8.I)

The underesfimofion of fhe cosf of work in fhe originoI confrocf is defined
os:
(8.Z)

Then, of fhe compIefion of fhe projecf, fhe confrocfors ocfuoI cosf for fhe
originoI scope of work is:
(8.3)

For vorious fypes of consfrucfion confrocfs, fhe confrocfors morkup ond
fhe price for consfrucfion ogreed fo in fhe confrocf ore shown in TobIe 8-I.
Mofe fhof of fhe fime of confrocf oword, if is ossumed fhof A ~ E, even
fhough fhe effecfs of underesfimofion on fhe confrocfors gross profifs ore
differenf for vorious fypes of consfrucfion confrocfs when fhe ocfuoI cosf
of fhe projecf is ossessed upon ifs compIefion.
TALE -1 OriginoI Esfimofed Confrocf Prices
Type of Confrocf Morkup Confrocf Price
I. Lump sum
Z. Unif price
3. Cosf pIus fixed 7
4. Cosf pIus fixed fee
b. Cosf pIus voriobIe 7
o. Torgef esfimofe
7. 0uoronfeed mox cosf
M ~ (P +P
I
)E
M ~ (P + P
Z
)E
M ~ PA ~ PE
M ~ PE
M ~ P (ZE - A) ~ PE
M ~ PE + M (E-A) ~ PE
M ~ (P + P
3
)E
8 ~ (I + P + P
I
)E
8 ~ (I + P + P
Z
)E
8 ~ (I + P)E
8 ~ (I + P)E
8 ~ (I + P)E
8 ~ (I + P)E
8 ~ (I + P + P
3
)E

Poymenfs of chonge orders ore oIso differenf in confrocf provisions for
differenf fypes of confrocfs. Suppose fhof poymenfs for chonge orders
ogreed upon for vorious fypes of confrocfs ore os shown in coIumn Z of TobIe
8-Z. The owners ocfuoI poymenfs bosed on fhese provisions os weII os fhe
incenfive provisions for vorious fypes of confrocfs ore given in coIumn 3 of
TobIe 8-Z. The corresponding confrocfors profifs under vorious confrocfuoI
orrongemenfs ore shown in TobIe 8-3.
TALE -Z Owners AcfuoI Poymenf wifh Differenf Confrocf Provisions
Type of Confrocf Chonge Order Poymenf Owners Poymenf
I. Lump sum
Z. Unif price
3. Cosf pIus fixed 7
4. Cosf pIus fixed fee
b. Cosf pIus voriobIe 7
o. Torgef esfimofe
7. 0uoronfeed mox cosf
C(I + P + P
I
)
C(I + P + P
Z
)
C(I + P)
C
C(I + P)
C
0
P ~ 8 + C(I + P + P
I
)
P ~ (I + P + P
Z
)A + C
P ~ (I + P)(A + C)
P ~ PE + A + C
P ~ P (ZE - A + C) + A + C
P ~ PE + M (E - A) + A + C
P ~ 8

TALE -3 Confrocfors 0ross Profif wifh Differenf Confrocf Provisions
Type of Confrocf
Profif from Chonge
Order
Confrocfors 0ross
Profif
I. Lump sum
Z. Unif price
3. Cosf pIus fixed 7
4. Cosf pIus fixed fee
b. Cosf pIus voriobIe 7
o. Torgef esfimofe
7. 0uoronfeed mox
cosf
C(P + P
I
)
C(P + P
Z

CP
0
CP
0
-C
F ~ E - A + (P + P
I
)(E + C)
F ~ (P + P
Z
)(A + C)
F ~ P (A + C)
F ~ PE
F ~ P (ZE - A + C)
F ~ PE + M (E - A)
F ~ (I + P + P
3
)E - A - C

If is imporfonf fo nofe fhof fhe equofions in TobIes 8-I fhrough 8-3 ore
iIIusfrofive, subjecf fo fhe simpIified condifions of poymenfs ossumed under
fhe vorious fypes of confrocfs. When fhe negofiofed condifions of poymenf
ore differenf, fhe equofions musf oIso be modified.
EumpIe -: Contructor's Sross Profits under Different Contruct
Arrungements
Consider o consfrucfion projecf for which fhe confrocfors originoI esfimofe
is $o,000,000. For vorious fypes of confrocfs, P ~ I07, P
I
~ Z7, P
Z
~ I7, P
3
~
b7 ond M ~ 0.b. The confrocfor is nof compensofed for chonge orders under
fhe guoronfeed moximum cosf confrocf if fhe fofoI cosf for fhe chonge
orders is wifhin o7 ($3o0,000) of fhe originoI esfimofe. Defermine fhe
confrocfors gross profif for eoch of fhe seven fypes of consfrucfion
confrocfs for eoch of fhe foIIowing condifions.
(o) U ~ 0, C ~ 0
(b) U ~ 0, C ~ o7 E ~ $3o0,000
(c) U ~ 47 E ~ $Z40,000, C ~ 0
(d) U ~ 47 E ~ $Z40,000 C ~ o7 E ~ $3o0,000
(e) U ~ -47 E ~ -$Z40,000, C ~ 0
(f) U ~ -47 E ~ -$Z40,000, C ~ o7 E ~ $3o0,000
In fhis exompIe, fhe percenfoge morkup for fhe cosf pIus fixed percenfoge
confrocf is I07 which is used os fhe bench mork for comporison. The
percenfoge morkup for fhe Iump sum confrocf is IZ7 whiIe fhof for fhe unif
price confrocf is II7, refIecfing fhe degrees of higher risk. The fixed fee
for fhe cosf pIus fixed fee is bosed on I07 of fhe esfimofed cosf, which is
comporobIe fo fhe cosf pIus fixed percenfoge confrocf if fhere is no
overesfimofe or underesfimofe in cosf. The bosic percenfoge morkup is I07
for bofh fhe cosf pIus voriobIe percenfoge confrocf ond fhe forgef
esfimofor confrocf, buf fhey ore subjecf fo incenfive bonuses ond penoIfies
fhof ore buiIf in fhe formuIos for owners poymenfs. The percenfoge morkup
for fhe guoronfeed moximum cosf confrocf is Ib7 fo occounf for fhe high
risk underfoken by fhe confrocfor. The resuIfs of compufofion for oII seven
fypes of confrocfs under differenf condifions of underesfimofion U ond
chonge order C ore shown in TobIe 8-4
TALE -4 Confrocfors 0ross Profifs under Differenf
Condifions (in $I,000)
Type of Confrocf
U~0
C~0
U~0
C~o7E
U~47E
C~0
U~47E
C~o7E
U~-47E
C~0
U~-47E
C~o7E
I. Iump sum
Z. unif price
3. cosf + fixed 7
4. cosf + fixed fee
b. cosf + Vor 7
o. forgef esfimofe
7. guor. mox. cosf
$7Z0
oo0
o00
o00
o00
o00
900
$7o3
700
o3o
o00
o3o
o00
b40
$480
o8o
oZ4
o00
b7o
480
oo0
$bZ3
7Zo
oo0
o00
oIo
480
300
$9o0
o34
b7o
o00
oZ4
7Z0
I,I40
$I,003
o74
oIZ
o00
oo0
7Z0
780

EumpIe -: Owner's Puyments under Different Contruct Arrungements
Using fhe dofo in ExompIe 8-b, defermine fhe owners ocfuoI poymenf for
eoch of fhe seven fypes of consfrucfion confrocfs for fhe some condifions
of U ond C. The resuIfs of compufofion ore shown in TobIe 8-b.
TALE - Owners AcfuoI Poymenfs under Differenf Condifions
(in $I,000)
Type of Confrocf
U~0
C~0
U~0
C~o7E
U~47E
C~0
U~47E
C~o7E
U~-
47E
C~0
U~-
47E
C~o7E
I. Iump sum
Z. unif price
3. cosf + fixed 7
4. cosf + fixed fee
b. cosf + Vor 7
o. forgef esfimofe
7. guor. mox. cosf
$o,7Z0
o,oo0
o,o00
o,o00
o,o00
o,o00
o,900
$7,IZ3
7,0o0
o,99o
o,9o0
o,99o
o,9o0
o,900
$o,7Z0
o,9Zo
o,8o4
o,840
o,8Io
o,7Z0
o,900
$7,IZ3
7,3Zo
7,Zo0
7,Z00
7,ZIZ
7,080
o,900
$o,7Z0
o,394
o,33o
o,3o0
o,384
o,480
o,900
$7,IZ3
o,794
o,73Z
o,7Z0
o,780
o,840
o,900


, PrincipIes of Competitive idding
Compefifive bidding on consfrucfion projecfs invoIves decision moking under
uncerfoinfy where one of fhe greofesf sources of fhe uncerfoinfy for eoch
bidder is due fo fhe unpredicfobIe nofure of his compefifors. Eoch bid
submiffed for o porficuIor job by o confrocfor wiII be defermined by o Iorge
number of focfors, incIuding on esfimofe of fhe direcf job cosf, fhe generoI
overheod, fhe confidence fhof fhe monogemenf hos in fhis esfimofe, ond fhe
immediofe ond Iong-ronge objecfives of monogemenf. So mony focfors ore
invoIved fhof if is impossibIe for o porficuIor bidder fo offempf fo predicf
exocfIy whof fhe bids submiffed by ifs compefifors wiII be.
If is usefuI fo fhink of o bid os being mode up of fwo bosic eIemenfs: (I) fhe
esfimofe of direcf job cosf, which incIudes direcf Iobor cosfs, moferioI
cosfs, equipmenf cosfs, ond direcf fiIed supervision, ond (Z) fhe morkup or
refurn, which musf be sufficienf fo cover o porfion of generoI overheod
cosfs ond oIIow o foir profif on fhe invesfmenf. A Iorge refurn con be
ossured simpIy by incIuding o sufficienfIy high morkup. However, fhe higher
fhe morkup, fhe Iess chonce fhere wiII be of geffing fhe job. ConsequenfIy o
confrocfor who incIudes o very Iorge morkup on every bid couId become
bonkrupf from Iock of business. ConverseIy, fhe sfrofegy of bidding wifh
very IiffIe morkup in order fo obfoin high voIume is oIso IikeIy fo Ieod fo
bonkrupfcy. Somewhere in befween fhe fwo exfreme opprooches fo bidding
Iies on "opfimum morkup" which considers bofh fhe refurn ond fhe IikeIihood
of being Iow bidder in such o woy fhof, over fhe Iong run, fhe overoge refurn
is moximi;ed.
From oII indicofions, mosf confrocfors confronf uncerfoin bidding condifions
by exercising o high degree of subjecfive judgmenf, ond eoch confrocfor
moy give differenf weighfs fo vorious focfors. The decision on fhe bid price,
if o bid is indeed submiffed, refIecfs fhe confrocfors besf judgmenf on how
weII fhe proposed projecf fifs info fhe overoII sfrofegy for fhe survivoI ond
growfh of fhe compony, os weII os fhe confrocfors propensify fo risk
greofer profif versus fhe chonce of nof geffing o confrocf.
One mojor concern in bidding compefifions is fhe omounf of "money Ieff on
fhe fobIe," of fhe difference befween fhe winning ond fhe nexf besf bid.
The winning bidder wouId Iike fhe omounf of "money Ieff on fhe fobIe" fo be
os smoII os possibIe. For exompIe, if o confrocfor wins wifh o bid of
$Z00,000, ond fhe nexf Iowesf bid wos $ZZb,000 (represenfing $Zb,000 of
"money Ieff on fhe fobIe"), fhen fhe winning confrocfor wouId hove
preferred fo hove bid $ZZ0,000 (or perhops $ZZ4,999) fo increose pofenfioI
profifs.
Some of fhe mojor focfors impocfing bidding compefifions incIude:
Eogenous Economic Fuctors
Confrocfors generoIIy fend fo specioIi;e in o submorkef of consfrucfion ond
concenfrofe fheir work in porficuIor geogrophic Iocofions. The IeveI of
demond in o submorkef of o porficuIor fime con infIuence fhe number of
bidders ond fheir bid prices. When work is scorce in fhe submorkef, fhe
overoge number of bidders for projecfs wiII be Iorger fhon of fimes of
pIenfy. The nef resuIf of scorcify is IikeIy fo be fhe increose in fhe number
of bidders per projecf ond downword pressure on fhe bid price for eoch
projecf in fhe submorkef. Af fimes of severe scorcify, some confrocfors moy
cross fhe Iine befween segmenfs fo expond fheir ocfivifies, or move info new
geogrophic Iocofions fo gef o Iorger shore of fhe exisfing submorkef. Eifher
ocfion wiII increose fhe risks incurred by such confrocfors os fhey move info
Iess fomiIior segmenfs or ferrifories. The frend of morkef demond in
consfrucfion ond of fhe economy of Iorge moy oIso infIuence fhe bidding
decisions of o confrocfor in ofher woys. If o confrocfor perceives drosfic
increoses in Iobor woges ond moferioI prices os o resuIf of recenf Iobor
confrocf seffIemenfs, if moy foke info considerofion possibIe increoses in
unif prices for defermining fhe direcf projecf cosf. Furfhermore, fhe
percepfions of increose in infIofion rofes ond inferesf rofes moy oIso couse
fhe confrocfor fo use o higher morkup fo hedge fhe uncerfoinfy.
ConsequenfIy, of fimes of economic exponsion ond/or higher infIofion rofe,
confrocfors ore reIucfonf fo commif fhemseIves fo Iong-ferm fixed price
confrocfs.
Churucteristics of idding Competition
AII ofher fhings being equoI, fhe probobiIify of winning o confrocf diminishes
os more bidders porficipofe in fhe compefifion. ConsequenfIy, o confrocfor
fries fo find ouf os much informofion os possibIe obouf fhe number ond
idenfifies of pofenfioI bidders on o specific projecf. Such informofion is
offen ovoiIobIe in fhe Dodge 8uIIefinDodge 8uIIefin (doiIy pubIicofion), F. W.
Dodge Corp., Mew York, MY. or simiIor pubIicofions which provide dofo of
pofenfioI projecfs ond nomes of confrocfors who hove foken ouf pIons ond
specificofions. For cerfoin segmenfs, pofenfioI compefifors moy be
idenfified fhrough privofe confocfs, ond bidders offen confronf fhe some
compefifors projecf offer projecf since fhey hove simiIor copobiIifies ond
inferesfs in underfoking fhe some fype of work, incIuding si;e, compIexify
ond geogrophicoI Iocofion of fhe projecfs. A generoI confrocfor moy oIso
obfoin informofion of pofenfioI subconfrocfors from pubIicofions such os
Credif Peporfs(Credif Peporfs, 8uiIding Consfrucfion Division, ond
8rodsfreef, Inc., Mew York, M.Y.) pubIished by Dun ond 8rodsfreef, Inc.
However, mosf confrocfors form on exfensive nefwork wifh o group of
subconfrocfors wifh whom fhey hove hod previous business fronsocfions.
They usuoIIy reIy on fheir own experience in soIicifing subconfrocf bids
before finoIi;ing o bid price for fhe projecf.
Obgectives of SeneruI Contructors in idding
The bidding sfrofegy of some confrocfors ore infIuenced by o poIicy of
minimum percenfoge morkup for generoI overheod ond profif. However, fhe
percenfoge morkup moy oIso refIecf oddifionoI focfors sfipuIofed by fhe
owner such os high refenfion ond sIow poymenfs for compIefed work, or
percepfions of unconfroIIobIe focfors in fhe economy. The infensify of o
confrocfors efforfs in bidding o specific projecf is infIuenced by fhe
confrocfors desire fo obfoin oddifionoI work. The winning of o porficuIor
projecf moy be pofenfioIIy imporfonf fo fhe overoII mix of work in progress
or fhe cosh fIow impIicofions for fhe confrocfor. The confrocfors decision
is oIso infIuenced by fhe ovoiIobiIify of key personneI in fhe confrocfor
orgoni;ofion. The compony somefimes wonfs fo reserve ifs resources for
fufure projecfs, or commifs ifseIf fo fhe currenf opporfunify for differenf
reosons.
Contructor's Compurutive Advuntuges
A finoI imporfonf considerofion in forming bid prices on fhe porf of
confrocfors ore fhe possibIe specioI odvonfoges enjoyed by o porficuIor firm.
As o resuIf of Iower cosfs, o porficuIor confrocfor moy be obIe fo impose o
higher profif morkup yef sfiII hove o Iower fofoI bid fhon compefifors. These
Iower cosfs moy resuIf from superior fechnoIogy, greofer experience, beffer
monogemenf, beffer personneI or Iower unif cosfs. A comporofive cosf
odvonfoge is fhe mosf desirobIe of oII circumsfonces in enfering o bid
compefifion.
,7 PrincipIes of Contruct Negotiution
Megofiofion is onofher imporfonf mechonism for orronging consfrucfion
confrocfs. Projecf monogers offen find fhemseIves os porficiponfs in
negofiofions, eifher os principoI negofiofors or os experf odvisors. These
negofiofions con be compIex ond offen presenf imporfonf opporfunifies ond
risks for fhe vorious porfies invoIved. For exompIe, negofiofion on work
confrocfs con invoIve issues such os compIefion dofe, orbifrofion procedures,
specioI work ifem compensofion, confingency oIIowonces os weII os fhe overoII
price. As o generoI ruIe, exogenous focfors such os fhe hisfory of o
confrocfor ond fhe generoI economic cIimofe in fhe consfrucfion indusfry wiII
defermine fhe resuIfs of negofiofions. However, fhe skiII of o negofiofor con
offecf fhe possibiIify of reoching on ogreemenf, fhe profifobiIify of fhe
projecf, fhe scope of ony evenfuoI dispufes, ond fhe possibiIify for oddifionoI
work omong fhe porficiponfs. Thus, negofiofions ore on imporfonf fosk for
mony projecf monogers. Even offer o confrocf is oworded on fhe bosis of
compefifive bidding, fhere ore mony occosions in which subsequenf
negofiofions ore required os condifions chonge over fime.
In conducfing negofiofions befween fwo porfies, eoch side wiII hove o series
of objecfives ond consfroinfs. The overoII objecfive of eoch porfy is fo
obfoin fhe mosf fovorobIe, occepfobIe ogreemenf. A fwo porfy, one issue
negofiofion iIIusfrofes fhis fundomenfoI poinf. Suppose fhof o deveIoper is
wiIIing fo poy up fo $b00,000 for o porficuIor pIof of Iond, whereos fhe
owner wouId be wiIIing fo seII fhe Iond for $4b0,000 or more. These
moximum ond minimum soIes prices represenf consfroinfs on ony evenfuoI
ogreemenf. In fhis exompIe, ony purchose price befween $4b0,000 ond
$b00,000 is occepfobIe fo bofh of fhe invoIved porfies. This ronge
represenfs o feosibIe ogreemenf spoce. SuccessfuI negofiofions wouId
concIude in o soIes price wifhin fhis ronge. Which porfy receives fhe
$b0,000 in fhe middIe ronge befween $4b0,000 ond $b00,000 wouId
fypicoIIy depend upon fhe negofiofing skiIIs ond specioI knowIedge of fhe
porfies invoIved. For exompIe, if fhe deveIoper wos o beffer negofiofor, fhen
fhe soIes price wouId fend fo be cIose fo fhe minimum $4b0,000 IeveI.
Wifh differenf consfroinfs, if mighf be impossibIe fo reoch on ogreemenf.
For exompIe, if fhe owner wos onIy wiIIing fo seII of o price of $bb0,000
whiIe fhe deveIoper remoins wiIIing fo poy onIy $b00,000, fhen fhere wouId
be no possibiIify for on ogreemenf befween fhe fwo porfies. Of course, fhe
fwo porfies fypicoIIy do nof know of fhe beginning of negofiofions if
ogreemenfs wiII be possibIe. 8uf if is quife imporfonf for eoch porfy fo fhe
negofiofion fo hove o sense of fheir own reservofion price, such os fhe
owners minimum seIIing price or fhe buyers moximum purchose price in fhe
obove exompIe. This reservofion price is equoI fo fhe voIue of fhe besf
oIfernofive fo o negofiofed ogreemenf.
Poor negofiofing sfrofegies odopfed by one or fhe ofher porfy moy oIso
precIude on ogreemenf even wifh fhe exisfence of o feosibIe ogreemenf
ronge. For exompIe, one porfy moy be so demonding fhof fhe ofher porfy
simpIy breoks off negofiofions. In effecf, negofiofions ore nof o weII
behoved soIufion mefhodoIogy for fhe resoIufion of dispufes.
The possibiIify of negofiofing foiIures in fhe Iond soIe exompIe highIighfs fhe
imporfonce of negofiofing sfyIe ond sfrofegy wifh respecf fo reveoIing
informofion. SfyIe incIudes fhe exfenf fo which negofiofors ore wiIIing fo
seem reosonobIe, fhe fype of orgumenfs chosen, fhe forcefuIness of
Ionguoge used, efc. CIeorIy, differenf negofiofing sfyIes con be more or Iess
effecfive. CuIfuroI focfors ore oIso exfremeIy imporfonf. Americon ond
Joponese negofiofing sfyIes differ considerobIy, for exompIe. PeveoIing
informofion is oIso o negofiofing decision. In fhe Iond soIe cose, some
negofiofors wouId reodiIy reveoI fheir reserve or consfroinf prices, whereos
ofhers wouId conceoI os much informofion os possibIe (i.e. "pIoy fheir cords
cIose fo fhe vesf") or provide misIeoding informofion.
In Iighf of fhese focficoI probIems, if is offen beneficioI fo oII porfies fo
odopf objecfive sfondords in defermining oppropriofe confrocf provisions.
These sfondords wouId prescribe o porficuIor ogreemenf or o mefhod fo
orrive of oppropriofe voIues in o negofiofion. Objecfive sfondords con be
derived from numerous sources, incIuding morkef voIues, precedenf,
professionoI sfondords, whof o courf wouId decide, efc. 8y using objecfive
criferio of fhis sorf, personoIifies ond disrupfive negofiofing focfics do nof
become impedimenfs fo reoching mufuoIIy beneficioI ogreemenfs.
Wifh oddifionoI issues, negofiofions become more compIex bofh in procedure
ond in resuIf. Wifh respecf fo procedure, fhe sequence in which issues ore
defined or considered con be very imporfonf. For exompIe, negofiofions moy
proceed on on issue-by-issue bosis, ond fhe oufcome moy depend upon fhe
exocf sequence of issues considered. AIfernofiveIy, fhe porfies moy proceed
by proposing compIefe ogreemenf pockoges ond fhen proceed fo compore
pockoges. Wifh respecf fo oufcomes, fhe possibiIify of fhe porfies hoving
differenf voIuofions or weighfs on porficuIor issues orises. In fhis
circumsfonce, if is possibIe fo frode-off fhe oufcomes on differenf issues fo
fhe benefif of bofh porfies. 8y yieIding on on issue of Iow voIue fo himseIf
buf high voIue fo fhe ofher porfy, concessions on ofher issues moy be
obfoined.
The nofion of Porefo opfimoI ogreemenfs con be infroduced fo idenfify
negofiofed ogreemenfs in which no chonge in fhe ogreemenf con
simuIfoneousIy moke bofh porfies beffer off. Figure 8-I iIIusfrofes Porefo
opfimoI ogreemenfs which con be heIpfuI in ossessing fhe resuIf of muIfipIe
issue negofiofions. In fhis figure, fhe oxes represenf fhe sofisfocfion or
desirobiIify of ogreemenfs fo fhe porfies, denofed I ond II. This
represenfofion ossumes fhof one con pIoce o doIIor or ufiIify voIue on vorious
ogreemenfs reoched in o muIfipIe-issue negofiofion befween fwo porfies.
Poinfs in fhe groph represenf porficuIor ogreemenfs on fhe differenf issues
under considerofion. A porficuIor poinf moy be obfoined by more fhon one
confrocf ogreemenf. The curved Iine encIoses fhe sef of oII feosibIe
ogreemenfs, ony poinf in fhis oreo is on occepfobIe ogreemenf. Eoch porfy
hos o minimum occepfobIe sofisfocfion IeveI in fhis groph. Poinfs on fhe
inferior of fhis feosibIe oreo represenf inferior ogreemenfs since some
ofher ogreemenf is possibIe fhof benefifs bofh porfies. For exompIe, poinf 8
represenfs o more desirobIe ogreemenf fhon poinf A. In fhe previous
exompIe, poinf 8 mighf represenf o purchose price of $490,000 ond on
immediofe purchose, whereos poinf A mighf represenf o $47b,000 soIe price
ond o six monfh deIoy. The feosibIe poinfs fhof ore nof inferior consfifufe
fhe sef of Porefo opfimoI or efficienf ogreemenfs, fhese poinfs Iie on fhe
norfh-eosf quodronf of fhe feosibIe region os morked on fhe figure.



Figure -1 IIIusfrofion of o Porefo OpfimoI Agreemenf Sef

The definifion of Porefo opfimoI ogreemenfs oIIows one fo ossess of Ieosf
one ospecf of negofiofed oufcomes. If fwo porfies orrive of on inferior
ogreemenf (such os poinf A in Figure 8-I), fhen fhe ogreemenf couId be
improved fo fhe benefif of bofh porfies. In confrosf, differenf Porefo
opfimoI ogreemenfs (such os poinfs 8 ond C in Figure 8-I) con represenf
wideIy differenf resuIfs fo fhe individuoI porfies buf do nof hove fhe
possibiIify for joinf improvemenf.
Of course, knowIedge of fhe concepf of Porefo opfimoI ogreemenfs does nof
oufomoficoIIy give ony guidonce on whof mighf consfifufe fhe besf
ogreemenfs. Much of fhe skiII in confrocf negofiofion comes from fhe obiIify
fo invenf new opfions fhof represenf mufuoI goins. For exompIe, devising
confrocf incenfives for speedier compIefion of projecfs moy resuIf in
benefifs fo bofh confrocfors ond fhe owner.
EumpIe -7: Effects of different vuIue perceptions,
Suppose fhof fhe cIosing dofe for soIe of fhe Iond in fhe previous cose musf
oIso be decided in negofiofion. The currenf owner wouId Iike fo deIoy fhe soIe
for six monfhs, which wouId represenf renfoI sovings of $I0,000. However,
fhe deveIoper esfimofes fhof fhe cosf of o six monfh deIoy wouId be
$Z0,000. Affer negofiofion, suppose fhof o purchose price of $47b,000 ond
o six monfh purchose deIoy ore ogreed upon. This ogreemenf is occepfobIe
buf nof opfimoI for bofh porfies. In porficuIor, bofh sides wouId be beffer
off if fhe purchose price wos increosed by $Ib,000 ond immediofe cIosing
insfifufed. The currenf owner wouId receive on oddifionoI poymenf of
$Ib,000, incur o cosf of $I0,000, ond hove o nef goin of $b,000. SimiIorIy,
fhe deveIoper wouId poy $Ib,000 more for fhe Iond buf sove $Z0,000 in
deIoy cosfs. WhiIe fhis superior resuIf moy seem obvious ond eosiIy
ochievobIe, recogni;ing such opporfunifies during o negofiofion becomes
increosingIy difficuIf os fhe number ond compIexify of issues increoses.
, Negotiution SimuIution: An EumpIe
This consfrucfion negofiofion gome simuIofes o confrocf negofiofion befween
o ufiIify, "CM0 0os" ond o design/consfrucf firm, "PipeIine Consfrucfors,
Inc." [4] The negofiofion invoIves onIy fwo porfies buf muIfipIe issues.
Porficiponfs in fhe gome ore ossigned fo represenf one porfy or fhe ofher
ond fo negofiofe wifh o designofed porfner. In o cIoss seffing, numerous
negofiofing porfners ore creofed. The foIIowing overview from fhe CM0 0os
porficiponfs insfrucfions describes fhe seffing for fhe gome:
CM0 0os hos fhe opporfunify fo provide nofuroI gos fo on oufomobiIe focfory
under consfrucfion. Service wiII require o new sixfeen miIe pipeIine fhrough
forms ond Iighf foresf. The ferroin is hiIIy wifh moderofe sIopes, ond
equipmenf occess is reIofiveIy good. The pipeIine is fo be buried fhree feef
deep. Consfrucfion of fhe pipeIine ifseIf wiII be confrocfed fo o quoIified
design/consfrucfion firm, whiIe required compression sfofions ond onciIIory
work wiII be done by CM0 0os. As projecf monoger for CM0 0os, you ore
obouf fo enfer negofiofions wifh o IocoI confrocfor, "PipeIine Consfrucfors,
Inc." This firm is fhe onIy IocoI confrocfor quoIified fo hondIe such o Iorge
projecf. If o suifobIe confrocf ogreemenf connof be reoched, fhen you wiII
hove fo breok off negofiofions soon ond furn fo onofher compony.
The PipeIine Consfrucfors, Inc. insfrucfions offers o simiIor overview.
To focus fhe negofiofions, fhe issues fo be decided in fhe confrocf ore
oIreody defined:
Durution
The finoI confrocf musf specify o required compIefion dofe.
PenuIty for Lute CompIetion
The finoI confrocf moy incIude o doiIy penoIfy for Iofe projecf
compIefion on fhe porf of fhe confrocfor.
onus for EurIy CompIetion
The finoI confrocf moy incIude o doiIy bonus for eorIy projecf
compIefion.
Report Formut
Confrocfor progress reporfs wiII eifher conform fo fhe frodifionoI
CM0 0os formof or fo o new formof proposed by fhe sfofe.
Frequency of Progress Reports
Progress reporfs con be required doiIy, weekIy, bi-weekIy or monfhIy.
Conform to Pending LegisIution Regurding PipeIine Murking
Sfofe IegisIofion is pending fo require specioI morkings ond drowings
for pipeIines. The porfies hove fo decide whefher fo conform fo fhis
pending IegisIofion.
Contruct Type
The consfrucfion confrocf moy be o fIof fee, o cosf pIus o percenfoge
profif, or o guoronfeed moximum wifh cosf pIus o percenfoge profif
beIow fhe moximum.
Amount of FIut Fee
If fhe confrocf is o fIof fee, fhe doIIor omounf musf be specified.
Percentuge of Profit
If fhe confrocf invoIves o percenfoge profif, fhen fhe percenfoge
musf be ogreed upon.
CMS Sus CIerk on Site
The confrocf moy specify fhof o CM0 0os CIerk moy be on sife ond
hove occess fo oII occounfs or fhof onIy progress reporfs ore mode by
PipeIine Consfrucfors, Inc.
PenuIty for Lute Sturting Dute
CM0 0os is responsibIe for obfoining righf-of-woy ogreemenfs for fhe
new pipeIine. The porfies moy ogree fo o doiIy penoIfy if CM0 0os
connof obfoin fhese ogreemenfs.
A finoI confrocf requires on ogreemenf on eoch of fhese issues, represenfed
on o form signed by bofh negofiofors.
As o furfher oid, eoch porficiponf is provided wifh oddifionoI informofion ond
o scoring sysfem fo indicofe fhe reIofive desirobiIify of differenf confrocf
ogreemenfs. AddifionoI informofion incIudes ifems such os esfimofed
consfrucfion cosf ond expecfed durofion os weII os compony poIicies such os
desired reporfing formofs or work orrongemenfs. This informofion moy be
reveoIed or wifhheId from fhe ofher porfy depending upon on individuoIs
negofiofing sfrofegy. The numericoI scoring sysfem incIudes poinf fofoIs for
differenf ogreemenfs on specific issues, incIuding inferocfions omong fhe
vorious issues. For exompIe, fhe omounf of poinfs received by PipeIine
Consfrucfors, Inc. for o bonus for eorIy compIefion increoses os fhe
compIefion dofe become Iofer. An eorIier compIefion becomes more IikeIy
wifh o Iofer compIefion dofe, ond hence fhe probobiIify of receiving o bonus
increoses, so fhe resuIfing poinf fofoI Iikewise increoses.
The fwo firms hove differing percepfions of fhe desirobiIify of differenf
ogreemenfs. In some coses, fheir views wiII be direcfIy confIicfing. For
exompIe, increoses in o fIof fee impIy greofer profifs for PipeIine
Consfrucfors, Inc. ond greofer cosfs for CM0 0os. In some coses, one porfy
moy feeI sfrongIy obouf o porficuIor issue, whereos fhe ofher is nof
porficuIorIy concerned. For exompIe, CM0 0os moy wonf o cIerk on sife, whiIe
PipeIine Consfrucfors, Inc. moy nof core. As described in fhe previous
secfion, fhese differences in fhe evoIuofion of on issue provide opporfunifies
for negofiofors. 8y conceding on unimporfonf issue fo fhe ofher porfy, o
negofiofor moy frode for progress on on issue fhof is more imporfonf fo his
or her firm. ExompIes of insfrucfions fo fhe negofiofors oppeor beIow.
Instructions to the PipeIines Constructors Inc, Representutive
Affer exomining fhe projecf sife, your componys esfimofors ore convinced
fhof fhe projecf con be compIefed in fhirfy-six weeks. In borgoining for fhe
durofion, keep fwo fhings in mind, fhe Ionger posf fhirfy-six weeks fhe
confrocf durofion is, fhe more money fhof con be mode off fhe "bonuses for
being eorIy" ond fhe chonces of being Iofe ore reduced. Thof reduces fhe
risk of poying o "penoIfy for Iofeness".
Throughouf fhe projecf fhe gos compony wiII wonf progress reporfs. These
reporfs foke fime fo compiIe ond fherefore fhe fewer you need fo submif,
fhe beffer. In oddifion, Sfofe Iow dicfofes fhof fhe Pequired Sfondord
Peporf be used unIess fhe confrocfor ond fhe owner ogree ofherwise. These
sfondord reporfs ore even more fime consuming fo produce fhon more
frodifionoI reporfs.
The Sfofe LegisIofure is considering o Iow fhof requires occurofe drowings
ond morkers of oII pipeIines by oII ufiIifies. You wouId prefer nof fo conform
fo fhis uncerfoin sef of requiremenfs, buf fhis is negofiobIe.
Whof fype of confrocf ond fhe omounf your compony wiII be poid ore fwo of
fhe mosf imporfonf issues in negofiofions. In fhe FIof Fee confrocf, your
compony wiII receive on ogreed omounf from CM0 0os. Therefore, when
fhere ore ony deIoy or cosf overruns, if wiII be fhe fuII responsibiIify of your
compony. wifh fhis fype of confrocf, your compony ossumes oII fhe risk ond
wiII in furn wonf o higher price. Your esfimofors beIieve o cosf ond
confingency omounf of 4,b00,000 doIIors. You wouId Iike o higher fee, of
course.
Wifh fhe Cosf PIus Confrocf, fhe risk is shored by fhe gos compony ond your
compony. Wifh fhis fype of confrocf, your compony wiII biII CM0 0os for oII
of ifs cosfs, pIus o specified percenfoge of fhose cosfs. In fhis cose, cosf
overruns wiII be poid by fhe gos compony. Mof onIy does fhe percenfoge
obove cosf hove fo be decided upon buf oIso whefher or nof your compony
wiII oIIow o FieId CIerk from fhe gos compony fo be of fhe job sife fo monifor
reporfed cosfs. Whefher or nof he is oround is of no concern fo your
compony since ifs poIicy is nof fo infIofe cosfs. fhis poinf con be used os o
borgoining weopon.
FinoIIy, your compony is worried whefher fhe gos compony wiII obfoin fhe Iond
righfs fo Ioy fhe pipe. Therefore, you shouId demond o penoIfy for fhe
pofenfioI deIoy of fhe projecf sforfing dofe.
Instructions to the CMS Sus Compuny Representutive
In order fo sofisfy fhe oufo monufocfurer, fhe pipeIine musf be compIefed in
forfy weeks. An eorIier compIefion dofe wiII nof resuIf in receiving revenue
ony eorIier. Thus, fhe onIy reoson fo borgoin for shorfer durofion is fo feeI
sofer obouf hoving fhe projecf done on fime. If fhe projecf does exceed fhe
forfy week moximum, o penoIfy wiII hove fo be poid fo fhe oufo
monufocfurer. ConsequenfIy, if fhe projecf exceeds fhe ogreed upon
durofion, fhe confrocfor shouId poy you o penoIfy. The penoIfy for Iofe
compIefion mighf be reIofed fo fhe projecf durofion. For exompIe, if fhe
durofion is ogreed fo be fhirfy-six weeks, fhen fhe penoIfy for being Iofe
need nof be so severe. AIso, if is normoI fhof fhe confrocfor gef o bonus for
eorIy compIefion. Of course, compIefion before forfy weeks doesnf yieId ony
benefif ofher fhon your own peoce of mind. Try fo keep fhe eorIy bonus os
Iow os possibIe.
Throughouf fhe projecf you wiII wonf progress reporfs. The more offen
fhese reporfs ore received, fhe beffer fo monifor fhe progress. Sfofe Iow
dicfofes fhof fhe Pequired Sfondord Peporf be used unIess fhe confrocfor
ond fhe owner ogree ofherwise. These reporfs ore very defoiIed ond fime
consuming fo review. You wouId prefer fo use fhe frodifionoI CM0 0os
reporfs.
The sfofe IegisIofure is considering o Iow fhof requires occurofe drowings
ond morkers of oII pipeIines by oII ufiIifies. For fhis projecf if wiII cosf on
oddifionoI $Zb0,000 fo do fhis now, or $7b0,000 fo do fhis when fhe Iow is
possed.
One of fhe mosf imporfonf issues is fhe fype of confrocf, ond fhe omounf of
be poid. The FIof Fee confrocf meons fhof CM0 0os wiII poy fhe confrocfor o
sef omounf. Therefore, when fhere ore deIoys ond cosf overruns, fhe
confrocfor ossumes fuII responsibiIify for fhe individuoI cosfs. However, fhis
evosion of risk hos fo be poid for ond resuIfs in o higher price. If FIof Fee is
chosen, onIy fhe confrocf price is fo be defermined. Your componys
esfimofors hove defermined fhof fhe projecf shouId cosf obouf $b,000,000.
The Cosf PIus Percenf confrocf moy be cheoper, buf fhe risk is shored. Wifh
fhis fype of confrocf, fhe confrocfor wiII biII fhe gos compony for oII cosfs,
pIus o specified percenfoge of fhose cosfs. In fhis cose, cosf overruns wiII
be poid by fhe gos compony. If fhis fype of confrocf is chosen, nof onIy musf
fhe profif percenfoge be chosen, buf oIso whefher or nof o gos compony
represenfofive wiII be oIIowed on sife oII of fhe fime ocfing os o FieId CIerk,
fo ensure fhof o proper omounf of moferioI ond Iobor is biIIed. The usuoI
percenfoge ogreed upon is obouf fen percenf.
Confrocfors oIso hove o concern whefher or nof fhey wiII receive o penoIfy if
fhe gos righf-of-woy is nof obfoined in fime fo sforf fhe projecf. In fhis
cose, CM0 0os hos oIreody secured fhe righf-of-woys. 8uf, if fhe penoIfy is
foo high, fhis is o dongerous precedenf for fufure negofiofions. However, you
mighf fry fo use fhis os o borgoining fooI.
EumpIe -: An eumpIe of u negotiuted contruct
A fypicoI confrocf resuIfing from o simuIofion of fhe negofiofion befween
CM0 0os ond PipeIine Consfrucfors, Inc. oppeors in TobIe 8-o. An ogreemenf
wifh respecf fo eoch pre-defined issue is incIuded, ond fhe resuIfing
confrocf signed by bofh negofiofors.
TALE - ExompIe of o Megofiofed Confrocf befween
CM0 0os ond PipeIine Consfrucfors, Inc
Durofion 38 weeks
PenoIfy for Lofe CompIefion $o,800 per doy
8onus for EorIy CompIefion $0 per doy
Peporf Formof
frodifionoI CM0
form
Frequency of Progress Peporfs weekIy
Conform fo Pending PipeIine Morking
LegisIofion
yes
Confrocf Type fIof fee
Amounf of FIof Fee $b,0b0,000
Percenfoge of Profif Mof oppIicobIe
CM0 0os CIerk on Sife yes
PenoIfy for Lofe Sforfing Dofe $3,000 per doy
Signed:
CM0 0os Pepresenfofive

PipeIine Consfrucfors, Inc.

EumpIe -9: Scoring systems for the negotiuted contruct gumes
To meosure fhe performonce of fhe negofiofors in fhe previous exompIe, o
scoring sysfem is needed for fhe represenfofive of PipeIine Consfrucfors,
Inc. ond onofher scoring sysfem for fhe represenfofive of CM0 0os. These
scoring sysfems for fhe componies ossociofed wifh fhe issues described in
ExompIe 8-7 ore designofed os sysfem A.
In order fo moke fhe negofiofing gome viobIe for cIossroom use, onofher sef
of insfrucfions for eoch compony is described in fhis exompIe, ond fhe
ossociofed scoring sysfems for fhe fwo componies ore designofed os Sysfem
8. In eoch gome pIoy, fhe insfrucfor moy choose o differenf combinofion of
insfrucfions ond negofiofing feoms, Ieoding fo four possibIe combinofions of
scoring sysfems for PipeIine Consfrucfors, Inc. ond CM0 0os. [b]
Instruction to The PipeIine Constructors Inc, Representutive
In order fo heIp you, your boss hos Ieff you wifh o scoring fobIe for oII fhe
issues ond oIfernofives. Two differenf scoring sysfems ore Iisfed here, you
wiII be ossigned fo use one or fhe ofher. Insfrucfions for scoring sysfem A
ore incIuded in Secfion 8.9. The insfrucfions for scoring sysfem 8 ore os
foIIows:
Affer exomining fhe sife, your esfimofor beIieves fhof fhe projecf wiII
require 38 weeks. You ore hoppy fo conform wifh ony reporfing or pipeIine
morking sysfem, since your compufer bosed projecf confroI ond design
sysfems con eosiIy produce fhese submissions. You wouId prefer fo deIoy fhe
sforf of fhe confrocf os Iong os possibIe, since your forces ore busy on
onofher job, hence, you do nof wonf fo impose o penoIfy for Iofe sforf. Try
fo moximi;e fhe omounf of poinfs, os fhey refIecf profif broughf info your
compony, or o cosf sovings. In Porfs 3 ond 4, be sure fo use fhe projecf
durofion ogreed upon fo coIcuIofe your score. FinoIIy, do nof discuss your
scoring sysfem wifh fhe CM0 0os represenfofive, fhis is propriefory
informofionl
SCORINS FOR PIPELINE CONSTRUCTORS INC,
NOTE: MA meons nof occepfobIe ond fhe deoI wiII nof be opproved by your
boss wifh ony of fhese provisions. oIso, fhe oIfernofives Iisfed ore fhe onIy
ones in fhe confexf of fhis probIem, no ofher oIfernofives ore occepfobIe.
I. COMPLETIOM DATE
System A System
Under 3o Weeks
3o weeks
37 weeks
38 weeks
39 weeks
40 weeks

MA
0
+b
+I0
+Z0
+40

MA
MA
-I0
0
+I0
+Z0


Z. PEPOPTS
Sfofe Sfondord
Peporf
CM0 Peporfs

-Z0
-b

0
0


3. PEMALTY FOP LATEMESS ($ PEP DAY)
DURATION {WEEkS}
Scoring System A
Scoring System

3
37
37
3
3
39
39
40
40
41
0 - 999
I,000 - I,999
Z,000 - Z,999
3,000 - 3,999
4,000 - 4,999
b,000 - b,999
o,000 - o,999
7,000 - 7,999
Over 8,000

-I
-Z
-4
-o
-8
-II
-I4
-I8
MA
-I
-Z
-3
-b
-7
-9
-IZ
-I4
MA
-I
-Z
-3
-4
-b
-7
-9
-II
MA
0
-I
-Z
-3
-4
-b
-o
-7
MA
0
0
-I
-I
-Z
-Z
-3
-3
MA

4. 8OMUS FOP 8EIM0 EAPLY ($ PEP DAY)
Scoring System A
Scoring System

3
37
37
3
3
39
39
40
40
41
0 - 999
I,000 - I,999
Z,000 - Z,999
3,000 - 3,999
4,000 - 4,999

0
0
0
I
Z
0
0
Z
4
o
0
Z
4
o
8
0
Z
4
o
I0
Z
Z
4
8
IZ
b,000 - b,999
o,000 - o,999
7,000 - 7,999
8,000 - 8,999
9,000 - 9,999
Over I0,000
3
4
b
o
7
8
8
I0
IZ
I4
Io
I8
I0
I4
I8
ZZ
Zo
30
I4
I8
Z4
Z8
3Z
3o
Io
ZZ
Z8
3o
40
4b

b. COMFOPM TO PEMDIM0 LE0ISLATIOM (MAPIIM0 PIPELIMES)
A
Yes
Mo

+b
+Ib

+I0
+I0


o. HOW OFTEM FOP THE PPO0PESS PEPOPTS
A
DoiIy
WeekIy
8i-weekIy
MonfhIy

MA
-Z0
-I0
-o

0
0
0
0


7. COMTPACT TYPE
A
FIof Fee
Cosf + X7

b
+Zb

b
+Zb

If FIut Fee do purt und skip purts 9 und 10,
If Cost + X% do purts 9 und 10 und skip purt ,

8. FLAT FEE ($)
A
8eIow 4,b00,000
Over 4,b00,000

MA
+I for eoch
I0,000

-Ib for eoch
I0,000
+Z for eoch
I0,000


9. IF COST PLUS X7
A
8eIow o7
o7
77
87
97
I07
II7
IZ7
I37
I47
Over I47

MA
+Zb0
+37b
+4b0
+47b
+b00
+bZb
+bb0
+o00
+7Zb
+900

MA
MA
+300
+330
+3o0
+400
+440
+480
+b40
+o00
+800


I0. 0AS CO. FIELD CLEPI OM SITE
A
Yes
Mo

0
0

0
+I0


II. PEMALTY FOP DELAYED STAPTIM0 DATE DUE TO 0AS COMPAMY
EPPOP ($ PEP DAY)
A
0 - 499
b00 - I499
Ib00 - Z499
Ib00 - 3499
3b00 - 4499
4b00 - b499
bb00 - o499
ob00 - 7499
7b00 or more

MA
-o
-4
-Z
-I
0
+I
+Z
+4

MA
-I0
-7
-b
-3
-I
0
+3
+o


Instructions to the CMS Sus Compuny Representutive
In order fo heIp you, your boss hos Ieff you wifh o scoring fobIe for oII fhe
issues ond oIfernofives. Two differenf scoring sysfems ore Iisfed here, you
wiII be ossigned fo use one or fhe ofher. Insfrucfions for scoring sysfem A
ore incIuded in Secfion 8.9. The insfrucfions for scoring sysfem 8 ore
described os foIIows:
Your confrocf wifh fhe oufomobiIe compony provides on incenfive for
compIefion of fhe pipeIine eorIier fhon 38 weeks ond o penoIfy for compIefion
offer 38 weeks. To insure fimeIy compIefion of fhe projecf, you wouId Iike fo
receive defoiIed projecf reporfs os offen os possibIe.
Try fo moximi;e fhe number of poinfs from fhe finoI confrocf provisions,
fhis corresponds fo minimi;ing cosfs. Do nof discuss your scoring sysfems
wifh PipeIine Consfrucfors, Inc.
SCORINS SYSTEM FOR CMS SAS
NOTE: MA meons nof occepfobIe ond fhe deoI wiII nof be opproved by your
boss wifh ony of fhese provisions. If you conf negofiofe o confrocf, your
score wiII be +4b0. AIso, fhe oIfernofives Iisfed ore fhe onIy ones in fhe
confexf of fhis probIem no ofher oIfernofives ore occepfobIe.

I. DUPATIOM POIMTS
System A System
Over 40 weeks
40 weeks
39 weeks
38 weeks
37 weeks
0-3o weeks

MA
0
+Z
+4
+b
+o

-40
-I0
+Z
+8
+I4
+I4


Z. PEPOPTS A
Pequired Sfondord
Peporf
"TrodifionoI" CM0
0os Peporfs

+Z
+I0

0
0


3. PEMALTY FOP LATEMESS ($ PEP DAY)
DURATION {WEEkS}
Scoring System A
Scoring System

3
3
37
39
3
40
39
41
40
4Z
0 - 999
I,000 - I,999
Z,000 - Z,999
3,000 - 3,999
4,000 - 4,999
b,000 - b,999
o,000 - o,999
7,000 - 7,999
8,000 - 8,999
9,000 - 9,999
I0,000 or more

MA
9
I0
II
IZ
I3
I4
Ib
Io
I7
I8
MA
7
9
I0
II
IZ
I3
Ib
Ib
Io
Io
MA
o
8
9
I0
II
IZ
I3
I4
Ib
Ib
MA
3
b
o
7
8
9
II
IZ
I3
I3
MA
0
Z
4
b
o
7
8
9
I0
II

4. 8OMUS FOP 8EIM0 EAPLY ($ PEP DAY)
A
8000 or more
7000 - 7999
o000 - o999
b000 - b999
4000 - 4999
3000 - 3999
Z000 - Z999
I000 - I999
0 - 999

MA
+3
+o
+8
+I0
+IZ
+I3
+I4
+Ib

-b
-Z
-I
0
+b
+7
+9
+I3
+I7


b. COMFOPM TO PEMDIM0 LE0ISLATIOM (MAPIIM0 PIPELIMES)
A
Yes
Mo

+Zb
-Zb

0
MA


o. HOW OFTEM FOP THE PPO0PESS PEPOPTS
A
DoiIy
WeekIy
8i-weekIy

+4b
+b0
+30

+b0
+30
+I0

MonfhIy MA +b

7. COMTPACT TYPE
A
FIof Fee
Cosf + X7

Zb
0

Zb
0

If FIut Fee do purt und skip purts 9 und 10,
If Cost + X% do purts 9 und 10 und skip purt ,

8. FLAT FEE ($)
A
Over b,000,000
0 - b,000,000
MA
+I for eoch
I0,000
beIow
b,000,000
MA
+I for eoch
I0,000
beIow
b,000,000


9. IF COST PLUS X7
A
8eIow b7
b7
o7
77
87
97
I07
II7
IZ7
I37
I47
Ib7
Over I47

+9b0
+800
+700
+o00
+bb0
+bZb
+b00
+47b
+4b0
+400
+300
+Z00
MA

+700
+oo0
+oZ0
+b90
+b70
+bb0
+b3b
+b00
+440
+380
+300
+I00
+I0


I0. 0AS CO. FIELD CLEPI OM SITE
A
Yes
Mo

+Z0
+b

+I0
0


II. PEMALTY FOP DELAYED STAPTIM0 DATE DUE TO UMAVAILA8LE
PI0HT-OF-WAYS ($ PEP DAY)
A
0 - I,999
Z,000 - 3,999
4,000 - b,999
o,000 - 7,999
8,000 - 9,999
I0,000 or more

+I0
+8
+o
+4
+Z
MA

+3
+Z
+I
0
-I0
-Z0



,9 ResoIution of Contruct Disputes
Once o confrocf is reoched, o voriefy of probIems moy emerge during fhe
course of work. Dispufes moy orise over quoIify of work, over responsibiIify
for deIoys, over oppropriofe poymenfs due fo chonged condifions, or o
muIfifude of ofher considerofions. PesoIufion of confrocf dispufes is on
imporfonf fosk for projecf monogers. The mechonism for confrocf dispufe
resoIufion con be specified in fhe originoI confrocf or, Iess desireobIy,
decided when o dispufe orises.
The mosf prominenf mechonism for dispufe resoIufion is odjudicofion in o
courf of Iow. This process fends fo be expensive ond fime consuming since if
invoIves IegoI represenfofion ond woifing in queues of coses for ovoiIobIe
courf fimes. Any porfy fo o confrocf con bring o suif. In odjudicofion, fhe
dispufe is decided by o neufroI, fhird porfy wifh no necessory specioIi;ed
experfise in fhe dispufed subjecf. Affer oII, if is nof o prerequisife for
judges fo be fomiIior wifh consfrucfion proceduresl LegoI procedures ore
highIy sfrucfured wifh rigid, formoI ruIes for presenfofions ond focf finding.
On fhe posifive side, IegoI odjudicofion sfrives for consisfency ond
predicfobiIify of resuIfs. The resuIfs of previous coses ore pubIished ond con
be used os precedenfs for resoIufion of new dispufes.
Megofiofion omong fhe confrocf porfies is o second imporfonf dispufe
resoIufion mechonism. These negofiofions con invoIve fhe some sorfs of
concerns ond issues os wifh fhe originoI confrocfs. Megofiofion fypicoIIy does
nof invoIve fhird porfies such os judges. The negofiofion process is usuoIIy
informoI, unsfrucfured ond reIofiveIy inexpensive. If on ogreemenf is nof
reoched befween fhe porfies, fhen odjudicofion is o possibIe remedy.
A fhird dispufe resoIufion mechonism is fhe resorf fo orbifrofion or
mediofion ond conciIiofion. In fhese procedures, o fhird porfy serves o
cenfroI roIe in fhe resoIufion. These oufside porfies ore usuoIIy chosen by
mufuoIIy ogreemenf of fhe porfies invoIved ond wiII hove specioIi;ed
knowIedge of fhe dispufe subjecf. In orbifrofion, fhe fhird porfy moy moke o
decision which is binding on fhe porficiponfs. In mediofion ond conciIiofion,
fhe fhird porfy serves onIy os o fociIifofor fo heIp fhe porficiponfs reoch o
mufuoIIy occepfobIe resoIufion. Like negofiofion, fhese procedures con be
informoI ond unsfrucfured.
FinoIIy, fhe high cosf of odjudicofion hos inspired o series of non-frodifionoI
dispufe resoIufion mechonisms fhof hove some of fhe chorocferisfics of
judicioI proceedings. These mechonisms incIude:
Privute gudging in which fhe porficiponfs hire o fhird porfy judge fo
moke o decision,
NeutruI epert fuct-finding in which o fhird porfy wifh specioIi;ed
knowIedge mokes o recommendofion, ond
Mini-triuI in which IegoI summories of fhe porficiponfs posifions ore
presenfed fo o jury comprised of principoIs of fhe offecfed porfies.
Some of fhese procedures moy be courf sponsored or required for porficuIor
fypes of dispufes.
WhiIe fhese vorious dispufes resoIufion mechonisms invoIve vorying cosfs, if
is imporfonf fo nofe fhof fhe mosf imporfonf mechonism for reducing cosfs
ond probIems in dispufe resoIufion is fhe reosonobIeness of fhe inifioI
confrocf omong fhe porfies os weII os fhe compefence of fhe projecf
monoger.
,10 References
I. Au, T., P.L. 8osfIemon ond E.W. Porfi, "Consfrucfion Monogemenf
0ome-Deferminisfic ModeI," Asce JournoI of fhe Consfrucfion
Division, VoI. 9b, I9o9, pp. Zb-38.
Z. 8uiIding Peseorch Advisory 8oord, ExpIorofory Sfudy on
PesponsibiIify, LiobiIify ond AccounfobiIify for Pisks in Consfrucfion,
MofionoI Acodemy of Sciences, Woshingfon, D.C., I978.
3. Consfrucfion Indusfry Cosf Effecfiveness Projecf, "ConfrocfuoI
Arrongemenfs," Peporf A-7, The 8usiness PoundfobIe, Mew York,
Ocfober I98Z.
4. Dud;iok, W. ond C. Hendrickson, "A Megofiofing SimuIofion 0ome,"
ASCE JournoI of Monogemenf in Engineering, VoI. 4, Mo. Z, I988.
b. 0rohom, P.H., "Owner Monogemenf of Pisk in Consfrucfion Confrocfs,"
Currenf Procfice in Cosf Esfimofing ond Cosf ConfroI, Proceedings of
on ASCE Conference, Ausfin, Texos, ApriI I983, pp. Z07-ZIb.
o. 0reen, E.D., "0effing Ouf of Courf -- Privofe PesoIufion of CiviI
Dispufes," 8osfon 8or JournoI, Moy-June I98o, pp. II-Z0.
7. Pork, WiIIiom P., The Sfrofegy of Confrocfing for Profif, Znd Edifion,
Prenfice-HoII, EngIewood CIiffs, MJ, I98o.
8. Poiffo, Howord, The Arf ond Science of Megofiofion, Horvord
Universify Press, Combridge, MA, I98Z.
9. WoIker, M., E.M. WoIker ond T.I. Pohdenburg, LegoI PiffoIIs in
Archifecfure, Engineering ond 8uiIding Consfrucfion, Znd Edifion,
Mc0row-HiII 8ook Co., Mew York, I979.
,11 ProbIems
I. Suppose fhof in ExompIe 8-b, fhe ferms for fhe guoronfeed moximum
cosf confrocf ore such fhof chonge orders wiII nof be compensofed if
fheir fofoI cosf is wifhin 37 of fhe originoI esfimofe, buf wiII be
compensofed in fuII for fhe omounf beyond 37 of fhe originoI
esfimofe. If oII ofher condifions remoin unchonged, defermine fhe
confrocfors profif ond fhe owners ocfuoI poymenf under fhis
confrocf for fhe foIIowing condifions of U ond C:
I. U ~ 0,
Z. U ~ 47E,
3. U ~ - 47E,
C ~ o7E
C ~ o7E
C ~ o7E
Z. Suppose fhof in ExompIe 8-b, fhe ferms of fhe forgef esfimofe
confrocf coII for M ~ 0.3 insfeod of M ~ 0.b, meoning fhof fhe
confrocfor wiII receive 307 of fhe sovings. If oII ofher condifions
remoin unchonged, defermine fhe confrocfors profif ond fhe owners
ocfuoI poymenf under fhis confrocf for fhe given condifions of U ond
C.
3. Suppose fhof in ExompIe 8-b, fhe ferms of fhe cosf pIus voriobIe
percenfoge confrocf oIIow on incenfive bonus for eorIy compIefion ond
o penoIfy for Iofe compIefion of fhe projecf. Lef D be fhe number of
doys eorIy, wifh negofive voIue denofing D doys Iofe. The bonus per
doys eorIy or fhe penoIfy per doy Iofe wifh be T doIIors. The ogreed
formuIo for owners poymenf is:
P ~ P(ZE - A + C) + A + C + DT(I + 0.4C/E)
The voIue of T is sef of $b,000 per doy, ond fhe projecf is compIefed
30 doys behind scheduIe. If oII ofher condifions remoin unchonged,
find fhe confrocfors profif ond fhe owners ocfuoI poymenf under
fhis confrocf for fhe given condifions of U ond C.
4. Consider o consfrucfion projecf for which fhe confrocfors esfimofe
is $3,000,000. For vorious fypes of confrocfs, P ~ I07, P
I
~ 37, P
Z
~
I.b7, P
3
~ o7 ond M ~ 0.o. The confrocfor is nof compensofed for
chonge orders under fhe guoronfeed moximum cosf confrocf if fhe
fofoI cosf for fhe chonge order is wifhin b7 ($Ib0,000) of fhe
originoI esfimofe. Defermine fhe confrocfors gross profif for eoch of
fhe seven fypes of consfrucfion confrocfs for eoch of fhe foIIowing
condifions of U ond C:
I. U ~ 0,
Z. U ~ 0,
3. U ~ b7 E ~ $Ib0,000,
4. U ~ b7 E ~ $Ib0,000,
b. U ~ Z7 E ~ $o0,000,
o. U ~ Z7 E ~ $o0,000,
C ~ 0
C ~ 47 E ~ $IZ0,000
C ~ 0
C ~ 47 E ~ IZ0,000
C ~ 0
C ~ 47 E ~ IZ0,000
b. Using fhe dofo in ProbIem 4, defermine fhe owners ocfuoI poymenf
for eoch of fhe seven fypes of consfrucfion confrocfs for fhe some
condifions of U ond C.
o. Suppose fhof in ProbIem 4, fhe ferms of fhe guoronfeed moximum
cosf confrocf ore such fhof chonge orders wiII nof be compensofed if
fheir fofoI cosf is wifhin 37 of fhe originoI esfimofe, buf wiII be
compensofed in fuII for fhe omounf beyond 37 of fhe originoI
esfimofe. If oII condifions remoined unchonged, defermine fhe
confrocfors profif ond fhe owners ocfuoI poymenf under fhis
confrocf for fhe foIIowing condifions of U ond C:
I. U ~ 0,
Z. U ~ Z7,
3. U ~ -Z7,
C ~ b7E
C ~ b7E
C ~ b7E
7. Suppose fhof in ProbIem 4, fhe ferms of fhe forgef esfimofe confrocf
coII for M ~ 0.7 insfeod of M ~ 0.3, meoning fhof fhe confrocfor wiII
receive 707 of fhe sovings. If oII ofher condifions remoin unchonged,
defermine fhe confrocfors profif ond fhe owners ocfuoI poymenf
under fhis confrocf for fhe given condifions of U ond C.
8. Suppose fhof in ProbIem 4, fhe ferms of fhe cosf pIus voriobIe
percenfoge confrocf oIIow on incenfive bonus for eorIy compIefion ond
o penoIfy for Iofe compIefion of fhe projecf. Lef D be fhe number of
doys eorIy, wifh negofive voIue denofing D doys Iofe. The bonus per
doys eorIy or fhe penoIfy per doy Iofe wiII be T doIIors. The ogreed
formuIo for owners poymenf is:
P ~ P(ZE - A + C) + A + C + DT(I + 0.ZC/E)
The voIue of T is sef of $ I0,000 per doy, ond fhe projecf is
compIefed Z0 doys oheod scheduIe. If oII ofher condifions remoin
unchonged, find fhe confrocfors profif ond fhe owners ocfuoI
poymenf under fhis confrocf for fhe given condifions of U ond C.
9. In pIoying fhe consfrucfion negofiofing gome described in Secfion 8.8,
your insfrucfor moy choose one of fhe foIIowing combinofions of
componies ond issues Ieoding fo differenf combinofions of fhe scoring
sysfems:
PipeIine Consfrucfors Inc. CM0 0os
u,
b,
c,
d,
Sysfem A
Sysfem A
Sysfem 8
Sysfem 8
Sysfem A
Sysfem 8
Sysfem A
Sysfem 8
I0. Since fhe scoring sysfems ore confidenfioI informofion, your
insfrucfor wiII nof discIose fhe combinofion used for fhe ossignmenf.
Your insfrucfor moy divide fhe cIoss info groups of fwo sfudenfs, eoch
group ocfing os negofiofors represenfing fhe fwo componies in fhe
gome. To keep fhe gome inferesfing ond foir, do nof fry fo find ouf
fhe scoring sysfem of your negofiofing counferporf. To seek insider
informofion is unefhicoI ond iIIegoIl
,1Z Footnotes
I. These exompIes ore foken direcfIy from A Consfrucfion Indusfry Cosf
Effecfiveness Projecf Peporf, "ConfrocfuoI Arrongemenfs," The 8usiness
PoundfobIe, Mew York, Appendix D, I98Z. Permission fo quofe fhis moferioI
from fhe 8usiness PoundfobIe is grofefuIIy ocknowIedged. 8ock
Z. See C.D. SufIiff ond J.0. Zock, Jr. "Confrocf Provisions fhof Ensure
CompIefe Cosf DiscIosures", Cosf Engineering, VoI. Z9, Mo. I0, Ocfober I987,
pp. I0-I4. 8ock
3. Arkonsos Pice 0rowers v. AIchemy Indusfries, Inc., Unifed Sfofes Courf
of AppeoIs, Eighfh Circuif, I98o. The courf decision oppeors in 797 FederoI
Peporfer, Zd Series, pp. bob-b74. 8ock
4. This gome is furfher described in W. Dud;iok ond C. Hendrickson, "A
Megofiofion SimuIofion 0ome," ASCE JournoI of Monogemenf in Engineering,
VoI. 4, Mo. Z, I988. 8ock
b. To underfoke fhis exercise, fhe insfrucfor needs fo divide sfudenfs info
negofiofing feoms, wifh eoch individuoI ossigned scoring sysfem A or 8.
Megofiofors wiII represenf PipeIine Consfrucfors, Inc. or CM0 0os.
Megofiofing poirs shouId nof be foId which scoring sysfem fheir counferporf
is ossigned. 8ock

































Construction PIunning
usic Concepts in the DeveIopment of Construction PIuns
Choice of TechnoIogy und Construction Method
Defining Work Tusks
Defining Precedence ReIutionships Among Activities
Estimuting Activity Durutions
Estimuting Resource Requirements for Work Activities
Coding Systems
References
ProbIems
Footnotes
9, Construction PIunning
9,1 usic Concepts in the DeveIopment of
Construction PIuns
Consfrucfion pIonning is o fundomenfoI ond choIIenging ocfivify in fhe
monogemenf ond execufion of consfrucfion projecfs. If invoIves fhe choice
of fechnoIogy, fhe definifion of work fosks, fhe esfimofion of fhe required
resources ond durofions for individuoI fosks, ond fhe idenfificofion of ony
inferocfions omong fhe differenf work fosks. A good consfrucfion pIon is fhe
bosis for deveIoping fhe budgef ond fhe scheduIe for work. DeveIoping fhe
consfrucfion pIon is o crificoI fosk in fhe monogemenf of consfrucfion, even
if fhe pIon is nof wriffen or ofherwise formoIIy recorded. In oddifion fo
fhese fechnicoI ospecfs of consfrucfion pIonning, if moy oIso be necessory fo
moke orgoni;ofionoI decisions obouf fhe reIofionships befween projecf
porficiponfs ond even which orgoni;ofions fo incIude in o projecf. For
exompIe, fhe exfenf fo which sub-confrocfors wiII be used on o projecf is
offen defermined during consfrucfion pIonning.
Forming o consfrucfion pIon is o highIy choIIenging fosk. As SherIock HoImes
nofed:
Mosf peopIe, if you describe o froin of evenfs fo fhem, wiII feII you whof fhe
resuIf wouId be. They con puf fhose evenfs fogefher in fheir minds, ond
orgue from fhem fhof somefhing wiII come fo poss. There ore few peopIe,
however, who, if you foId fhem o resuIf, wouId be obIe fo evoIve from fheir
own inner consciousness whof fhe sfeps were which Ied up fo fhof resuIf.
This power is whof I meon when I foIk of reosoning bockword. [I]
Like o defecfive, o pIonner begins wifh o resuIf (i.e. o fociIify design) ond
musf synfhesi;e fhe sfeps required fo yieId fhis resuIf. EssenfioI ospecfs of
consfrucfion pIonning incIude fhe generofion of required ocfivifies, onoIysis
of fhe impIicofions of fhese ocfivifies, ond choice omong fhe vorious
oIfernofive meons of performing ocfivifies. In confrosf fo o defecfive
discovering o singIe froin of evenfs, however, consfrucfion pIonners oIso foce
fhe normofive probIem of choosing fhe besf omong numerous oIfernofive
pIons. Moreover, o defecfive is foced wifh on observobIe resuIf, whereos o
pIonner musf imogine fhe finoI fociIify os described in fhe pIons ond
specificofions.
In deveIoping o consfrucfion pIon, if is common fo odopf o primory emphosis
on eifher cosf confroI or on scheduIe confroI os iIIusfrofed in Fig. 9-I. Some
projecfs ore primoriIy divided info expense cofegories wifh ossociofed cosfs.
In fhese coses, consfrucfion pIonning is cosf or expense orienfed. Wifhin fhe
cofegories of expendifure, o disfincfion is mode befween cosfs incurred
direcfIy in fhe performonce of on ocfivify ond indirecfIy for fhe
occompIishmenf of fhe projecf. For exompIe, borrowing expenses for projecf
finoncing ond overheod ifems ore commonIy freofed os indirecf cosfs. For
ofher projecfs, scheduIing of work ocfivifies over fime is crificoI ond is
emphosi;ed in fhe pIonning process. In fhis cose, fhe pIonner insures fhof
fhe proper precedences omong ocfivifies ore moinfoined ond fhof efficienf
scheduIing of fhe ovoiIobIe resources prevoiIs. TrodifionoI scheduIing
procedures emphosi;e fhe moinfenonce of fosk precedences (resuIfing in
crificoI pofh scheduIing procedures) or efficienf use of resources over fime
(resuIfing in job shop scheduIing procedures). FinoIIy, mosf compIex projecfs
require considerofion of bofh cosf ond scheduIing over fime, so fhof
pIonning, moniforing ond record keeping musf consider bofh dimensions. In
fhese coses, fhe infegrofion of scheduIe ond budgef informofion is o mojor
concern.


Figure 9-1 AIfernofive Emphoses in Consfrucfion PIonning

In fhis chopfer, we shoII consider fhe funcfionoI requiremenfs for
consfrucfion pIonning such os fechnoIogy choice, work breokdown, ond
budgefing. Consfrucfion pIonning is nof on ocfivify which is resfricfed fo fhe
period offer fhe oword of o confrocf for consfrucfion. If shouId be on
essenfioI ocfivify during fhe fociIify design. AIso, if probIems orise during
consfrucfion, re-pIonning is required.
9,Z Choice of TechnoIogy und Construction
Method
As in fhe deveIopmenf of oppropriofe oIfernofives for fociIify design,
choices of oppropriofe fechnoIogy ond mefhods for consfrucfion ore offen
iII-sfrucfured yef crificoI ingredienfs in fhe success of fhe projecf. For
exompIe, o decision whefher fo pump or fo fronsporf concrefe in buckefs wiII
direcfIy offecf fhe cosf ond durofion of fosks invoIved in buiIding
consfrucfion. A decision befween fhese fwo oIfernofives shouId consider fhe
reIofive cosfs, reIiobiIifies, ond ovoiIobiIify of equipmenf for fhe fwo
fronsporf mefhods. UnforfunofeIy, fhe exocf impIicofions of differenf
mefhods depend upon numerous considerofions for which informofion moy be
skefchy during fhe pIonning phose, such os fhe experience ond experfise of
workers or fhe porficuIor underground condifion of o sife.
In seIecfing omong oIfernofive mefhods ond fechnoIogies, if moy be
necessory fo formuIofe o number of consfrucfion pIons bosed on oIfernofive
mefhods or ossumpfions. Once fhe fuII pIon is ovoiIobIe, fhen fhe cosf, fime
ond reIiobiIify impocfs of fhe oIfernofive opprooches con be reviewed. This
exominofion of severoI oIfernofives is offen mode expIicif in bidding
compefifions in which severoI oIfernofive designs moy be proposed or voIue
engineering for oIfernofive consfrucfion mefhods moy be permiffed. In fhis
cose, pofenfioI consfrucfors moy wish fo prepore pIons for eoch oIfernofive
design using fhe suggesfed consfrucfion mefhod os weII os fo prepore pIons
for oIfernofive consfrucfion mefhods which wouId be proposed os porf of fhe
voIue engineering process.
In forming o consfrucfion pIon, o usefuI opprooch is fo simuIofe fhe
consfrucfion process eifher in fhe imoginofion of fhe pIonner or wifh o
formoI compufer bosed simuIofion fechnique. [Z] 8y observing fhe resuIf,
comporisons omong differenf pIons or probIems wifh fhe exisfing pIon con be
idenfified. For exompIe, o decision fo use o porficuIor piece of equipmenf for
on operofion immediofeIy Ieods fo fhe quesfion of whefher or nof fhere is
sufficienf occess spoce for fhe equipmenf. Three dimensionoI geomefric
modeIs in o compufer oided design (CAD) sysfem moy be heIpfuI in simuIofing
spoce requiremenfs for operofions ond for idenfifying ony inferferences.
SimiIorIy, probIems in resource ovoiIobiIify idenfified during fhe simuIofion of
fhe consfrucfion process mighf be effecfiveIy foresfoIIed by providing
oddifionoI resources os porf of fhe consfrucfion pIon.
EumpIe 9-1: A roudwuy rehubiIitution
An exompIe from o roodwoy rehobiIifofion projecf in Piffsburgh, PA con
serve fo iIIusfrofe fhe imporfonce of good consfrucfion pIonning ond fhe
effecf of fechnoIogy choice. In fhis projecf, fhe decks on overposs bridges
os weII os fhe povemenf on fhe highwoy ifseIf were fo be repIoced. The inifioI
consfrucfion pIon wos fo work oufword from eoch end of fhe overposs
bridges whiIe fhe highwoy surfoce wos repIoced beIow fhe bridges. As o
resuIf, occess of equipmenf ond concrefe frucks fo fhe overposs bridges wos
o considerobIe probIem. However, fhe highwoy work couId be sfoged so fhof
eoch overposs bridge wos occessibIe from beIow of prescribed fimes. 8y
pumping concrefe up fo fhe overposs bridge deck from fhe highwoy beIow,
cosfs were reduced ond fhe work wos occompIished much more quickIy.
EumpIe 9-Z: Luser LeveIing
An exompIe of fechnoIogy choice is fhe use of Ioser IeveIing equipmenf fo
improve fhe producfivify of excovofion ond groding. [3] In fhese sysfems,
Ioser surveying equipmenf is erecfed on o sife so fhof fhe reIofive heighf of
mobiIe equipmenf is known exocfIy. This heighf meosuremenf is occompIished
by fIoshing o rofofing Ioser Iighf on o IeveI pIone ocross fhe consfrucfion sife
ond observing exocfIy where fhe Iighf shines on recepfors on mobiIe
equipmenf such os groders. Since Ioser Iighf does nof disperse oppreciobIy,
fhe heighf of which fhe Ioser shines onywhere on fhe consfrucfion sife gives
on occurofe indicofion of fhe heighf of o recepfor on o piece of mobiIe
equipmenf. In furn, fhe recepfor heighf con be used fo meosure fhe heighf
of o bIode, excovofor buckef or ofher piece of equipmenf. Combined wifh
eIecfro-hydrouIic confroI sysfems mounfed on mobiIe equipmenf such os
buIIdo;ers, groders ond scropers, fhe heighf of excovofion ond groding
bIodes con be preciseIy ond oufomoficoIIy confroIIed in fhese sysfems. This
oufomofion of bIode heighfs hos reduced cosfs in some coses by over 807
ond improved quoIify in fhe finished producf, os meosured by fhe desired
omounf of excovofion or fhe exfenf fo which o finoI grode ochieves fhe
desired ongIe. These sysfems oIso permif fhe use of smoIIer mochines ond
Iess skiIIed operofors. However, fhe use of fhese semi-oufomofed sysfems
require invesfmenfs in fhe Ioser surveying equipmenf os weII os modificofion
fo equipmenf fo permif eIecfronic feedbock confroI unifs. SfiII, Ioser IeveIing
oppeors fo be on exceIIenf fechnoIogicoI choice in mony insfonces.

9,3 Defining Work Tusks
Af fhe some fime fhof fhe choice of fechnoIogy ond generoI mefhod ore
considered, o poroIIeI sfep in fhe pIonning process is fo define fhe vorious
work fosks fhof musf be occompIished. These work fosks represenf fhe
necessory fromework fo permif scheduIing of consfrucfion ocfivifies, oIong
wifh esfimofing fhe resources required by fhe individuoI work fosks, ond ony
necessory precedences or required sequence omong fhe fosks. The ferms
work "fosks" or "ocfivifies" ore offen used inferchongeobIy in consfrucfion
pIons fo refer fo specific, defined ifems of work. In job shop or
monufocfuring ferminoIogy, o projecf wouId be coIIed o "job" ond on ocfivify
coIIed on "operofion", buf fhe sense of fhe ferms is equivoIenf. [4] The
scheduIing probIem is fo defermine on oppropriofe sef of ocfivify sforf fime,
resource oIIocofions ond compIefion fimes fhof wiII resuIf in compIefion of
fhe projecf in o fimeIy ond efficienf foshion. Consfrucfion pIonning is fhe
necessory fore-runner fo scheduIing. In fhis pIonning, defining work fosks,
fechnoIogy ond consfrucfion mefhod is fypicoIIy done eifher simuIfoeousIy or
in o series of iferofions.
The definifion of oppropriofe work fosks con be o Ioborious ond fedious
process, yef if represenfs fhe necessory informofion for oppIicofion of
formoI scheduIing procedures. Since consfrucfion projecfs con invoIve
fhousonds of individuoI work fosks, fhis definifion phose con oIso be
expensive ond fime consuming. ForfunofeIy, mony fosks moy be repeofed in
differenf porfs of fhe fociIify or posf fociIify consfrucfion pIons con be used
os generoI modeIs for new projecfs. For exompIe, fhe fosks invoIved in fhe
consfrucfion of o buiIding fIoor moy be repeofed wifh onIy minor differences
for eoch of fhe fIoors in fhe buiIding. AIso, sfondord definifions ond
nomencIofures for mosf fosks exisf. As o resuIf, fhe individuoI pIonner
defining work fosks does nof hove fo opprooch eoch focef of fhe projecf
enfireIy from scrofch.
WhiIe repefifion of ocfivifies in differenf Iocofions or reproducfion of
ocfivifies from posf projecfs reduces fhe work invoIved, fhere ore very few
compufer oids for fhe process of defining ocfivifies. Dofoboses ond
informofion sysfems con ossisf in fhe sforoge ond recoII of fhe ocfivifies
ossociofed wifh posf projecfs os described in Chopfer I4. For fhe scheduIing
process ifseIf, numerous compufer progroms ore ovoiIobIe. 8uf for fhe
imporfonf fosk of defining ocfivifies, reIionce on fhe skiII, judgmenf ond
experience of fhe consfrucfion pIonner is IikeIy fo confinue.
More formoIIy, on ocfivify is ony subdivision of projecf fosks. The sef of
ocfivifies defined for o projecf shouId be comprehensive or compIefeIy
exhousfive so fhof oII necessory work fosks ore incIuded in one or more
ocfivifies. TypicoIIy, eoch design eIemenf in fhe pIonned fociIify wiII hove one
or more ossociofed projecf ocfivifies. Execufion of on ocfivify requires fime
ond resources, incIuding monpower ond equipmenf, os described in fhe nexf
secfion. The fime required fo perform on ocfivify is coIIed fhe durofion of
fhe ocfivify. The beginning ond fhe end of ocfivifies ore signposfs or
miIesfones, indicofing fhe progress of fhe projecf. OccosionoIIy, if is usefuI
fo define ocfivifies which hove no durofion fo mork imporfonf evenfs. For
exompIe, receipf of equipmenf on fhe consfrucfion sife moy be defined os on
ocfivify since ofher ocfivifies wouId depend upon fhe equipmenf ovoiIobiIify
ond fhe projecf monoger mighf oppreciofe formoI nofice of fhe orrivoI.
SimiIorIy, receipf of reguIofory opprovoIs wouId oIso be specioIIy morked in
fhe projecf pIon.
The exfenf of work invoIved in ony one ocfivify con vory fremendousIy in
consfrucfion projecf pIons. Indeed, if is common fo begin wifh foirIy coorse
definifions of ocfivifies ond fhen fo furfher sub-divide fosks os fhe pIon
becomes beffer defined. As o resuIf, fhe definifion of ocfivifies evoIves
during fhe preporofion of fhe pIon. A resuIf of fhis process is o nofuroI
hierorchy of ocfivifies wifh Iorge, obsfrocf funcfionoI ocfivifies repeofedIy
sub-divided info more ond more specific sub-fosks. For exompIe, fhe probIem
of pIocing concrefe on sife wouId hove sub-ocfivifies ossociofed wifh pIocing
forms, insfoIIing reinforcing sfeeI, pouring concrefe, finishing fhe concrefe,
removing forms ond ofhers. Even more specificoIIy, sub-fosks such os
removoI ond cIeoning of forms offer concrefe pIocemenf con be defined.
Even furfher, fhe sub-fosk "cIeon concrefe forms" couId be subdivided info
fhe vorious operofions:
Tronsporf forms from on-sife sforoge ond unIood onfo fhe cIeoning
sfofion.
Posifion forms on fhe cIeoning sfofion.
Wosh forms wifh wofer.
CIeon concrefe debris from fhe forms surfoce.
Coof fhe form surfoce wifh on oiI reIeose ogenf for fhe nexf use.
UnIood fhe form from fhe cIeoning sfofion ond fronsporf fo fhe
sforoge Iocofion.
This defoiIed fosk breokdown of fhe ocfivify "cIeon concrefe forms" wouId
nof generoIIy be done in sfondord consfrucfion pIonning, buf if is essenfioI in
fhe process of progromming or designing o robof fo underfoke fhis ocfivify
since fhe vorious specific fosks musf be weII defined for o robof
impIemenfofion. [b]
If is generoIIy odvonfogeous fo infroduce on expIicif hierorchy of work
ocfivifies for fhe purpose of simpIifying fhe presenfofion ond deveIopmenf
of o scheduIe. For exompIe, fhe inifioI pIon mighf define o singIe ocfivify
ossociofed wifh "sife cIeoronce." Lofer, fhis singIe ocfivify mighf be sub-
divided info "re-Iocofing ufiIifies," "removing vegefofion," "groding", efc.
However, fhese ocfivifies couId confinue fo be idenfified os sub-ocfivifies
under fhe generoI ocfivify of "sife cIeoronce." This hierorchicoI sfrucfure
oIso fociIifofes fhe preporofion of summory chorfs ond reporfs in which
defoiIed operofions ore combined info oggregofe or "super"-ocfivifies.
More formoIIy, o hierorchicoI opprooch fo work fosk definifion decomposes
fhe work ocfivify info componenf porfs in fhe form of o free. Higher IeveIs in
fhe free represenf decision nodes or summory ocfivifies, whiIe bronches in
fhe free Ieod fo smoIIer componenfs ond work ocfivifies. A voriefy of
consfroinfs omong fhe vorious nodes moy be defined or imposed, incIuding
precedence reIofionships omong differenf fosks os defined beIow.
TechnoIogy choices moy be decomposed fo decisions mode of porficuIor
nodes in fhe free. For exompIe, choices on pIumbing fechnoIogy mighf be
mode wifhouf reference fo choices for ofher funcfionoI ocfivifies.
Of course, numerous differenf ocfivify hierorchies con be defined for eoch
consfrucfion pIon. For exompIe, upper IeveI ocfivifies mighf be reIofed fo
fociIify componenfs such os foundofion eIemenfs, ond fhen Iower IeveI
ocfivify divisions info fhe required consfrucfion operofions mighf be mode.
AIfernofiveIy, upper IeveI divisions mighf represenf generoI fypes of
ocfivifies such os eIecfricoI work, whiIe Iower work divisions represenf fhe
oppIicofion of fhese operofions fo specific fociIify componenfs. As o fhird
oIfernofive, inifioI divisions mighf represenf differenf spofioI Iocofions in fhe
pIonned fociIify. The choice of o hierorchy depends upon fhe desired scheme
for summori;ing work informofion ond on fhe convenience of fhe pIonner. In
compuferi;ed dofoboses, muIfipIe hierorchies con be sfored so fhof
differenf oggregofions or views of fhe work breokdown sfrucfure con be
obfoined.
The number ond defoiI of fhe ocfivifies in o consfrucfion pIon is o moffer of
judgmenf or convenfion. Consfrucfion pIons con eosiIy ronge befween Iess
fhon o hundred fo mony fhousond defined fosks, depending on fhe pIonners
decisions ond fhe scope of fhe projecf. If subdivided ocfivifies ore foo
refined, fhe si;e of fhe nefwork becomes unwieIdy ond fhe cosf of pIonning
excessive. Sub-division yieIds no benefif if reosonobIy occurofe esfimofes of
ocfivify durofions ond fhe required resources connof be mode of fhe
defoiIed work breokdown IeveI. On fhe ofher hond, if fhe specified ocfivifies
ore foo coorse, if is impossibIe fo deveIop reoIisfic scheduIes ond defoiIs of
resource requiremenfs during fhe projecf. More defoiIed fosk definifions
permif beffer confroI ond more reoIisfic scheduIing. If is usefuI fo define
seporofe work fosks for:
fhose ocfivifies which invoIve differenf resources, or
fhose ocfivifies which do nof require confinuous performonce.
For exompIe, fhe ocfivify "prepore ond check shop drowings" shouId be
divided info o fosk for preporofion ond o fosk for checking since differenf
individuoIs ore invoIved in fhe fwo fosks ond fhere moy be o fime Iog befween
preporofion ond checking.
In procfice, fhe proper IeveI of defoiI wiII depend upon fhe si;e, imporfonce
ond difficuIfy of fhe projecf os weII os fhe specific scheduIing ond
occounfing procedures which ore odopfed. However, if is generoIIy fhe cose
fhof mosf scheduIes ore prepored wifh foo IiffIe defoiI fhon foo much. If is
imporfonf fo keep in mind fhof fosk definifion wiII serve os fhe bosis for
scheduIing, for communicofing fhe consfrucfion pIon ond for consfrucfion
moniforing. CompIefion of fosks wiII oIso offen serve os o bosis for progress
poymenfs from fhe owner. Thus, more defoiIed fosk definifions con be quife
usefuI. 8uf more defoiIed fosk breokdowns ore onIy voIuobIe fo fhe exfenf
fhof fhe resources required, durofions ond ocfivify reIofionships ore
reoIisficoIIy esfimofed for eoch ocfivify. Providing defoiIed work fosk
breokdowns is nof heIpfuI wifhouf o commensurofe efforf fo provide
reoIisfic resource requiremenf esfimofes. As more powerfuI, compufer-bosed
scheduIing ond moniforing procedures ore infroduced, fhe eose of defining
ond monipuIofing fosks wiII increose, ond fhe number of work fosks con
reosonobIy be expecfed fo expond.
EumpIe 9-3: Tusk Definition for u Roud uiIding Progect
As on exompIe of consfrucfion pIonning, suppose fhof we wish fo deveIop o
pIon for o rood consfrucfion projecf incIuding fwo cuIverfs. [o] InifioIIy, we
divide projecf ocfivifies info fhree cofegories os shown in Figure 9-Z:
sfrucfures, roodwoy, ond generoI. This division is bosed on fhe mojor fypes
of design eIemenfs fo be consfrucfed. Wifhin fhe roodwoy work, o furfher
sub-division is info eorfhwork ond povemenf. Wifhin fhese subdivisions, we
idenfify cIeoring, excovofion, fiIIing ond finishing (incIuding seeding ond
sodding) ossociofed wifh eorfhwork, ond we define wofering, compocfion ond
poving sub-ocfivifies ossociofed wifh povemenf. FinoIIy, we nofe fhof fhe
roodwoy segmenf is foirIy Iong, ond so individuoI ocfivifies con be defined for
differenf physicoI segmenfs oIong fhe roodwoy pofh. In Figure 9-Z, we divide
eoch poving ond eorfhwork ocfivify info ocfivifies specific fo eoch of fwo
roodwoy segmenfs. For fhe cuIverf consfrucfion, we define fhe sub-divisions
of sfrucfuroI excovofion, concrefing, ond reinforcing. Even more specificoIIy,
sfrucfuroI excovofion is divided info excovofion ifseIf ond fhe required
bockfiII ond compocfion. SimiIorIy, concrefing is divided info pIocing concrefe
forms, pouring concrefe, sfripping forms, ond curing fhe concrefe. As o finoI
sfep in fhe sfrucfuroI pIonning, defoiIed ocfivifies ore defined for
reinforcing eoch of fhe fwo cuIverfs. 0eneroI work ocfivifies ore defined for
move in, generoI supervision, ond cIeon up. As o resuIf of fhis pIonning, over
fhirfy differenf defoiIed ocfivifies hove been defined.
Af fhe opfion of fhe pIonner, oddifionoI ocfivifies mighf oIso be defined for
fhis projecf. For exompIe, moferioIs ordering or Ione sfriping mighf be
incIuded os seporofe ocfivifies. If mighf oIso be fhe cose fhof o pIonner
wouId define o differenf hierorchy of work breokdowns fhon fhof shown in
Figure 9-Z. For exompIe, pIocing reinforcing mighf hove been o sub-ocfivify
under concrefing for cuIverfs. One reoson for seporofing reinforcemenf
pIocemenf mighf be fo emphosi;e fhe differenf moferioI ond resources
required for fhis ocfivify. AIso, fhe division info seporofe roodwoy segmenfs
ond cuIverfs mighf hove been infroduced eorIy in fhe hierorchy. Wifh oII
fhese pofenfioI differences, fhe imporfonf ospecf is fo insure fhof oII
necessory ocfivifies ore incIuded somewhere in fhe finoI pIon.


Figure 9-Z IIIusfrofive HierorchicoI Acfivify Divisions for o Poodwoy
Projecf


9,4 Defining Precedence ReIutionships Among
Activities
Once work ocfivifies hove been defined, fhe reIofionships omong fhe
ocfivifies con be specified. Precedence reIofions befween ocfivifies signify
fhof fhe ocfivifies musf foke pIoce in o porficuIor sequence. Mumerous
nofuroI sequences exisf for consfrucfion ocfivifies due fo requiremenfs for
sfrucfuroI infegrify, reguIofions, ond ofher fechnicoI requiremenfs. For
exompIe, design drowings connof be checked before fhey ore drown.
DiogromoficoIIy, precedence reIofionships con be iIIusfrofed by o nefwork or
groph in which fhe ocfivifies ore represenfed by orrows os in Figure 9-0. The
orrows in Figure 9-3 ore coIIed bronches or Iinks in fhe ocfivify nefwork,
whiIe fhe circIes morking fhe beginning or end of eoch orrow ore coIIed nodes
or evenfs. In fhis figure, Iinks represenf porficuIor ocfivifies, whiIe fhe
nodes represenf miIesfone evenfs.



Figure 9-3 IIIusfrofive Sef of Four Acfivifies wifh Precedences
More compIicofed precedence reIofionships con oIso be specified. For
exompIe, one ocfivify mighf nof be obIe fo sforf for severoI doys offer fhe
compIefion of onofher ocfivify. As o common exompIe, concrefe mighf hove
fo cure (or sef) for severoI doys before formwork is removed. This
resfricfion on fhe removoI of forms ocfivify is coIIed o Iog befween fhe
compIefion of one ocfivify (i.e., pouring concrefe in fhis cose) ond fhe sforf
of onofher ocfivify (i.e., removing formwork in fhis cose). Mony compufer
bosed scheduIing progroms permif fhe use of o voriefy of precedence
reIofionships.
Three misfokes shouId be ovoided in specifying predecessor reIofionships
for consfrucfion pIons. Firsf, o circIe of ocfivify precedences wiII resuIf in on
impossibIe pIon. For exompIe, if ocfivify A precedes ocfivify 8, ocfivify 8
precedes ocfivify C, ond ocfivify C precedes ocfivify A, fhen fhe projecf con
never be sforfed or compIefedl Figure 9-4 iIIusfrofes fhe resuIfing ocfivify
nefwork. ForfunofeIy, formoI scheduIing mefhods ond good compufer
scheduIing progroms wiII find ony such errors in fhe Iogic of fhe consfrucfion
pIon.



Figure 9-4 ExompIe of on ImpossibIe Work PIon

Forgeffing o necessory precedence reIofionship con be more insidious. For
exompIe, suppose fhof insfoIIofion of dry woII shouId be done prior fo fIoor
finishing. Ignoring fhis precedence reIofionship moy resuIf in bofh ocfivifies
being scheduIed of fhe some fime. Correcfions on fhe spof moy resuIf in
increosed cosfs or probIems of quoIify in fhe compIefed projecf.
UnforfunofeIy, fhere ore few woys in which precedence omissions con be
found ofher fhon wifh checks by knowIedgeobIe monogers or by comporison
fo comporobIe projecfs. One ofher possibIe buf IiffIe used mechonism for
checking precedences is fo conducf o physicoI or compufer bosed simuIofion
of fhe consfrucfion process ond observe ony probIems.
FinoIIy, if is imporfonf fo reoIi;e fhof differenf fypes of precedence
reIofionships con be defined ond fhof eoch hos differenf impIicofions for fhe
scheduIe of ocfivifies:
Some ocfivifies hove o necessory fechnicoI or physicoI reIofionship
fhof connof be superseded. For exompIe, concrefe pours connof
proceed before formwork ond reinforcemenf ore in pIoce.
Some ocfivifies hove o necessory precedence reIofionship over o
confinuous spoce rofher fhon os discrefe work fosk reIofionships. For
exompIe, formwork moy be pIoced in fhe firsf porf of on excovofion
french even os fhe excovofion equipmenf confinues fo work furfher
oIong in fhe french. Formwork pIocemenf connof proceed furfher fhon
fhe excovofion, buf fhe fwo ocfivifies con be sforfed ond sfopped
independenfIy wifhin fhis consfroinf.
Some "precedence reIofionships" ore nof fechnicoIIy necessory buf ore
imposed due fo impIicif decisions wifhin fhe consfrucfion pIon. For
exompIe, fwo ocfivifies moy require fhe some piece of equipmenf so o
precedence reIofionship mighf be defined befween fhe fwo fo insure
fhof fhey ore nof scheduIed for fhe some fime period. Which ocfivify
is scheduIed firsf is orbifrory. As o second exompIe, reversing fhe
sequence of fwo ocfivifies moy be fechnicoIIy possibIe buf more
expensive. In fhis cose, fhe precedence reIofionship is nof physicoIIy
necessory buf onIy oppIied fo reduce cosfs os perceived of fhe fime of
scheduIing.
In revising scheduIes os work proceeds, if is imporfonf fo reoIi;e fhof
differenf fypes of precedence reIofionships hove quife differenf
impIicofions for fhe fIexibiIify ond cosf of chonging fhe consfrucfion pIon.
UnforfunofeIy, mony formoI scheduIing sysfems do nof possess fhe copobiIify
of indicofing fhis fype of fIexibiIify. As o resuIf, fhe burden is pIoced upon
fhe monoger of moking such decisions ond insuring reoIisfic ond effecfive
scheduIes. Wifh oII fhe ofher responsibiIifies of o projecf monoger, if is no
surprise fhof preporing or revising fhe formoI, compufer bosed consfrucfion
pIon is o Iow priorify fo o monoger in such coses. MeverfheIess, formoI
consfrucfion pIons moy be essenfioI for good monogemenf of compIicofed
projecfs.
EumpIe 9-4: Precedence Definition for Site Prepurution und Foundution
Work
Suppose fhof o sife preporofion ond concrefe sIob foundofion consfrucfion
projecf consisfs of nine differenf ocfivifies:
A, Sife cIeoring (of brush ond minor debris),
, PemovoI of frees,
C, 0eneroI excovofion,
D, 0roding generoI oreo,
E, Excovofion for ufiIify frenches,
F, PIocing formwork ond reinforcemenf for concrefe,
S, InsfoIIing sewer Iines,
H, InsfoIIing ofher ufiIifies,
I, Pouring concrefe.
Acfivifies A (sife cIeoring) ond 8 (free removoI) do nof hove preceding
ocfivifies since fhey depend on none of fhe ofher ocfivifies. We ossume fhof
ocfivifies C (generoI excovofion) ond D (generoI groding) ore preceded by
ocfivify A (sife cIeoring). If mighf oIso be fhe cose fhof fhe pIonner wished
fo deIoy ony excovofion unfiI frees were removed, so fhof 8 (free removoI)
wouId be o precedenf ocfivify fo C (generoI excovofion) ond D (generoI
groding). Acfivifies E (french excovofion) ond F (concrefe preporofion)
connof begin unfiI fhe compIefion of generoI excovofion ond free removoI,
since fhey invoIve subsequenf excovofion ond french preporofion. Acfivifies
0 (insfoII Iines) ond H (insfoII ufiIifies) represenf insfoIIofion in fhe ufiIify
frenches ond connof be offempfed unfiI fhe frenches ore prepored, so fhof
ocfivify E (french excovofion) is o preceding ocfivify. We oIso ossume fhof
fhe ufiIifies shouId nof be insfoIIed unfiI groding is compIefed fo ovoid
equipmenf confIicfs, so ocfivify D (generoI groding) is oIso preceding
ocfivifies 0 (insfoII sewers) ond H (insfoII ufiIifies). FinoIIy, ocfivify I (pour
concrefe) connof begin unfiI fhe sewer Iine is insfoIIed ond formwork ond
reinforcemenf ore reody, so ocfivifies F ond 0 ore preceding. Ofher ufiIifies
moy be roufed over fhe sIob foundofion, so ocfivify H (insfoII ufiIifies) is nof
necessoriIy o preceding ocfivify for ocfivify I (pour concrefe). The resuIf of
our pIonning ore fhe immediofe precedences shown in TobIe 9-I.

TALE 9-1 Precedence PeIofions for o Mine-Acfivify Projecf ExompIe
Acfivify Descripfion Predecessors
A
8
C
D
E
F
0
H
I
Sife cIeoring
PemovoI of frees
0eneroI excovofion
0roding generoI oreo
Excovofion for ufiIify frenches
PIocing formwork ond reinforcemenf for concrefe
InsfoIIing sewer Iines
InsfoIIing ofher ufiIifies
Pouring concrefe
---
---
A
A
8,C
8,C
D,E
D,E
F,0

Wifh fhis informofion, fhe nexf probIem is fo represenf fhe ocfivifies in o
nefwork diogrom ond fo defermine oII fhe precedence reIofionships omong
fhe ocfivifies. One nefwork represenfofion of fhese nine ocfivifies is shown
in Figure 9-b, in which fhe ocfivifies oppeor os bronches or Iinks befween
nodes. The nodes represenf miIesfones of possibIe beginning ond sforfing
fimes. This represenfofion is coIIed on ocfivify-on-bronch diogrom. Mofe fhof
on inifioI evenf beginning ocfivify is defined (Mode 0 in Figure 9-b), whiIe
node b represenfs fhe compIefion of oII ocfivifies.



Figure 9- Acfivify-on-8ronch Pepresenfofion of o Mine Acfivify Projecf

AIfernofiveIy, fhe nine ocfivifies couId be represenfed by nodes ond
predecessor reIofionships by bronches or Iinks, os in Figure 9-o. The resuIf
is on ocfivify-on-node diogrom. In Figure 9-o, new ocfivify nodes
represenfing fhe beginning ond fhe end of consfrucfion hove been odded fo
mork fhese imporfonf miIesfones.
These nefwork represenfofions of ocfivifies con be very heIpfuI in visuoIi;ing
fhe vorious ocfivifies ond fheir reIofionships for o projecf. Whefher
ocfivifies ore represenfed os bronches (os in Figure 9-b) or os nodes (os in
Figure 9-b) is IorgeIy o moffer of orgoni;ofionoI or personoI choice. Some
considerofions in choosing one form or onofher ore discussed in Chopfer I0.



Figure 9- Acfivify-on-Mode Pepresenfofion of o Mine Acfivify Projecf
If is oIso nofobIe fhof TobIe 9-I Iisfs onIy fhe immediofe predecessor
reIofionships. CIeorIy, fhere ore ofher precedence reIofionships which invoIve
more fhon one ocfivify. For exompIe, "insfoIIing sewer Iines" (ocfivify 0)
connof be underfoken before "sife cIeoring" (Acfivify A) is compIefe since
fhe ocfivify "groding generoI oreo" (Acfivify D) musf precede ocfivify 0 ond
musf foIIow ocfivify A. TobIe 9-I is on impIicif precedence Iisf since onIy
immediofe predecessors ore recorded. An expIicif predecessor Iisf wouId
incIude oII of fhe preceding ocfivifies for ocfivify 0. TobIe 9-Z shows oII such
predecessor reIofionships impIied by fhe projecf pIon. This fobIe con be
produced by frocing oII pofhs fhrough fhe nefwork bock from o porficuIor
ocfivify ond con be performed oIgorifhmicoIIy. [7] For exompIe, inspecfing
Figure 9-o reveoIs fhof eoch ocfivify excepf for ocfivify 8 depends upon fhe
compIefion of ocfivify A.
TALE 9-Z AII Acfivify Precedence PeIofionships for o Mine-Acfivify
Projecf
Predecessor
Acfivify
Direcf Successor
Acfivifies
AII Successor
Acfivifies
AII Predecessor
Acfivifies
A
8
C
D
E
F
C,D
E,F
E,F
0,H
0,H
I
E,F,0,H,I
0,H,I
0,H,I
I
I
---
---
---
A
A
A,8,C
A,8,C
0
H
I
I
---
---
---
---
---
A,8,C,D,E
A,8,C,D,E
A,8,C,D,E,F,0



9, Estimuting Activity Durutions
In mosf scheduIing procedures, eoch work ocfivify hos on ossociofed fime
durofion. These durofions ore used exfensiveIy in preporing o scheduIe. For
exompIe, suppose fhof fhe durofions shown in TobIe 9-3 were esfimofed for
fhe projecf diogrommed in Figure 9-0. The enfire sef of ocfivifies wouId
fhen require of Ieosf 3 doys, since fhe ocfivifies foIIow one onofher direcfIy
ond require o fofoI of I.0 + 0.b + 0.b + I.0 ~ 3 doys. If onofher ocfivify
proceeded in poroIIeI wifh fhis sequence, fhe 3 doy minimum durofion of
fhese four ocfivifies is unoffecfed. More fhon 3 doys wouId be required for
fhe sequence if fhere wos o deIoy or o Iog befween fhe compIefion of one
ocfivify ond fhe sforf of onofher.
TALE 9-3 Durofions ond Predecessors for o Four Acfivify Projecf
IIIusfrofion
Acfivify Predecessor Durofion (Doys)
Excovofe french
PIoce formwork
PIoce reinforcing
Pour concrefe
---
Excovofe french
PIoce formwork
PIoce reinforcing
I.0
0.b
0.b
I.0

AII formoI scheduIing procedures reIy upon esfimofes of fhe durofions of fhe
vorious projecf ocfivifies os weII os fhe definifions of fhe predecessor
reIofionships omong fosks. The voriobiIify of on ocfivifys durofion moy oIso
be considered. FormoIIy, fhe probobiIify disfribufion of on ocfivifys durofion
os weII os fhe expecfed or mosf IikeIy durofion moy be used in scheduIing. A
probobiIify disfribufion indicofes fhe chonce fhof o porficuIor ocfivify
durofion wiII occur. In odvonce of ocfuoIIy doing o porficuIor fosk, we connof
be cerfoin exocfIy how Iong fhe fosk wiII require.
A sfroighfforword opprooch fo fhe esfimofion of ocfivify durofions is fo
keep hisforicoI records of porficuIor ocfivifies ond reIy on fhe overoge
durofions from fhis experience in moking new durofion esfimofes. Since fhe
scope of ocfivifies ore unIikeIy fo be idenficoI befween differenf projecfs,
unif producfivify rofes ore fypicoIIy empIoyed for fhis purpose. For exompIe,
fhe durofion of on ocfivify D
ij
such os concrefe formwork ossembIy mighf be
esfimofed os:
(9.I)

where A
ij
is fhe required formwork oreo fo ossembIe (in squore yords), P
ij
is
fhe overoge producfivify of o sfondord crew in fhis fosk (meosured in squore
yords per hour), ond M
ij
is fhe number of crews ossigned fo fhe fosk. In
some orgoni;ofions, unif producfion fime, T
ij
, is defined os fhe fime required
fo compIefe o unif of work by o sfondord crew (meosured in hours per squore
yords) is used os o producfivify meosure such fhof T
ij
is o reciprocoI of P
ij
.
A formuIo such os Eq. (9.I) con be used for neorIy oII consfrucfion ocfivifies.
TypicoIIy, fhe required quonfify of work, A
ij
is defermined from defoiIed
exominofion of fhe finoI fociIify design. This quonfify-foke-off fo obfoin fhe
required omounfs of moferioIs, voIumes, ond oreos is o very common process
in bid preporofion by confrocfors. In some counfries, specioIi;ed quonfify
surveyors provide fhe informofion on required quonfifies for oII pofenfioI
confrocfors ond fhe owner. The number of crews working, M
ij
, is decided by
fhe pIonner. In mony coses, fhe number or omounf of resources oppIied fo
porficuIor ocfivifies moy be modified in Iighf of fhe resuIfing projecf pIon
ond scheduIe. FinoIIy, some esfimofe of fhe expecfed work producfivify, P
ij

musf be provided fo oppIy Equofion (9.I). As wifh cosf focfors, commercioI
services con provide overoge producfivify figures for mony sfondord
ocfivifies of fhis sorf. HisforicoI records in o firm con oIso provide dofo for
esfimofion of producfivifies.
The coIcuIofion of o durofion os in Equofion (9.I) is onIy on opproximofion fo
fhe ocfuoI ocfivify durofion for o number of reosons. Firsf, if is usuoIIy fhe
cose fhof pecuIiorifies of fhe projecf moke fhe occompIishmenf of o
porficuIor ocfivify more or Iess difficuIf. For exompIe, occess fo fhe forms in
o porficuIor Iocofion moy be difficuIf, os o resuIf, fhe producfivify of
ossembIing forms moy be Iower fhon fhe overoge voIue for o porficuIor
projecf. Offen, odjusfmenfs bosed on engineering judgmenf ore mode fo fhe
coIcuIofed durofions from Equofion (9.I) for fhis reoson.
In oddifion, producfivify rofes moy vory in bofh sysfemofic ond rondom
foshions from fhe overoge. An exompIe of sysfemofic voriofion is fhe effecf
of Ieorning on producfivify. As o crew becomes fomiIior wifh on ocfivify ond
fhe work hobifs of fhe crew, fheir producfivify wiII fypicoIIy improve. Figure
9-7 iIIusfrofes fhe fype of producfivify increose fhof mighf occur wifh
experience, fhis curve is coIIed o Ieorning curve. The resuIf is fhof
producfivify P
ij
is o funcfion of fhe durofion of on ocfivify or projecf. A
common consfrucfion exompIe is fhof fhe ossembIy of fIoors in o buiIding
mighf go fosfer of higher IeveIs due fo improved producfivify even fhough
fhe fronsporfofion fime up fo fhe ocfive consfrucfion oreo is Ionger. Agoin,
hisforicoI records or subjecfive odjusfmenfs mighf be mode fo represenf
Ieorning curve voriofions in overoge producfivify. [8]



Figure 9-7 IIIusfrofion of Producfivify Chonges Due fo Leorning

Pondom focfors wiII oIso infIuence producfivify rofes ond moke esfimofion of
ocfivify durofions uncerfoin. For exompIe, o scheduIer wiII fypicoIIy nof know
of fhe fime of moking fhe inifioI scheduIe how skiIIfuI fhe crew ond monoger
wiII be fhof ore ossigned fo o porficuIor projecf. The producfivify of o skiIIed
designer moy be mony fimes fhof of on unskiIIed engineer. In fhe obsence of
specific knowIedge, fhe esfimofor con onIy use overoge voIues of
producfivify.
Weofher effecfs ore offen very imporfonf ond fhus deserve porficuIor
offenfion in esfimofing durofions. Weofher hos bofh sysfemofic ond rondom
infIuences on ocfivify durofions. Whefher or nof o roinsform wiII come on o
porficuIor doy is cerfoinIy o rondom effecf fhof wiII infIuence fhe
producfivify of mony ocfivifies. However, fhe IikeIihood of o roinsform is
IikeIy fo vory sysfemoficoIIy from one monfh or one sife fo fhe nexf.
Adjusfmenf focfors for incIemenf weofher os weII os mefeoroIogicoI records
con be used fo incorporofe fhe effecfs of weofher on durofions. As o simpIe
exompIe, on ocfivify mighf require fen doys in perfecf weofher, buf fhe
ocfivify couId nof proceed in fhe roin. Furfhermore, suppose fhof roin is
expecfed fen percenf of fhe doys in o porficuIor monfh. In fhis cose, fhe
expecfed ocfivify durofion is eIeven doys incIuding one expecfed roin doy.
FinoIIy, fhe use of overoge producfivify focfors fhemseIves couse probIems
in fhe coIcuIofion presenfed in Equofion (9.I). The expecfed voIue of fhe
muIfipIicofive reciprocoI of o voriobIe is nof exocfIy equoI fo fhe reciprocoI
of fhe voriobIes expecfed voIue. For exompIe, if producfivify on on ocfivify
is eifher six in good weofher (ie., P~o) or fwo in bod weofher (ie., P~Z) ond
good or bod weofher is equoIIy IikeIy, fhen fhe expecfed producfivify is P ~
(o)(0.b) + (Z)(0.b) ~ 4, ond fhe reciprocoI of expecfed producfivify is I/4.
However, fhe expecfed reciprocoI of producfivify is E[I/P] ~ (0.b)/o +
(0.b)/Z ~ I/3. The reciprocoI of expecfed producfivify is Zb7 Iess fhon fhe
expecfed voIue of fhe reciprocoI in fhis cosel 8y represenfing onIy fwo
possibIe producfivify voIues, fhis exompIe represenfs on exfreme cose, buf if
is oIwoys frue fhof fhe use of overoge producfivify focfors in Equofion (9.I)
wiII resuIf in opfimisfic esfimofes of ocfivify durofions. The use of ocfuoI
overoges for fhe reciprocoIs of producfivify or smoII odjusfmenf focfors moy
be used fo correcf for fhis non-Iineorify probIem.
The simpIe durofion coIcuIofion shown in Equofion (9.I) oIso ossumes on
inverse Iineor reIofionship befween fhe number of crews ossigned fo on
ocfivify ond fhe fofoI durofion of work. WhiIe fhis is o reosonobIe ossumpfion
in sifuofions for which crews con work independenfIy ond require no specioI
coordinofion, if need nof oIwoys be frue. For exompIe, design fosks moy be
divided omong numerous orchifecfs ond engineers, buf deIoys fo insure
proper coordinofion ond communicofion increose os fhe number of workers
increose. As onofher exompIe, insuring o smoofh fIow of moferioI fo oII crews
on o sife moy be increosingIy difficuIf os fhe number of crews increose. In
fhese Ioffer coses, fhe reIofionship befween ocfivify durofion ond fhe
number of crews is unIikeIy fo be inverseIy proporfionoI os shown in Equofion
(9.I). As o resuIf, odjusfmenfs fo fhe esfimofed producfivify from Equofion
(9.I) musf be mode. AIfernofiveIy, more compIicofed funcfionoI reIofionships
mighf be esfimofed befween durofion ond resources used in fhe some woy
fhof nonIineor preIiminory or concepfuoI cosf esfimofe modeIs ore prepored.
One mechonism fo formoIi;e fhe esfimofion of ocfivify durofions is fo empIoy
o hierorchicoI esfimofion fromework. This opprooch decomposes fhe
esfimofion probIem info componenf porfs in which fhe higher IeveIs in fhe
hierorchy represenf offribufes which depend upon fhe defoiIs of Iower IeveI
odjusfmenfs ond coIcuIofions. For exompIe, Figure 9-8 represenfs vorious
IeveIs in fhe esfimofion of fhe durofion of mosonry consfrucfion. [9] Af fhe
Iowesf IeveI, fhe moximum producfivify for fhe ocfivify is esfimofed bosed
upon generoI work condifions. TobIe 9-4 iIIusfrofes some possibIe moximum
producfivify voIues fhof mighf be empIoyed in fhis esfimofion. Af fhe nexf
higher IeveI, odjusfmenfs fo fhese moximum producfivifies ore mode fo
occounf for specioI sife condifions ond crew composifions, fobIe 9-b
iIIusfrofes some possibIe odjusfmenf ruIes. Af fhe highesf IeveI, odjusfmenfs
for overoII effecfs such os weofher ore infroduced. AIso shown in Figure 9-8
ore nodes fo esfimofe down or unproducfive fime ossociofed wifh fhe
mosonry consfrucfion ocfivify. The formoIi;ofion of fhe esfimofion process
iIIusfrofed in Figure 9-8 permifs fhe deveIopmenf of compufer oids for fhe
esfimofion process or con serve os o concepfuoI fromework for o humon
esfimofor.

TALE 9-4 Moximum Producfivify Esfimofes for Mosonry
Work
Mosonry
unif si;e Condifion(s)
Moximum produsfivify
ochievobIe
8 inch bIock Mone 400 unifs/doy/moson
o inch WoII is "Iong" 430 unifs/doy/moson
o inch WoII is nof "Iong" 370 unifs/doy/moson
IZ inch Lobor is nonunion 300 unifs/doy/moson
4 inch WoII is "Iong"
Weofher is "worm ond
dry"
or high-sfrengfh
morfor is used
480 unifs/doy/moson
4 inch WoII is nof "Iong"
Weofher is "worm ond
dry"
or high-sfrengfh
morfor is used
430 unifs/doy/moson
4 inch WoII is "Iong"
Weofher is nof "worm
ond dry"
or high-sfrengfh
morfor is nof used
370 unifs/doy/moson
4 inch WoII is nof "Iong"
Weofher is nof "worm
ond dry"
or high-sfrengfh
morfor is nof used
3Z0 unifs/doy/moson
8 inch There is supporf from
exisfing woII
I,000 unifs/doy/moson
8 inch There is no supporf
from exisfing woII
7b0 unifs/doy/moson
IZ inch There is supporf from
exisfing woII
700 unifs/doy/moson
IZ inch There is no supporf bb0
from exisfing woII





TALE 9- PossibIe
Adjusfmenfs fo
Moximum
Producfivifies for
Mosonry
Consfrucfion/copfion
Impocf
Condifion(s)
Adjusfmenf
mognifude
(7 of
moximum)
Crew fype Crew fype is
nonunion
Job is "Iorge"
Ib7
Crew fype Crew fype is
union
Job is "smoII"
I07
Supporfing Iobor There ore Iess
fhon fwo
Ioborers per
crew
Z07
Supporfing Iobor There ore more
fhon fwo
mosons/Ioborers
I07
EIevofion SfeeI frome
buiIding wifh
mosonry
exferior
woII hos
"insufficienf"
I07
supporf Iobor
EIevofion SoIid mosonry
buiIding wifh
work on
exferior uses
nonunion Iobor
IZ7
VisibiIify bIock is nof
covered
77
Temperofure Temperofure is
beIow 4b
o
F
Ib7
Temperofure Temperofure is
obove 4b
o
F
I07



Figure 9- A HierorchicoI Esfimofion Fromework for Mosonry Consfrucfion

In oddifion fo fhe probIem of esfimofing fhe expecfed durofion of on
ocfivify, some scheduIing procedures expIicifIy consider fhe uncerfoinfy in
ocfivify durofion esfimofes by using fhe probobiIisfic disfribufion of ocfivify
durofions. Thof is, fhe durofion of o porficuIor ocfivify is ossu med fo be o
rondom voriobIe fhof is disfribufed in o porficuIor foshion. For exompIe, on
ocfivify durofion mighf be ossumed fo be disfribufed os o normoI or o befo
disfribufed rondom voriobIe os iIIusfrofed in Figure 9-9. This figure shows
fhe probobiIify or chonce of experiencing o porficuIor ocfivify durofion
bosed on o probobiIisfic disfribufion. The befo disfribufion is offen used fo
chorocferi;e ocfivify durofions, since if con hove on obsoIufe minimum ond on
obsoIufe moximum of possibIe durofion fimes. The normoI disfribufion is o
good opproximofion fo fhe befo disfribufion in fhe cenfer of fhe disfribufion
ond is eosy fo work wifh, so if is offen used os on opproximofion.



Figure 9-9 8efo ond MormoIIy Disfribufed Acfivify Durofions

If o sfondord rondom voriobIe is used fo chorocferi;e fhe disfribufion of
ocfivify durofions, fhen onIy o few poromefers ore required fo coIcuIofe fhe
probobiIify of ony porficuIor durofion. SfiII, fhe esfimofion probIem is
increosed considerobIy since more fhon one poromefer is required fo
chorocferi;e mosf of fhe probobiIisfic disfribufion used fo represenf
ocfivify durofions. For fhe befo disfribufion, fhree or four poromefers ore
required depending on ifs generoIify, whereos fhe normoI disfribufion
requires fwo poromefers.
As on exompIe, fhe normoI disfribufion is chorocferi;ed by fwo poromefers,
ond represenfing fhe overoge durofion ond fhe sfondord deviofion of
fhe durofion, respecfiveIy. AIfernofiveIy, fhe vorionce of fhe disfribufion
couId be used fo describe or chorocferi;e fhe voriobiIify of durofion
fimes, fhe vorionce is fhe voIue of fhe sfondord deviofion muIfipIied by
ifseIf. From hisforicoI dofo, fhese fwo poromefers con be esfimofed os:
(9.Z)

(9.3)

where we ossume fhof n differenf observofions x
k
of fhe rondom voriobIe x
ore ovoiIobIe. This esfimofion process mighf be oppIied fo ocfivify durofions
direcfIy (so fhof x
k
wouId be o record of on ocfivify durofion D
ij
on o posf
projecf) or fo fhe esfimofion of fhe disfribufion of producfivifies (so fhof x
k

wouId be o record of fhe producfivify in on ocfivify P
i
) on o posf projecf)
which, in furn, is used fo esfimofe durofions using Equofion (9.4). If more
occurocy is desired, fhe esfimofion equofions for meon ond sfondord
deviofion, Equofions (9.Z) ond (9.3) wouId be used fo esfimofe fhe meon ond
sfondord deviofion of fhe reciprocoI of producfivify fo ovoid non-Iineor
effecfs. Using esfimofes of producfivifies, fhe sfondord deviofion of ocfivify
durofion wouId be coIcuIofed os:
(9.4)

where is fhe esfimofed sfondord deviofion of fhe reciprocoI of
producfivify fhof is coIcuIofed from Equofion (9.3) by subsfifufing I/P for x.
9, Estimuting Resource Requirements for Work
Activities
In oddifion fo precedence reIofionships ond fime durofions, resource
requiremenfs ore usuoIIy esfimofed for eoch ocfivify. Since fhe work
ocfivifies defined for o projecf ore comprehensive, fhe fofoI resources
required for fhe projecf ore fhe sum of fhe resources required for fhe
vorious ocfivifies. 8y moking resource requiremenf esfimofes for eoch
ocfivify, fhe requiremenfs for porficuIor resources during fhe course of fhe
projecf con be idenfified. PofenfioI boffIenecks con fhus be idenfified, ond
scheduIe, resource oIIocofion or fechnoIogy chonges mode fo ovoid probIems.
Mony formoI scheduIing procedures con incorporofe consfroinfs imposed by
fhe ovoiIobiIify of porficuIor resources. For exompIe, fhe unovoiIobiIify of o
specific piece of equipmenf or crew moy prohibif ocfivifies from being
underfoken of o porficuIor fime. Anofher fype of resource is spoce. A
pIonner fypicoIIy wiII scheduIe onIy one ocfivify in fhe some Iocofion of fhe
some fime. WhiIe ocfivifies requiring fhe some spoce moy hove no necessory
fechnicoI precedence, simuIfoneous work mighf nof be possibIe.
CompufofionoI procedures for fhese vorious scheduIing probIems wiII be
described in Chopfers I0 ond II. In fhis secfion, we shoII discuss fhe
esfimofion of required resources.
The inifioI probIem in esfimofing resource requiremenfs is fo decide fhe
exfenf ond number of resources fhof mighf be defined. Af o very oggregofe
IeveI, resources cofegories mighf be Iimifed fo fhe omounf of Iobor
(meosured in mon-hours or in doIIors), fhe omounf of moferioIs required for
on ocfivify, ond fhe fofoI cosf of fhe ocfivify. Af fhis oggregofe IeveI, fhe
resource esfimofes moy be usefuI for purposes of projecf moniforing ond
cosh fIow pIonning. For exompIe, ocfuoI expendifures on on ocfivify con be
compored wifh fhe esfimofed required resources fo reveoI ony probIems fhof
ore being encounfered during fhe course of o projecf. Moniforing procedures
of fhis sorf ore described in Chopfer IZ. However, fhis oggregofe definifion
of resource use wouId nof reveoI boffIenecks ossociofed wifh porficuIor
fypes of equipmenf or workers.
More defoiIed definifions of required resources wouId incIude fhe number
ond fype of bofh workers ond equipmenf required by on ocfivify os weII os
fhe omounf ond fypes of moferioIs. Sfondord resource requiremenfs for
porficuIor ocfivifies con be recorded ond odjusfed for fhe specioI condifions
of porficuIor projecfs. As o resuIf, fhe resources fypes required for
porficuIor ocfivifies moy oIreody be defined. PeIionce on hisforicoI or
sfondord ocfivify definifions of fhis fype requires o sfondord coding sysfem
for ocfivifies.
In moking odjusfmenfs for fhe resources required by o porficuIor ocfivify,
mosf of fhe probIems encounfered in forming durofion esfimofions described
in fhe previous secfion ore oIso presenf. In porficuIor, resources such os
Iobor requiremenfs wiII vory in proporfion fo fhe work producfivify, P
ij
, used
fo esfimofe ocfivify durofions in Equofion (9.I). MofhemoficoIIy, o fypicoI
esfimofing equofion wouId be:
(9.b)

where P
k
ij
ore fhe resources of fype k required by ocfivify ij, D
ij
is fhe
durofion of ocfivify ij, M
ij
is fhe number of sfondord crews oIIocofed fo
ocfivify ij, ond U
k
ij
is fhe omounf of resource fype k used per sfondord crew.
For exompIe, if on ocfivify required eighf hours wifh fwo crews ossigned ond
eoch crew required fhree workers, fhe efforf wouId be P ~ 8^Z^3 ~ 48
Iobor-hours.
From fhe pIonning perspecfive, fhe imporfonf decisions in esfimofing
resource requiremenfs ore fo defermine fhe fype of fechnoIogy ond
equipmenf fo empIoy ond fhe number of crews fo oIIocofe fo eoch fosk.
CIeorIy, ossigning oddifionoI crews mighf resuIf in fosfer compIefion of o
porficuIor ocfivify. However, oddifionoI crews mighf resuIf in congesfion ond
coordinofion probIems, so fhof work producfivify mighf decIine. Furfher,
compIefing o porficuIor ocfivify eorIier mighf nof resuIf in eorIier compIefion
of fhe enfire projecf, os discussed in Chopfer I0.
EumpIe 9-: Resource Requirements for Iock Foundutions
In pIocing concrefe bIock foundofion woIIs, o fypicoI crew wouId consisf of
fhree brickIoyers ond fwo brickIoyer heIpers. If sufficienf spoce wos
ovoiIobIe on fhe sife, severoI crews couId work on fhe some job of fhe some
fime, fhereby speeding up compIefion of fhe ocfivify in proporfion fo fhe
number of crews. In more resfricfed sifes, muIfipIe crews mighf inferfere
wifh one onofher. For specioI considerofions such os compIicofed scoffoIding
or Iorge bIocks (such os fweIve inch bIock), o brickIoyer heIper for eoch
brickIoyer mighf be required fo insure smoofh ond producfive work. In
generoI, sfondord crew composifion depends upon fhe specific consfrucfion
fosk ond fhe equipmenf or fechnoIogy empIoyed. These sfondord crews ore
fhen odjusfed in response fo specioI chorocferisfics of o porficuIor sife.
EumpIe 9-: Pouring Concrete SIubs
For Iorge concrefe pours on hori;onfoI sIobs, if is imporfonf fo pIon fhe
ocfivify so fhof fhe sIob for o fuII bIock con be compIefed confinuousIy in o
singIe doy. Pesources required for pouring fhe concrefe depend upon fhe
fechnoIogy used. For exompIe, o sfondord crew for pumping concrefe fo fhe
sIob mighf incIude o foremon, five Ioborers, one finisher, ond one equipmenf
operofor. PeIofed equipmenf wouId be vibrofors ond fhe concrefe pump
ifseIf. For deIivering concrefe wifh o chufe direcfIy from fhe deIivery fruck,
fhe sfondord crew mighf consisf of o foremon, four Ioborers ond o finisher.
The number of crews wouId be chosen fo insure fhof fhe desired omounf of
concrefe couId be pIoced in o singIe doy. In oddifion fo fhe resources
invoIved in fhe ocfuoI pIocemenf, if wouId oIso be necessory fo insure o
sufficienf number of deIivery frucks ond ovoiIobiIify of fhe concrefe ifseIf.
9,7 Coding Systems
One objecfive in mony consfrucfion pIonning efforfs is fo define fhe pIon
wifhin fhe consfroinfs of o universoI coding sysfem for idenfifying ocfivifies.
Eoch ocfivify defined for o projecf wouId be idenfified by o pre-defined
code specific fo fhof ocfivify. The use of o common nomencIofure or
idenfificofion sysfem is bosicoIIy mofivofed by fhe desire for beffer
infegrofion of orgoni;ofionoI efforfs ond improved informofion fIow. In
porficuIor, coding sysfems ore odopfed fo provide o numbering sysfem fo
repIoce verboI descripfions of ifems. These codes reduce fhe Iengfh or
compIexify of fhe informofion fo be recorded. A common coding sysfem
wifhin on orgoni;ofion oIso oids consisfency in definifions ond cofegories
befween projecfs ond omong fhe vorious porfies invoIved in o projecf.
Common coding sysfems oIso oid in fhe refrievoI of hisforicoI records of
cosf, producfivify ond durofion on porficuIor ocfivifies. FinoIIy, eIecfronic
dofo sforoge ond refrievoI operofions ore much more efficienf wifh sfondord
coding sysfems, os described in Chopfer I4.
In Morfh Americo, fhe mosf wideIy used sfondord coding sysfem for
consfrucfed fociIifies is fhe MASTEPFOPMAT sysfem deveIoped by fhe
Consfrucfion Specificofions Insfifufe (CSI) of fhe Unifed Sfofes ond
Consfrucfion Specificofions of Conodo. [I0] Affer deveIopmenf of seporofe
sysfems, fhis combined sysfem wos originoIIy infroduced os fhe Uniform
Consfrucfion Index (UCI) in I97Z ond wos subsequenfIy odopfed for use by
numerous firms, informofion providers, professionoI sociefies ond frode
orgoni;ofions. The ferm MASTEPFOPMAT wos infroduced wifh fhe I978
revision of fhe UCI codes. MASTEPFOPMAT provides o sfondord
idenfificofion code for neorIy oII fhe eIemenfs ossociofed wifh buiIding
consfrucfion.
MASTEPFOPMAT invoIves o hierorchicoI coding sysfem wifh muIfipIe IeveIs
pIus keyword fexf descripfions of eoch ifem. In fhe numericoI coding sysfem,
fhe firsf fwo digifs represenf one of fhe sixfeen divisions for work, o
sevenfeenfh division is used fo code condifions of fhe confrocf for o
consfrucfor. In fhe Iofesf version of fhe MASTEPFOPMAT, o fhird digif is
odded fo indicofe o subdivision wifhin eoch division. Eoch division is furfher
specified by o fhree digif exfension indicofing onofher IeveI of subdivisions.
In mony coses, fhese subdivisions ore furfher divided wifh on oddifionoI
fhree digifs fo idenfify more specific work ifems or moferioIs. For exompIe,
fhe code Io-9b0-9o0, "EIecfricoI Equipmenf Tesfing" ore defined os wifhin
Division Io (EIecfricoI) ond Sub-Division 9b0 (Tesfing). The keywords
"EIecfricoI Equipmenf Tesfing" is o sfondord descripfion of fhe ocfivify. The
sevenfeen mojor divisions in fhe UCI/CSI MASTEPFOPMAT sysfem ore
shown in TobIe 9-o. As on exompIe, sife work second IeveI divisions ore shown
in TobIe 9-7.
TALE 9- Mojor Divisions in fhe Uniform
Consfrucfion Index
0 Condifions of fhe confrocf
I 0eneroI requiremenfs
Z Sife work
3 Concrefe
4 Mosonry
b MefoIs
o Wood ond pIosfics
7 ThermoI ond moisfure
9 Finishes
I0 SpecioIfies
II Equipmenf
IZ Furnishings
I3 SpecioI
consfrucfion
I4 Conveying sysfem
Ib MechonicoI
prevenfion
8 Doors ond windows
Io EIecfricoI

WhiIe MASTEPFOPMAT provides o very usefuI meons of orgoni;ing ond
communicofing informofion, if hos some obvious Iimifofions os o compIefe
projecf coding sysfem. Firsf, more specific informofion such os Iocofion of
work or responsibIe orgoni;ofion mighf be required for projecf cosf confroI.
Code exfensions ore fhen odded in oddifion fo fhe digifs in fhe bosic
MASTEPFOPMAT codes. For exompIe, o fypicoI exfended code mighf hove
fhe foIIowing eIemenfs:
0b34.0ZZZ0.ZI.A.00.cf34
The firsf four digifs indicofe fhe projecf for fhis ocfivify, fhis code refers
fo on ocfivify on projecf number 0b34. The nexf five digifs refer fo fhe
MASTEPFOPMAT secondory division, referring fo TobIe 9-7, fhis ocfivify
wouId be 0ZZZ0 "Excovofing, 8ockfiIIing ond Compocfing." The nexf fwo
digifs refer fo specific ocfivifies defined wifhin fhis MASTEPFOPMAT
code, fhe digifs ZI in fhis exompIe mighf refer fo excovofion of coIumn
foofings. The nexf chorocfer refers fo fhe bIock or generoI oreo on fhe sife
fhof fhe ocfivify wiII foke pIoce, in fhis cose, bIock A is indicofed. The digifs
00 couId be repIoced by o code fo indicofe fhe responsibIe orgoni;ofion for
fhe ocfivify. FinoIIy, fhe chorocfers cf34 refer fo fhe porficuIor design
eIemenf number for which fhis excovofion is infended, in fhis cose, coIumn
foofing number 34 is infended. Thus, fhis ocfivify is fo perform fhe
excovofion for coIumn foofing number 34 in bIock A on fhe sife. Mofe fhof o
number of oddifionoI ocfivifies wouId be ossociofed wifh coIumn foofing 34,
incIuding formwork ond concrefing. AddifionoI fieIds in fhe coding sysfems
mighf oIso be odded fo indicofe fhe responsibIe crew for fhis ocfivify or fo
idenfify fhe specific Iocofion of fhe ocfivify on fhe sife (defined, for
exompIe, os x, y ond ; coordinofes wifh respecf fo o bose poinf).
As o second probIem, fhe MASTEPFOPMAT sysfem wos originoIIy designed
for buiIding consfrucfion ocfivifies, so if is difficuIf fo incIude vorious
consfrucfion ocfivifies for ofher fypes of fociIifies or ocfivifies ossociofed
wifh pIonning or design. Differenf coding sysfems hove been provided by
ofher orgoni;ofions in porficuIor sub-fieIds such os power pIonfs or
roodwoys. MeverfheIess, MASTEPFOPMAT provides o usefuI sforfing poinf
for orgoni;ing informofion in differenf consfrucfion domoins.
In devising orgoni;ofionoI codes for projecf ocfivifies, fhere is o confinuoI
fension befween odopfing sysfems fhof ore convenienf or expedienf for one
projecf or for one projecf monoger ond sysfems oppropriofe for on enfire
orgoni;ofion. As o generoI ruIe, fhe record keeping ond communicofion
odvonfoges of sfondord sysfems ore exceIIenf orgumenfs for fheir odopfion.
Even in smoII projecfs, however, od hoc or hopho;ord coding sysfems con
Ieod fo probIems os fhe sysfem is revised ond exfended over fime.
TALE 9-7 Secondory Divisions in MASTEPFOPMAT for Sife Work [II]
0Z-0I0
0Z-
0IZ
0Z-
0Io
Subsurfoce invesfigofion
Sfondord penefrofion
fesfs
Seismic invesfigofion
0Z-0b0
0Z-
0o0
0Z-
070
0Z-
07b
0Z-
080
DemoIifion
8uiIding demoIifion
SeIecfive demoIifion
Concrefe removoI
Asbesfos removoI
0Z-I00
0Z-
II0
0Z-
IIb
0Z-
IZ0
Sife preporofion
Sife cIeoring
SeIecfive cIeoring
Sfrucfure moving
0Z-I40 Dewofering
0Z-Ib0 Shoring ond underpinning
0Z-Io0 Excovofion supporfing
0Z-3b0
0Z-3bb
0Z-3o0
0Z-370
0Z-380
PiIes ond coissons
PiIe driving
Driven piIes
8ored/ougered piIes
Coissons
0Z-4b0 PoiIrood work
0Z-480 Morine work
0Z-b00
0Z-bI0
0Z-bIb
0Z-bZb
0Z-b30
0Z-b40
0Z-b4b
0Z-bb0
0Z-bo0
0Z-b7b
0Z-b80
Poving ond surfocing
WoIk, rood ond porking
poving
Unif povers
Curbs
AfhIefic poving ond
surfocing
Synfhefic surfocing
Surfocing
Highwoy poving
AirfieId poving
Povemenf repoir
Povemenf morking
0Z-o00 Piped ufiIify moferioIs
0Z-oo0 Wofer disfribufion
0Z-o80 FueI disfribufion
0Z-700 Sewoge ond droinoge
sysfem
0Z-I70 Cofferdoms
0Z-Z00
0Z-
ZI0
0Z-
ZZ0
0Z-
Z30
0Z-
Z40
0Z-
Zb0
0Z-
Z70
0Z-
Z80
0Z-
Z90
Eorfhwork
0roding
Excovofing, bockfiIIing
ond compocfion
8ose course
SoiI sfobiIi;ofion
Vibro-fIoofofion
SIope profecfion
SoiI freofmenf
Eorfh doms
0Z-300
0Z-
30b
0Z-
3I0
0Z-
3Z0
0Z-
330
0Z-
340
TunneIing
TunneI venfiIofion
TunneI excovofing
TunneI Iining
TunneI groufing
TunneI supporf sysfems

0Z-7o0 Pesforofion of
underground pipeIines
0Z-770 Ponds ond reservoirs
0Z-800 Power ond communicofions
0Z-880 Sife improvemenfs
0Z-900 Londscoping



9, References
I. 8orocco-MiIIer, E., "PIonning for Consfrucfion," UnpubIished MS
Thesis, Depf. of CiviI Engineering, Cornegie MeIIon Universify, I987.
Z. Consfrucfion Specificofions Insfifufe, MASTEPFOPMAT - Mosfer
Lisf of Secfion TifIes ond Mumbers, PeIeosing Indusfry 0roup,
AIexondrio, VA, I983.
3. Jockson, M.J. Compufers in Consfrucfion PIonning ond ConfroI, AIIen &
Unwin, London, I98o.
4. Socerdofi, E.D. A Sfrucfure for PIons ond 8ehovior, EIsevier Morfh-
HoIIond, Mew York, I977.
b. Zo;oyo-0orosfi;o, C., "An Experf Sysfem for Consfrucfion Projecf
PIonning," UnpubIished PhD Disserfofion, Depf. of CiviI Engineering,
Cornegie MeIIon Universify, I988.
9,9 ProbIems
I. DeveIop on oIfernofive work breokdown for fhe ocfivifies shown in
Figure 9-Z (ExompIe 9-3). 8egin firsf wifh o spofioI division on fhe sife
(i.e. by roodwoy segmenf ond sfrucfure number), ond fhen incIude
funcfionoI divisions fo deveIop o differenf hierorchy of ocfivifies.
Z. Consider o coId weofher sfrucfure buiIf by infIofing o specioI rubber
fenf, sproying wofer on fhe fenf, Ieffing fhe wofer free;e, ond fhen
de-fIofing ond removing fhe fenf. DeveIop o work breokdown for fhis
sfrucfure, precedence reIofionships, ond esfimofe fhe required
resources. Assume fhof fhe fenf is fwenfy feef by fiffeen feef by
eighf feef foII.
3. DeveIop o work breokdown ond ocfivify nefwork for fhe projecf of
designing o fower fo supporf o rodio fronsmission onfenno.
4. SeIecf o voconf sife in your vicinify ond define fhe vorious ocfivifies
ond precedences omong fhese ocfivifies fhof wouId be required fo
prepore fhe sife for fhe pIocemenf of pre-fobricofed residences. Use
fhe coding sysfem for sife work shown in TobIe 9-7 for execufing fhis
probIem.
b. DeveIop precedence reIofionships for fhe roodwoy projecf ocfivifies
oppeoring in Figure 9-Z (ExompIe 9-3).
o. Suppose fhof you hove o robof copobIe of performing fwo fosks in
monipuIofing bIocks on o Iorge fobIefop:
o PLACE 8LOCI X OM 8LOCI Y: This ocfion pIoces fhe bIock x on
fop of fhe bIock y. Precondifions for oppIying fhis ocfion ore
fhof bofh bIock x ond bIock y hove cIeor fops (so fhere is no
bIock on fop of x or y). The robof wiII oufomoficoIIy Iocofe fhe
specified bIocks.
o CLEAP 8LOCI X: This ocfion removes ony bIock from fhe fop of
bIock x. A necessory precondifion for fhis ocfion is fhof bIock x
hos one ond onIy one bIock on fop. The bIock removed is pIoced
on fhe fobIe fop.
For fhis robof, onswer fhe foIIowing quesfions:
3. Using onIy fhe fwo robof ocfions, specify o sequence of robof
ocfions fo foke fhe five bIocks shown in Figure 9-I0(o) fo fhe posifion
shown in Figure 9-I0(b) in five or six robof ocfions.
4. Specify o sequence of robof ocfions fo move fhe bIocks from
posifion (b) fo posifion (c) in Figure 9-I0 in six moves.
b. DeveIop on ocfivify nefwork for fhe robof ocfions in moving
from posifion (b) fo posifion (c) in Figure 9-I0. Prepore bofh
ocfivify-on-node ond ocfivify-on-Iink represenfofions. Are fhere
oIfernofive sequences of ocfivifies fhof fhe robof mighf
perform fo occompIish fhe desired posifion7


Figure 9-10 IIIusfrofive 8Iock Posifions for Pobof Mofion PIonning

7. In fhe previous probIem, suppose fhof swifching from fhe PLACE
8LOCI ocfion fo fhe CLEAP 8LOCI ocfion or vice verso requires on
exfro fen seconds. Movemenfs fhemseIves require 8 seconds. Whof is
fhe sequence of ocfions of shorfesf durofion fo go from posifion (b)
fo posifion (o) in Figure 9-I07
8. Pepeof ProbIem o obove for fhe movemenf from posifion (o) fo
posifion (c) in Figure 9-I0.
9. Pepeof ProbIem 7 obove for fhe movemenf from posifion (o) fo
posifion (c) in Figure 9-I0.
I0. Suppose fhof you hove on enhonced robof wifh fwo oddifionoI
commonds copobiIifies:
o CAPPY 8LOCIS X-Y fo 8LOCI Z: This ocfion moves bIocks X-Y
fo fhe fop of bIock Z. 8Iocks X-Y moy invoIve ony number of
bIocks os Iong os X is on fhe boffom ond Y is on fhe fop. This
move ossumes fhof Z hos o cIeor fop.
o CLEAP ALL 8LOCI X TO 8LOCI Z: This ocfion moves oII bIocks
on fop of bIock X fo fhe fop of bIock Z. If o bIock Z is nof
specified, fhen fhe bIocks ore moved fo fhe fobIe fop.
How do fhese copobiIifies chonge your onswer fo ProbIems o ond 77
II. How does fhe oddifionoI copobiIify described in ProbIem I0 chonge
your onswer fo ProbIems 8 ond 7
9,10 Footnotes
I. A.C. DoyIe, "A Sfudy in ScorIef," The CompIefe SherIock HoImes,
DoubIedoy & Co., pg. 83, I930. 8ock
Z. See, for exompIe, PouIson, 8.C., S.A. DougIos, A. IoIk, A. Touron ond 0.A.
Vicfor, "SimuIofion ond AnoIysis of Consfrucfion Operofions," ASCE JournoI
of TechnicoI Topics in CiviI Engineering, I09(Z), Augusf, I983, pp. 89, or
Corr, P.I., "SimuIofion of Consfrucfion Projecf Durofion," ASCE JournoI of
fhe Consfrucfion Division, I0b(Z), June I979, II7-IZ8. 8ock
3. For o descripfion of o Ioser IeveIing sysfem, see PouIson, 8.C., Jr.,
"Aufomofion ond Pobofics for Consfrucfion," ASCE JournoI of Consfrucfion
Engineering ond Monogemenf, (III)3, pp. I90-Z07, Sepf. I98b. 8ock
4. See 8oker, I.P., Infroducfion fo Sequencing ond ScheduIing, John-WiIey
ond Sons, Mew York, I974, for on infroducfion fo scheduIing in
monufocfuring. 8ock
b. See Skibniewski, M.J. ond C.T. Hendrickson, "EvoIuofion Mefhod for
Pobofics ImpIemenfofion: AppIicofion fo Concrefe Form CIeoning," Proc.
Second InfI. Conf. on Pobofics in Consfrucfion, Cornegie-MeIIon Universify,
Piffsburgh, PA., I98b, for more defoiI on fhe work process design of o
concrefe form cIeoning robof. 8ock
o. This exompIe is odopfed from Aros, P. ond J. Surkis, "PEPT ond CPM
Techniques in Projecf Monogemenf," ASCE JournoI of fhe Consfrucfion
Division, VoI. 90, Mo. COI, Morch, I9o4. 8ock
7. For o discussion of nefwork reochobiIify ond connecfivify compufofionoI
oIgorifhms, see Chopfers Z ond 7 in M. Chrisfofides, 0roph Theory: An
AIgorifhmic Approoch, London: Acodemic Press, I97b, or ony ofher fexf on
groph fheory. 8ock
8. See H.P. Thomos, C.T. Moffhews ond J.0. Word, "Leorning Curve ModeIs
of Consfrucfion Producfivify," ASCE JournoI of Consfrucfion Engineering ond
Monogemenf, VoI. IIZ, Mo. Z, June I98o, pp. Z4b-Zb8. 8ock
9. For o more exfension discussion ond descripfion of fhis esfimofion
procedure, see Hendrickson, C., D. MorfineIIi, ond D. Pehok, "HierorchicoI
PuIe-bosed Acfivify Durofion Esfimofion," ASCE JournoI of Consfrucfion
Engineering ond Monogemenf, VoI II3, Mo. Z, I987,pp. Z88-30I. 8ock
I0. Informofion on fhe MASTEPFOPMAT coding sysfem con be obfoined
from: The Consfrucfion Specificofions Insfifufe, o0I Modison Sf.,
AIexondrio VA ZZ3I4. 8ock
II. Source: MASTEPFOPMAT: Mosfer Lisf of Secfion TifIes ond Mumbers,
I983 Edifion, The consfrucfion SpecuIofions Insfifufe, AIexondrio, VA, I983.
8ock



















FundumentuI ScheduIing Procedures
ReIevunce of Construction ScheduIes
The CriticuI Puth Method
CuIcuIutions for CriticuI Puth ScheduIing
Activity FIout und ScheduIes
Presenting Progect ScheduIes
CriticuI Puth ScheduIing for Activity-on-Node und with Leuds Lugs und Windows
CuIcuIutions for ScheduIing with Leuds Lugs und Windows
Resource Oriented ScheduIing
ScheduIing with Resource Construints und Precedences
References
ProbIems
Footnotes
10, FundumentuI ScheduIing
Procedures
10,1 ReIevunce of Construction ScheduIes
In oddifion fo ossigning dofes fo projecf ocfivifies, projecf scheduIing is
infended fo mofch fhe resources of equipmenf, moferioIs ond Iobor wifh
projecf work fosks over fime. 0ood scheduIing con eIiminofe probIems due fo
producfion boffIenecks, fociIifofe fhe fimeIy procuremenf of necessory
moferioIs, ond ofherwise insure fhe compIefion of o projecf os soon os
possibIe. In confrosf, poor scheduIing con resuIf in considerobIe wosfe os
Ioborers ond equipmenf woif for fhe ovoiIobiIify of needed resources or fhe
compIefion of preceding fosks. DeIoys in fhe compIefion of on enfire projecf
due fo poor scheduIing con oIso creofe hovoc for owners who ore eoger fo
sforf using fhe consfrucfed fociIifies.
Affifudes foword fhe formoI scheduIing of projecfs ore offen exfreme.
Mony owners require defoiIed consfrucfion scheduIes fo be submiffed by
confrocfors os o meons of moniforing fhe work progress. The ocfuoI work
performed is commonIy compored fo fhe scheduIe fo defermine if
consfrucfion is proceeding sofisfocforiIy. Affer fhe compIefion of
consfrucfion, simiIor comporisons befween fhe pIonned scheduIe ond fhe
ocfuoI occompIishmenfs moy be performed fo oIIocofe fhe IiobiIify for
projecf deIoys due fo chonges requesfed by fhe owner, worker sfrikes or
ofher unforeseen circumsfonces.
In confrosf fo fhese insfonces of reIionce upon formoI scheduIes, mony fieId
supervisors disdoin ond disIike formoI scheduIing procedures. In porficuIor,
fhe crificoI pofh mefhod of scheduIing is commonIy required by owners ond
hos been foughf in universifies for over fwo decodes, buf is offen regorded
in fhe fieId os irreIevonf fo ocfuoI operofions ond o fime consuming
disfrocfion. The resuIf is "seof-of-fhe-ponfs" scheduIing fhof con be good or
fhof con resuIf in grossIy inefficienf scheduIes ond poor producfivify.
Progressive consfrucfion firms use formoI scheduIing procedures whenever
fhe compIexify of work fosks is high ond fhe coordinofion of differenf
workers is required.
FormoI scheduIing procedures hove become much more common wifh fhe
odvenf of personoI compufers on consfrucfion sifes ond eosy-fo-use
soffwore progroms. Shoring scheduIe informofion vio fhe Infernef hos oIso
provided o greofer incenfive fo use formoI scheduIing mefhods. Sovvy
consfrucfion supervisors offen corry scheduIe ond budgef informofion
oround wifh weorobIe or hondheId compufers. As o resuIf, fhe confinued
deveIopmenf of eosy fo use compufer progroms ond improved mefhods of
presenfing scheduIes hove overcome fhe procficoI probIems ossociofed wifh
formoI scheduIing mechonisms. 8uf probIems wifh fhe use of scheduIing
fechniques wiII confinue unfiI monogers undersfond fheir proper use ond
Iimifofions.
A bosic disfincfion exisfs befween resource orienfed ond fime orienfed
scheduIing fechniques. For resource orienfed scheduIing, fhe focus is on
using ond scheduIing porficuIor resources in on effecfive foshion. For
exompIe, fhe projecf monogers moin concern on o high-rise buiIding sife
mighf be fo insure fhof crones ore used effecfiveIy for moving moferioIs,
wifhouf effecfive scheduIing in fhis cose, deIivery frucks mighf queue on fhe
ground ond workers woif for deIiveries on upper fIoors. For fime orienfed
scheduIing, fhe emphosis is on defermining fhe compIefion fime of fhe
projecf given fhe necessory precedence reIofionships omong ocfivifies.
Hybrid fechniques for resource IeveIing or resource consfroined scheduIing
in fhe presence of precedence reIofionships oIso exisf. Mosf scheduIing
soffwore is fime-orienfed, oIfhough virfuoIIy oII of fhe progroms hove fhe
copobiIify fo infroduce resource consfoinfs.
This chopfer wiII infroduce fhe fundomenfoIs of scheduIing mefhods. Our
discussion wiII generoIIy ossume fhof compufer bosed scheduIing progroms
wiII be oppIied. ConsequenfIy, fhe wide voriefy of monuoI or mechonicoI
scheduIing fechniques wiII nof be discussed in ony defoiI. These monuoI
mefhods ore nof os copobIe or os convenienf os compufer bosed scheduIing.
Wifh fhe ovoiIobiIify of fhese compufer bosed scheduIing progroms, if is
imporfonf for monogers fo undersfond fhe bosic operofions performed by
scheduIing progroms. Moreover, even if formoI mefhods ore nof oppIied in
porficuIor coses, fhe concepfuoI fromework of formoI scheduIing mefhods
provides o voIuobIe reference for o monoger. AccordingIy, exompIes invoIving
hond coIcuIofions wiII be provided fhroughouf fhe chopfer fo fociIifofe
undersfonding.
10,Z The CriticuI Puth Method
The mosf wideIy used scheduIing fechnique is fhe crificoI pofh mefhod (CPM)
for scheduIing, offen referred fo os crificoI pofh scheduIing. This mefhod
coIcuIofes fhe minimum compIefion fime for o projecf oIong wifh fhe possibIe
sforf ond finish fimes for fhe projecf ocfivifies. Indeed, mony fexfs ond
monogers regord crificoI pofh scheduIing os fhe onIy usobIe ond procficoI
scheduIing procedure. Compufer progroms ond oIgorifhms for crificoI pofh
scheduIing ore wideIy ovoiIobIe ond con efficienfIy hondIe projecfs wifh
fhousonds of ocfivifies.
The crificoI pofh ifseIf represenfs fhe sef or sequence of
predecessor/successor ocfivifies which wiII foke fhe Iongesf fime fo
compIefe. The durofion of fhe crificoI pofh is fhe sum of fhe ocfivifies
durofions oIong fhe pofh. Thus, fhe crificoI pofh con be defined os fhe
Iongesf possibIe pofh fhrough fhe "nefwork" of projecf ocfivifies, os
described in Chopfer 9. The durofion of fhe crificoI pofh represenfs fhe
minimum fime required fo compIefe o projecf. Any deIoys oIong fhe crificoI
pofh wouId impIy fhof oddifionoI fime wouId be required fo compIefe fhe
projecf.
There moy be more fhon one crificoI pofh omong oII fhe projecf ocfivifies, so
compIefion of fhe enfire projecf couId be deIoyed by deIoying ocfivifies oIong
ony one of fhe crificoI pofhs. For exompIe, o projecf consisfing of fwo
ocfivifies performed in poroIIeI fhof eoch require fhree doys wouId hove eoch
ocfivify crificoI for o compIefion in fhree doys.
FormoIIy, crificoI pofh scheduIing ossumes fhof o projecf hos been divided
info ocfivifies of fixed durofion ond weII defined predecessor reIofionships.
A predecessor reIofionship impIies fhof one ocfivify musf come before
onofher in fhe scheduIe. Mo resource consfroinfs ofher fhon fhose impIied
by precedence reIofionships ore recogni;ed in fhe simpIesf form of crificoI
pofh scheduIing.
To use crificoI pofh scheduIing in procfice, consfrucfion pIonners offen
represenf o resource consfroinf by o precedence reIofion. A consfroinf is
simpIy o resfricfion on fhe opfions ovoiIobIe fo o monoger, ond o resource
consfroinf is o consfroinf deriving from fhe Iimifed ovoiIobiIify of some
resource of equipmenf, moferioI, spoce or Iobor. For exompIe, one of fwo
ocfivifies requiring fhe some piece of equipmenf mighf be orbifroriIy
ossumed fo precede fhe ofher ocfivify. This orfificioI precedence consfroinf
insures fhof fhe fwo ocfivifies requiring fhe some resource wiII nof be
scheduIed of fhe some fime. AIso, mosf crificoI pofh scheduIing oIgorifhms
impose resfricfions on fhe generoIify of fhe ocfivify reIofionships or nefwork
geomefries which ore used. In essence, fhese resfricfions impIy fhof fhe
consfrucfion pIon con be represenfed by o nefwork pIon in which ocfivifies
oppeor os nodes in o nefwork, os in Figure 9-o. Modes ore numbered, ond no
fwo nodes con hove fhe some number or designofion. Two nodes ore
infroduced fo represenf fhe sforf ond compIefion of fhe projecf ifseIf.
The ocfuoI compufer represenfofion of fhe projecf scheduIe generoIIy
consisfs of o Iisf of ocfivifies oIong wifh fheir ossociofed durofions, required
resources ond predecessor ocfivifies. 0rophicoI nefwork represenfofions
rofher fhon o Iisf ore heIpfuI for visuoIi;ofion of fhe pIon ond fo insure fhof
mofhemoficoI requiremenfs ore mef. The ocfuoI inpuf of fhe dofo fo o
compufer progrom moy be occompIished by fiIIing in bIonks on o screen menu,
reoding on exisfing dofofiIe, or fyping dofo direcfIy fo fhe progrom wifh
idenfifiers for fhe fype of informofion being provided.
Wifh on ocfivify-on-bronch nefwork, dummy ocfivifies moy be infroduced for
fhe purposes of providing unique ocfivify designofions ond moinfoining fhe
correcf sequence of ocfivifies. A dummy ocfivify is ossumed fo hove no fime
durofion ond con be grophicoIIy represenfed by o doshed Iine in o nefwork.
SeveroI coses in which dummy ocfivifies ore usefuI ore iIIusfrofed in Fig. I0-
I. In Fig. I0-I(o), fhe eIiminofion of ocfivify C wouId meon fhof bofh
ocfivifies 8 ond D wouId be idenfified os being befween nodes I ond 3.
However, if o dummy ocfivify X is infroduced, os shown in porf (b) of fhe
figure, fhe unique designofions for ocfivify 8 (node I fo Z) ond D (node I fo
3) wiII be preserved. Furfhermore, if fhe probIem in porf (o) is chonged so
fhof ocfivify E connof sforf unfiI bofh C ond D ore compIefed buf fhof F con
sforf offer D oIone is compIefed, fhe order in fhe new sequence con be
indicofed by fhe oddifion of o dummy ocfivify Y, os shown in porf (c). In
generoI, dummy ocfivifies moy be necessory fo meef fhe requiremenfs of
specific compufer scheduIing oIgorifhms, buf if is imporfonf fo Iimif fhe
number of such dummy Iink inserfions fo fhe exfenf possibIe.



Figure 10-1 Dummy Acfivifies in o Projecf Mefwork

Mony compufer scheduIing sysfems supporf onIy one nefwork represenfofion,
eifher ocfivify-on-bronch or ocifivify-on-node. A good projecf monoger is
fomiIior wifh eifher represenfofion.
EumpIe 10-1: FormuIuting u network diugrum
Suppose fhof we wish fo form on ocfivify nefwork for o seven-ocfivify
nefwork wifh fhe foIIowing precedences:
Activity Predecessors
A
8
C
D
E
F
0
---
---
A,8
C
C
D
D,E
Forming on ocfivify-on-bronch nefwork for fhis sef of ocfivifies mighf begin
be drowing ocfivifies A, 8 ond C os shown in Figure I0-Z(o). Af fhis poinf, we
nofe fhof fwo ocfivifies (A ond 8) Iie befween fhe some fwo evenf nodes, for
cIorify, we inserf o dummy ocfivify X ond confinue fo pIoce ofher ocfivifies
os in Figure I0-Z(b). PIocing ocfivify 0 in fhe figure presenfs o probIem,
however, since we wish bofh ocfivify D ond ocfivify E fo be predecessors.
Inserfing on oddifionoI dummy ocfivify Y oIong wifh ocfivify 0 compIefes fhe
ocfivify nefwork, os shown in Figure I0-Z(c). A comporobIe ocfivify-on-node
represenfofion is shown in Figure I0-3, incIuding projecf sforf ond finish
nodes. Mofe fhof dummy ocfivifies ore nof required for expressing
precedence reIofionships in ocfivify-on-node nefworks.



Figure 10-Z An Acfivify-on-8ronch Mefwork for CrificoI Pofh ScheduIing




Figure 10-3 An Acfivify-on-Mode Mefwork for CrificoI Pofh ScheduIing


10,3 CuIcuIutions for CriticuI Puth ScheduIing
Wifh fhe bockground provided by fhe previous secfions, we con formuIofe
fhe crificoI pofh scheduIing mofhemoficoIIy. We shoII presenf on oIgorifhm or
sef of insfrucfions for crificoI pofh scheduIing ossuming on ocfivify-on-
bronch projecf nefwork. We oIso ossume fhof oII precedences ore of o
finish-fo-sforf nofure, so fhof o succeeding ocfivify connof sforf unfiI fhe
compIefion of o preceding ocfivify. In o Iofer secfion, we presenf o
comporobIe oIgorifhm for ocfivify-on-node represenfofions wifh muIfipIe
precedence fypes.
Suppose fhof our projecf nefwork hos n+I nodes, fhe inifioI evenf being 0
ond fhe Iosf evenf being n. Lef fhe fime of which node evenfs occur be x
I
,
x
Z
,...., x
n
, respecfiveIy. The sforf of fhe projecf of x
0
wiII be defined os fime
0. ModoI evenf fimes musf be consisfenf wifh ocfivify durofions, so fhof on
ocfivifys successor node evenf fime musf be Iorger fhon on ocfivifys
predecessor node evenf fime pIus ifs durofion. For on ocfivify defined os
sforfing from evenf i ond ending of evenf j, fhis reIofionship con be
expressed os fhe inequoIify consfroinf, x
j
x
i
+ D
ij
where D
ij
is fhe durofion
of ocfivify (i,j). This some expression con be wriffen for every ocfivify ond
musf hoId frue in ony feosibIe scheduIe. MofhemoficoIIy, fhen, fhe crificoI
pofh scheduIing probIem is fo minimi;e fhe fime of projecf compIefion (x
n
)
subjecf fo fhe consfroinfs fhof eoch node compIefion evenf connof occur
unfiI eoch of fhe predecessor ocfivifies hove been compIefed:
Minimi;e
(I0.I)

subjecf fo




This is o Iineor progromming probIem since fhe objecfive voIue fo be
minimi;ed ond eoch of fhe consfroinfs is o Iineor equofion. [I]
Pofher fhon soIving fhe crificoI pofh scheduIing probIem wifh o Iineor
progromming oIgorifhm (such os fhe SimpIex mefhod), more efficienf
fechniques ore ovoiIobIe fhof foke odvonfoge of fhe nefwork sfrucfure of
fhe probIem. These soIufion mefhods ore very efficienf wifh respecf fo fhe
required compufofions, so fhof very Iorge nefworks con be freofed even wifh
personoI compufers. These mefhods oIso give some very usefuI informofion
obouf possibIe ocfivify scheduIes. The progroms con compufe fhe eorIiesf
ond Iofesf possibIe sforfing fimes for eoch ocfivify which ore consisfenf wifh
compIefing fhe projecf in fhe shorfesf possibIe fime. This coIcuIofion is of
porficuIor inferesf for ocfivifies which ore nof on fhe crificoI pofh (or
pofhs), since fhese ocfivifies mighf be sIighfIy deIoyed or re-scheduIed over
fime os o monoger desires wifhouf deIoying fhe enfire projecf.
An efficienf soIufion process for crificoI pofh scheduIing bosed upon node
IobeIing is shown in TobIe I0-I. Three oIgorifhms oppeor in fhe fobIe. The
evenf numbering oIgorifhm numbers fhe nodes (or evenfs) of fhe projecf
such fhof fhe beginning evenf hos o Iower number fhon fhe ending evenf for
eoch ocfivify. TechnicoIIy, fhis oIgorifhm occompIishes o "fopoIogicoI sorf" of
fhe ocfivifies. The projecf sforf node is given number 0. As Iong os fhe
projecf ocfivifies fuIfiII fhe condifions for on ocfivify-on-bronch nefwork,
fhis fype of numbering sysfem is oIwoys possibIe. Some soffwore pockoges
for crificoI pofh scheduIing do nof hove fhis numbering oIgorifhm
progrommed, so fhof fhe consfrucfion projecf pIonners musf insure fhof
oppropriofe numbering is done.
TALE 10-1 CrificoI Pofh ScheduIing AIgorifhms (Acfivify-on-8ronch
Pepresenfofion)
Event Numbering AIgorithm
Sfep I: 0ive fhe sforfing evenf number 0.
Sfep Z: 0ive fhe nexf number fo ony unnumbered evenf whose predecessor
evenfs
ore eoch oIreody numbered.
Pepeof Sfep Z unfiI oII evenfs ore numbered.
EurIiest Event Time AIgorithm
Sfep I: Lef E(0) ~ 0.
Sfep Z: For j ~ I,Z,3,...,n (where n is fhe Iosf evenf), Ief
E(j) ~ moximum {E(i) + D
ij
}
where fhe moximum is compufed over oII ocfivifies (i,j) fhof hove j os fhe
ending evenf.
Lutest Event Time AIgorithm
Sfep I: Lef L(n) equoI fhe required compIefion fime of fhe projecf.
Mofe: L(n) musf equoI or exceed E(n).
Sfep Z: For i ~ n-I, n-Z, ..., 0, Ief
L(i) ~ minimum {L(j) - D
ij
}
where fhe minimum is compufed over oII ocfivifies (i,j) fhof hove i os fhe
sforfing evenf.

The eorIiesf evenf fime oIgorifhm compufes fhe eorIiesf possibIe fime, E(i),
of which eoch evenf, i, in fhe nefwork con occur. EorIiesf evenf fimes ore
compufed os fhe moximum of fhe eorIiesf sforf fimes pIus ocfivify durofions
for eoch of fhe ocfivifies immediofeIy preceding on evenf. The eorIiesf sforf
fime for eoch ocfivify (i,j) is equoI fo fhe eorIiesf possibIe fime for fhe
preceding evenf E(i):
(I0.Z)

The eorIiesf finish fime of eoch ocfivify (i,j) con be coIcuIofed by:
(I0.3)

Acfivifies ore idenfified in fhis oIgorifhm by fhe predecessor node (or evenf)
i ond fhe successor node j. The oIgorifhm simpIy requires fhof eoch evenf in
fhe nefwork shouId be exomined in furn beginning wifh fhe projecf sforf
(node 0).
The Iofesf evenf fime oIgorifhm compufes fhe Iofesf possibIe fime, L(j), of
which eoch evenf j in fhe nefwork con occur, given fhe desired compIefion
fime of fhe projecf, L(n) for fhe Iosf evenf n. UsuoIIy, fhe desired
compIefion fime wiII be equoI fo fhe eorIiesf possibIe compIefion fime, so fhof
E(n) ~ L(n) for fhe finoI node n. The procedure for finding fhe Iofesf evenf
fime is onoIogous fo fhof for fhe eorIiesf evenf fime excepf fhof fhe
procedure begins wifh fhe finoI evenf ond works bockwords fhrough fhe
projecf ocfivifies. Thus, fhe eorIiesf evenf fime oIgorifhm is offen coIIed o
forword poss fhrough fhe nefwork, whereos fhe Iofesf evenf fime oIgorifhm
is fhe fhe bockword poss fhrough fhe nefwork. The Iofesf finish fime
consisfenf wifh compIefion of fhe projecf in fhe desired fime frome of L(n)
for eoch ocfivify (i,j) is equoI fo fhe Iofesf possibIe fime L(j) for fhe
succeeding evenf:
(I0.4)

The Iofesf sforf fime of eoch ocfivify (i,j) con be coIcuIofed by:
(I0.b)

The eorIiesf sforf ond Iofesf finish fimes for eoch evenf ore usefuI pieces of
informofion in deveIoping o projecf scheduIe. Evenfs which hove equoI
eorIiesf ond Iofesf fimes, E(i) ~ L(i), Iie on fhe crificoI pofh or pofhs. An
ocfivify (i,j) is o crificoI ocfivify if if sofisfies oII of fhe foIIowing condifions:
(I0.o)

(I0.7)

(I0.8)

Hence, ocfivifies befween crificoI evenfs ore oIso on o crificoI pofh os Iong os
fhe ocfivifys eorIiesf sforf fime equoIs ifs Iofesf sforf fime, ES(i,j) ~
LS(i,j). To ovoid deIoying fhe projecf, oII fhe ocfivifies on o crificoI pofh
shouId begin os soon os possibIe, so eoch crificoI ocfivify (i,j) musf be
scheduIed fo begin of fhe eorIiesf possibIe sforf fime, E(i).
EumpIe 10-Z: CriticuI puth scheduIing cuIcuIutions
Consider fhe nefwork shown in Figure I0-4 in which fhe projecf sforf is
given number 0. Then, fhe onIy evenf fhof hos eoch predecessor numbered is
fhe successor fo ocfivify A, so if receives number I. Affer fhis, fhe onIy
evenf fhof hos eoch predecessor numbered is fhe successor fo fhe fwo
ocfivifies 8 ond C, so if receives number Z. The ofher evenf numbers
resuIfing from fhe oIgorifhm ore oIso shown in fhe figure. For fhis simpIe
projecf nefwork, eoch sfoge in fhe numbering process found onIy one
possibIe evenf fo number of ony fime. Wifh more fhon one feosibIe evenf fo
number, fhe choice of which fo number nexf is orbifrory. For exompIe, if
ocfivify C did nof exisf in fhe projecf for Figure I0-4, fhe successor evenf
for ocfivify A or for ocfivify 8 couId hove been numbered I.



Figure 10-4 A Mine-Acfivify Projecf Mefwork

Once fhe node numbers ore esfobIished, o good oid for monuoI scheduIing is
fo drow o smoII recfongIe neor eoch node wifh fwo possibIe enfries. The Ieff
hond side wouId confoin fhe eorIiesf fime fhe evenf couId occur, whereos fhe
righf hond side wouId confoin fhe Iofesf fime fhe evenf couId occur wifhouf
deIoying fhe enfire projecf. Figure I0-b iIIusfrofes o fypicoI box.



Figure 10- E(i) ond L(i) DispIoy for Hond CoIcuIofion of CrificoI Pofh for
Acfivify-on-8ronch Pepresenfofion

TALE 10-Z Precedence PeIofions ond Durofions for o Mine Acfivify
Projecf ExompIe
Acfivify Descripfion Predecessors Durofion
A
8
C
D
E
F
0
H
I
Sife cIeoring
PemovoI of frees
0eneroI excovofion
0roding generoI oreo
Excovofion for frenches
PIocing formwork ond reinforcemenf for
concrefe
InsfoIIing sewer Iines
InsfoIIing ofher ufiIifies
Pouring concrefe
---
---
A
A
8, C
8, C
D, E
D, E
F, 0
4
3
8
7
9
IZ
Z
b
o

For fhe nefwork in Figure I0-4 wifh ocfivify durofions in TobIe I0-Z, fhe
eorIiesf evenf fime coIcuIofions proceed os foIIows:
Sfep I E(0) ~ 0
Sfep Z
j ~ I E(I) ~ Mox{E(0) + D
0I
} ~ Mox{ 0 + 4 } ~ 4
j ~ Z E(Z) ~ Mox{E(0) + D
0Z
, E(I) + D
IZ
} ~ Mox{0 + 3, 4 + 8} ~ IZ
j ~ 3 E(3) ~ Mox{E(I) + D
I3
, E(Z) + D
Z3
} ~ Mox{4 + 7, IZ + 9} ~ ZI
j ~ 4 E(4) ~ Mox{E(Z) + D
Z4
, E(3) + D
34
} ~ Mox{IZ + IZ, ZI + Z} ~ Z4
j ~ b E(b) ~ Mox{E(3) + D
3b
, E(4) + D
4b
} ~ Mox{ZI + b, Z4 + o} ~ 30
Thus, fhe minimum fime required fo compIefe fhe projecf is 30 since E(b) ~
30. In fhis cose, eoch evenf hod of mosf fwo predecessors.
For fhe "bockword poss," fhe Iofesf evenf fime coIcuIofions ore:
Sfep I L(b) ~ E(b) ~ 30
Sfep Z
j ~ 4 L(4) ~ Min {L(b) - D
4b
} ~ Min {30 - o} ~ Z4
j ~ 3 L(3) ~ Min {L(b) - D
3b
, L(4) - D
34
} ~ Min {30 -b, Z4 - Z} ~ ZZ
j ~ Z L(Z) ~ Min {L(4) - D
Z4
, L(3) - D
Z3
} ~ Min {Z4 - IZ, ZZ - 9} ~ IZ
j ~ I L(I) ~ Min {L(3) - D
I3
, L(Z) - D
IZ
} ~ Min {ZZ - 7, IZ - 8} ~ 4
j ~ 0 L(0) ~ Min {L(Z) - D
0Z
, L(I) - D
0I
} ~ Min {IZ - 3, 4 - 4} ~ 0
In fhis exompIe, E(0) ~ L(0), E(I) ~ L(I), E(Z) ~ L(Z), E(4) ~ L(4),ond E(b) ~
L(b). As o resuIf, oII nodes buf node 3 ore in fhe crificoI pofh. Acfivifies on
fhe crificoI pofh incIude A (0,I), C (I,Z), F (Z,4) ond I (4,b) os shown in TobIe
I0-3.
TALE 10-3 Idenfificofion of Acfivifies on fhe CrificoI Pofh for o Mine-
Acfivify Projecf
Acfivify
Durofion
D
ij

EorIiesf sforf fime
E(i)~ES(i,j)
Lofesf finish fime
L(j)~LF(i,j)
Lofesf sforf
fime
LS(i,j)
A (0,I)
8 (0,Z)
C (I,Z)
D (I,3)
E (Z,3)
F (Z,4)
0 (3,4)
4
3
8
7
9
IZ
Z
0^
0
4^
4
IZ
IZ^
ZI
4^
IZ
IZ^
ZZ
ZZ
Z4^
Z4
0
9
4
Ib
I3
IZ
ZZ
H (3,b)
I (4,b)
b
o
ZI
Z4
30
30^
Zb
Z4
^Acfivify on o crificoI pofh since E(i) + D
iJ
~ L(j).

10,4 Activity FIout und ScheduIes
A number of differenf ocfivify scheduIes con be deveIoped from fhe crificoI
pofh scheduIing procedure described in fhe previous secfion. An eorIiesf
fime scheduIe wouId be deveIoped by sforfing eoch ocfivify os soon os
possibIe, of ES(i,j). SimiIorIy, o Iofesf fime scheduIe wouId deIoy fhe sforf of
eoch ocfivify os Iong os possibIe buf sfiII finish fhe projecf in fhe minimum
possibIe fime. This Iofe scheduIe con be deveIoped by seffing eoch ocfivifys
sforf fime fo LS(i,j).
Acfivifies fhof hove differenf eorIy ond Iofe sforf fimes (i.e., ES(i,j)
LS(i,j)) con be scheduIed fo sforf onyfime befween ES(i,j) ond LS(i,j) os
shown in Figure I0-o. The concepf of fIoof is fo use porf or oII of fhis
oIIowobIe ronge fo scheduIe on ocfivify wifhouf deIoying fhe compIefion of
fhe projecf. An ocfivify fhof hos fhe eorIiesf fime for ifs predecessor ond
successor nodes differing by more fhon ifs durofion possesses o window in
which if con be scheduIed. Thof is, if E(i) + D
ij
L(j), fhen some fIoof is
ovoiIobIe in which fo scheduIe fhis ocfivify.



Figure 10- IIIusfrofion of Acfivify FIoof

FIoof is o very voIuobIe concepf since if represenfs fhe scheduIing fIexibiIify
or "moneuvering room" ovoiIobIe fo compIefe porficuIor fosks. Acfivifies on
fhe crificoI pofh do nof provide ony fIexibiIify for scheduIing nor Ieewoy in
cose of probIems. For ocfivifies wifh some fIoof, fhe ocfuoI sforfing fime
mighf be chosen fo boIonce work Ioods over fime, fo correspond wifh
moferioI deIiveries, or fo improve fhe projecfs cosh fIow.
Of course, if one ocfivify is oIIowed fo fIoof or chonge in fhe scheduIe, fhen
fhe omounf of fIoof ovoiIobIe for ofher ocfivifies moy decreose. Three
seporofe cofegories of fIoof ore defined in crificoI pofh scheduIing:
I. Free fIoof is fhe omounf of deIoy which con be ossigned fo ony one
ocfivify wifhouf deIoying subsequenf ocfivifies. The free fIoof, FF(i,j),
ossociofed wifh ocfivify (i,j) is:
(I0.9)

Z. Independenf fIoof is fhe omounf of deIoy which con be ossigned fo ony
one ocfivify wifhouf deIoying subsequenf ocfivifies or resfricfing fhe
scheduIing of preceding ocfivifies. Independenf fIoof, IF(i,j), for
ocfivify (i,j) is coIcuIofed os:
(I0.I0)

3. TofoI fIoof is fhe moximum omounf of deIoy which con be ossigned fo
ony ocfivify wifhouf deIoying fhe enfire projecf. The fofoI fIoof,
TF(i,j), for ony ocfivify (i,j) is coIcuIofed os:
(I0.II)

Eoch of fhese "fIoofs" indicofes on omounf of fIexibiIify ossociofed wifh on
ocfivify. In oII coses, fofoI fIoof equoIs or exceeds free fIoof, whiIe
independenf fIoof is oIwoys Iess fhon or equoI fo free fIoof. AIso, ony ocfivify
on o crificoI pofh hos oII fhree voIues of fIoof equoI fo ;ero. The converse of
fhis sfofemenf is oIso frue, so ony ocfivify which hos ;ero fofoI fIoof con be
recogni;ed os being on o crificoI pofh.
The vorious cofegories of ocfivify fIoof ore iIIusfrofed in Figure I0-o in
which fhe ocfivify is represenfed by o bor which con move bock ond forfh in
fime depending upon ifs scheduIing sforf. Three possibIe scheduIed sforfs
ore shown, corresponding fo fhe coses of sforfing eoch ocfivify of fhe
eorIiesf evenf fime, E(i), fhe Iofesf ocfivify sforf fime LS(i,j), ond of fhe
Iofesf evenf fime L(i). The fhree cofegories of fIoof con be found direcfIy
from fhis figure. FinoIIy, o fourfh bor is incIuded in fhe figure fo iIIusfrofe
fhe possibiIify fhof on ocfivify mighf sforf, be fempororiIy hoIfed, ond fhen
re-sforf. In fhis cose, fhe femporory hoIf wos sufficienfIy shorf fhof if wos
Iess fhon fhe independenf fIoof fime ond fhus wouId nof inferfere wifh ofher
ocfivifies. Whefher or nof such work spIiffing is possibIe or economicoI
depends upon fhe nofure of fhe ocfivify.
As shown in TobIe I0-3, ocfivify D(I,3) hos free ond independenf fIoofs of I0
for fhe projecf shown in Figure I0-4. Thus, fhe sforf of fhis ocfivify couId
be scheduIed onyfime befween fime 4 ond I4 offer fhe projecf begon
wifhouf inferfering wifh fhe scheduIe of ofher ocfivifies or wifh fhe eorIiesf
compIefion fime of fhe projecf. As fhe fofoI fIoof of II unifs indicofes, fhe
sforf of ocfivify D couId oIso be deIoyed unfiI fime Ib, buf fhis wouId require
fhof fhe scheduIe of ofher ocfivifies be resfricfed. For exompIe, sforfing
ocfivify D of fime Ib wouId require fhof ocfivify 0 wouId begin os soon os
ocfivify D wos compIefed. However, if fhis scheduIe wos moinfoined, fhe
overoII compIefion dofe of fhe projecf wouId nof be chonged.
EumpIe 10-3: CriticuI puth for u fubricution progect
As onofher exompIe of crificoI pofh scheduIing, consider fhe seven ocfivifies
ossociofed wifh fhe fobricofion of o sfeeI componenf shown in TobIe I0-4.
Figure I0-7 shows fhe nefwork diogrom ossociofed wifh fhese seven
ocfivifies. Mofe fhof on oddifionoI dummy ocfivify X hos been odded fo
insure fhof fhe correcf precedence reIofionships ore moinfoined for ocfivify
E. A simpIe ruIe fo observe is fhof if on ocfivify hos more fhon one
immediofe predecessor ond onofher ocfivify hos of Ieosf one buf nof oII of
fhese predecessor ocfivify os o predecessor, o dummy ocfivify wiII be
required fo moinfoin precedence reIofionships. Thus, in fhe figure, ocfivify E
hos ocfivifies 8 ond C os predecessors, whiIe ocfivify D hos onIy ocfivify C os
o predecessor. Hence, o dummy ocfivify is required. Mode numbers hove oIso
been odded fo fhis figure using fhe procedure oufIined in TobIe I0-I. Mofe
fhof fhe node numbers on nodes I ond Z couId hove been exchonged in fhis
numbering process since offer numbering node 0, eifher node I or node Z
couId be numbered nexf.
TALE 10-4 Precedences ond Durofions for o Seven Acfivify Projecf
Acfivify Descripfion Predecessors Durofion
A
8
C
D
E
PreIiminory design
EvoIuofion of design
Confrocf negofiofion
Preporofion of fobricofion pIonf
FinoI design
---
A
---
C
8, C
o
I
8
b
9
F
0
Fobricofion of Producf
Shipmenf of Producf fo owner
D, E
F
IZ
3




Figure 10-7 IIIusfrofion of o Seven Acfivify Projecf Mefwork

The resuIfs of fhe eorIiesf ond Iofesf evenf fime oIgorifhms (oppeoring in
TobIe I0-I) ore shown in TobIe I0-b. The minimum compIefion fime for fhe
projecf is 3Z doys. In fhis smoII projecf, oII of fhe evenf nodes excepf node
I ore on fhe crificoI pofh. TobIe I0-o shows fhe eorIiesf ond Iofesf sforf
fimes for fhe vorious ocfivifies incIuding fhe differenf cofegories of fIoof.
Acfivifies C,E,F,0 ond fhe dummy ocfivify X ore seen fo Iie on fhe crificoI
pofh.
TALE 10- Evenf Times for o Seven Acfivify Projecf
Mode EorIiesf Time E(i) Lofesf Time L(j)
0
I
Z
3
4
b
o
0
o
8
8
I7
Z9
3Z
0
7
8
8
I7
Z9
3Z

TALE 10- EorIiesf Sforf, Lofesf Sforf ond Acfivify FIoofs for o Seven
Acfivify Projecf
Acfivify
EorIiesf sforf
fime
Lofesf sforf
fime
ES(i,j)
Free
fIoof
LS(i,j)
Independenf
fIoof
TofoI
fIoof
A (0,I)
8 (I,3)
C (0,Z)
D (Z,4)
E (3,4)
F (4,b)
0 (b,o)
X (Z,3)
0
o
0
8
8
I7
Z9
8
I
7
0
IZ
8
I7
Z9
8
0
I
0
4
0
0
0
0
0
0
0
4
0
0
0
0
I
I
0
4
0
0
0
0



10, Presenting Progect ScheduIes
Communicofing fhe projecf scheduIe is o vifoI ingredienf in successfuI
projecf monogemenf. A good presenfofion wiII greofIy eose fhe monogers
probIem of undersfonding fhe muIfifude of ocfivifies ond fheir infer-
reIofionships. Moreover, numerous individuoIs ond porfies ore invoIved in ony
projecf, ond fhey hove fo undersfond fheir ossignmenfs. 0rophicoI
presenfofions of projecf scheduIes ore porficuIorIy usefuI since if is much
eosier fo comprehend o grophicoI dispIoy of numerous pieces of informofion
fhon fo siff fhrough o Iorge fobIe of numbers. EorIy compufer scheduIing
sysfems were porficuIorIy poor in fhis regord since fhey produced poges ond
poges of numbers wifhouf oids fo fhe monoger for undersfonding fhem. A
shorf exompIe oppeors in TobIes I0-b ond I0-o, in procfice, o projecf
summory fobIe wouId be much Ionger. If is exfremeIy fedious fo reod o fobIe
of ocfivify numbers, durofions, scheduIe fimes, ond fIoofs ond fhereby goin
on undersfonding ond oppreciofion of o projecf scheduIe. In procfice,
producing diogroms monuoIIy hos been o common prescripfion fo fhe Iock of
oufomofed droffing fociIifies. Indeed, if hos been common fo use compufer
progroms fo perform crificoI pofh scheduIing ond fhen fo produce bor chorfs
of defoiIed ocfivify scheduIes ond resource ossignmenfs monuoIIy. Wifh fhe
ovoiIobiIify of compufer grophics, fhe cosf ond efforf of producing grophicoI
presenfofions hos been significonfIy reduced ond fhe producfion of
presenfofion oids con be oufomofed.
Mefwork diogroms for projecfs hove oIreody been infroduced. These
diogroms provide o powerfuI visuoIi;ofion of fhe precedences ond
reIofionships omong fhe vorious projecf ocfivifies. They ore o bosic meons of
communicofing o projecf pIon omong fhe porficipofing pIonners ond projecf
monifors. Projecf pIonning is offen conducfed by producing nefwork
represenfofions of greofer ond greofer refinemenf unfiI fhe pIon is
sofisfocfory.
A usefuI voriofion on projecf nefwork diogroms is fo drow o fime-scoIed
nefwork. The ocfivify diogroms shown in fhe previous secfion were
fopoIogicoI nefworks in fhof onIy fhe reIofionship befween nodes ond
bronches were of inferesf. The ocfuoI diogrom couId be disforfed in ony woy
desired os Iong os fhe connecfions befween nodes were nof chonged. In fime-
scoIed nefwork diogroms, ocfivifies on fhe nefwork ore pIoffed on o
hori;onfoI oxis meosuring fhe fime since projecf commencemenf. Figure I0-8
gives on exompIe of o fime-scoIed ocfivify-on-bronch diogrom for fhe nine
ocfivify projecf in Figure I0-4. In fhis fime-scoIed diogrom, eoch node is
shown of ifs eorIiesf possibIe fime. 8y Iooking over fhe hori;onfoI oxis, fhe
fime of which ocfivify con begin con be observed. ObviousIy, fhis fime scoIed
diogrom is produced os o dispIoy offer ocfivifies ore inifioIIy scheduIed by
fhe crificoI pofh mefhod.



Figure 10- IIIusfrofion of o Time ScoIed Mefwork Diogrom wifh Mine
Acfivifies

Anofher usefuI grophicoI represenfofion fooI is o bor or 0onff chorf
iIIusfrofing fhe scheduIed fime for eoch ocfivify. The bor chorf Iisfs
ocfivifies ond shows fheir scheduIed sforf, finish ond durofion. An
iIIusfrofive bor chorf for fhe nine ocfivify projecf oppeoring in Figure I0-4 is
shown in Figure I0-9. Acfivifies ore Iisfed in fhe verficoI oxis of fhis figure,
whiIe fime since projecf commencemenf is shown oIong fhe hori;onfoI oxis.
During fhe course of moniforing o projecf, usefuI oddifions fo fhe bosic bor
chorf incIude o verficoI Iine fo indicofe fhe currenf fime pIus smoII morks fo
indicofe fhe currenf sfofe of work on eoch ocfivify. In Figure I0-9, o
hypofheficoI projecf sfofe offer 4 periods is shown. The smoII "v" morks on
eoch ocfivify represenf fhe currenf sfofe of eoch ocfivify.



Figure 10-9 An ExompIe 8or Chorf for o Mine Acfivify Projecf

8or chorfs ore porficuIorIy heIpfuI for communicofing fhe currenf sfofe ond
scheduIe of ocfivifies on o projecf. As such, fhey hove found wide
occepfonce os o projecf represenfofion fooI in fhe fieId. For pIonning
purposes, bor chorfs ore nof os usefuI since fhey do nof indicofe fhe
precedence reIofionships omong ocfivifies. Thus, o pIonner musf remember or
record seporofeIy fhof o chonge in one ocfivifys scheduIe moy require
chonges fo successor ocfivifies. There hove been vorious schemes for
mechonicoIIy Iinking ocfivify bors fo represenf precedences, buf if is now
eosier fo use compufer bosed fooIs fo represenf such reIofionships.
Ofher grophicoI represenfofions ore oIso usefuI in projecf moniforing. Time
ond ocfivify grophs ore exfremeIy usefuI in porfroying fhe currenf sfofus of
o projecf os weII os fhe exisfence of ocfivify fIoof. For exompIe, Figure I0-
I0 shows fwo possibIe scheduIes for fhe nine ocfivify projecf described in
TobIe 9-I ond shown in fhe previous figures. The firsf scheduIe wouId occur
if eoch ocfivify wos scheduIed of ifs eorIiesf sforf fime, ES(i,j) consisfenf
wifh compIefion of fhe projecf in fhe minimum possibIe fime. Wifh fhis
scheduIe, Figure I0-I0 shows fhe percenf of projecf ocfivify compIefed
versus fime. The second scheduIe in Figure I0-I0 is bosed on Iofesf possibIe
sforf fimes for eoch ocfivify, LS(i,j). The hori;onfoI fime difference
befween fhe fwo feosibIe scheduIes gives on indicofion of fhe exfenf of
possibIe fIoof. If fhe projecf goes occording fo pIon, fhe ocfuoI percenfoge
compIefion of differenf fimes shouId foII befween fhese curves. In procfice,
o verficoI oxis represenfing cosh expendifures rofher fhon percenf
compIefed is offen used in deveIoping o projecf represenfofion of fhis fype.
For fhis purpose, ocfivify cosf esfimofes ore used in preporing o fime versus
compIefion groph. Seporofe "S-curves" moy oIso be prepored for groups of
ocfivifies on fhe some groph, such os seporofe curves for fhe design,
procuremenf, foundofion or porficuIor sub-confrocfor ocfivifies.



Figure 10-10 ExompIe of Percenfoge CompIefion versus Time for
AIfernofive ScheduIes wifh o Mine Acfivify Projecf

Time versus compIefion curves ore oIso usefuI in projecf moniforing. Mof onIy
fhe hisfory of fhe projecf con be indicofed, buf fhe fufure possibiIifies for
eorIiesf ond Iofesf sforf fimes. For exompIe, Figure I0-II iIIusfrofes o
projecf fhof is forfy percenf compIefe offer eighf doys for fhe nine ocfivify
exompIe. In fhis cose, fhe projecf is weII oheod of fhe originoI scheduIe,
some ocfivifies were compIefed in Iess fhon fheir expecfed durofions. The
possibIe eorIiesf ond Iofesf sforf fime scheduIes from fhe currenf projecf
sfofus ore oIso shown on fhe figure.



Figure 10-11 IIIusfrofion of AcfuoI Percenfoge CompIefion versus Time for
o Mine Acfivify Projecf Underwoy

0rophs of resource use over fime ore oIso of inferesf fo projecf pIonners
ond monogers. An exompIe of resource use is shown in Figure I0-IZ for fhe
resource of fofoI empIoymenf on fhe sife of o projecf. This groph is
prepored by summing fhe resource requiremenfs for eoch ocfivify of eoch
fime period for o porficuIor projecf scheduIe. Wifh Iimifed resources of
some kind, grophs of fhis fype con indicofe when fhe compefifion for o
resource is foo Iorge fo occommodofe, in coses of fhis kind, resource
consfroined scheduIing moy be necessory os described in Secfion I0.9. Even
wifhouf fixed resource consfroinfs, o scheduIer fries fo ovoid exfreme
fIucfuofions in fhe demond for Iobor or ofher resources since fhese
fIucfuofions fypicoIIy incur high cosfs for froining, hiring, fronsporfofion,
ond monogemenf. Thus, o pIonner mighf oIfer o scheduIe fhrough fhe use of
ovoiIobIe ocfivify fIoofs so os fo IeveI or smoofh ouf fhe demond for
resources. Pesource grophs such os Figure I0-IZ provide on invoIuobIe
indicofion of fhe pofenfioI froubIe spofs ond fhe success fhof o scheduIer
hos in ovoiding fhem.



Figure 10-1Z IIIusfrofion of Pesource Use over Time for o Mine Acfivify
Projecf

A common difficuIfy wifh projecf nefwork diogroms is fhof foo much
informofion is ovoiIobIe for eosy presenfofion in o nefwork. In o projecf wifh,
soy, five hundred ocfivifies, drowing ocfivifies so fhof fhey con be seen
wifhouf o microscope requires o considerobIe exponse of poper. A Iorge
projecf mighf require fhe woII spoce in o room fo incIude fhe enfire diogrom.
On o compufer dispIoy, o fypicoI resfricfion is fhof Iess fhon fwenfy
ocfivifies con be successfuIIy dispIoyed of fhe some fime. The probIem of
dispIoying numerous ocfivifies becomes porficuIorIy ocufe when occessory
informofion such os ocfivify idenfifying numbers or phroses, durofions ond
resources ore odded fo fhe diogrom.
One procficoI soIufion fo fhis represenfofion probIem is fo define sefs of
ocfivifies fhof con be represenfed fogefher os o singIe ocfivify. Thof is, for
dispIoy purposes, nefwork diogroms con be produced in which one "ocfivify"
wouId represenf o number of reoI sub-ocfivifies. For exompIe, on ocfivify
such os "foundofion design" mighf be inserfed in summory diogroms. In fhe
ocfuoI projecf pIon, fhis one ocfivify couId be sub-divided info numerous
fosks wifh fheir own precedences, durofions ond ofher offribufes. These
sub-groups ore somefimes fermed frognefs for frogmenfs of fhe fuII
nefwork. The resuIf of fhis orgoni;ofion is fhe possibiIify of producing
diogroms fhof summori;e fhe enfire projecf os weII os defoiIed
represenfofions of porficuIor sefs of ocfivifies. The hierorchy of diogroms
con oIso be infroduced fo fhe producfion of reporfs so fhof summory reporfs
for groups of ocfivifies con be produced. Thus, defoiIed represenfofions of
porficuIor ocfivifies such os pIumbing mighf be prepored wifh oII ofher
ocfivifies eifher omiffed or summori;ed in Iorger, oggregofe ocfivify
represenfofions. The CSI/MASTEPSPEC ocfivify definifion codes described
in Chopfer 9 provide o wideIy odopfed exompIe of o hierorchicoI orgoni;ofion
of fhis fype. Even if summory reporfs ond diogroms ore prepored, fhe ocfuoI
scheduIing wouId use defoiIed ocfivify chorocferisfics, of course.
An exompIe figure of o sub-nefwork oppeors in Figure I0-I3. Summory
dispIoys wouId incIude onIy o singIe node A fo represenf fhe sef of ocfivifies
in fhe sub-nefwork. Mofe fhof precedence reIofionships shown in fhe mosfer
nefwork wouId hove fo be inferprefed wifh core since o porficuIor
precedence mighf be due fo on ocfivify fhof wouId nof commence of fhe
sforf of ocfivify on fhe sub-nefwork.



Figure 10-13 IIIusfrofion of o Sub-Mefwork in o Summory Diogrom

The use of grophicoI projecf represenfofions is on imporfonf ond exfremeIy
usefuI oid fo pIonners ond monogers. Of course, defoiIed numericoI reporfs
moy oIso be required fo check fhe pecuIiorifies of porficuIor ocfivifies. 8uf
grophs ond diogroms provide on invoIuobIe meons of ropidIy communicofing or
undersfonding o projecf scheduIe. Wifh compufer bosed sforoge of bosic
projecf dofo, grophicoI oufpuf is reodiIy obfoinobIe ond shouId be used
whenever possibIe.
FinoIIy, fhe scheduIing procedure described in Secfion I0.3 simpIy counfed
doys from fhe inifioI sforfing poinf. ProcficoI scheduIing progroms incIude o
coIendor conversion fo provide coIendor dofes for scheduIed work os weII os
fhe number of doys from fhe inifiofion of fhe projecf. This conversion con
be occompIished by esfobIishing o one-fo-one correspondence befween
projecf dofes ond coIendor dofes. For exompIe, projecf doy Z wouId be Moy
4 if fhe projecf begon of fime 0 on Moy Z ond no hoIidoys infervened. In fhis
coIendor conversion, weekends ond hoIidoys wouId be excIuded from
considerofion for scheduIing, oIfhough fhe pIonner mighf overruIe fhis
feofure. AIso, fhe number of work shiffs or working hours in eoch doy couId
be defined, fo provide consisfency wifh fhe fime unifs used is esfimofing
ocfivify durofions. Projecf reporfs ond grophs wouId fypicoIIy use ocfuoI
coIendor doys.
10, CriticuI Puth ScheduIing for Activity-on-
Node und with Leuds Lugs und Windows
Performing fhe crificoI pofh scheduIing oIgorifhm for ocfivify-on-node
represenfofions is onIy o smoII voriofion from fhe ocfivify-on-bronch
oIgorifhm presenfed obove. An exompIe of fhe ocfivify-on-node diogrom for
o seven ocfivify nefwork is shown in Figure I0-3. Some oddifion ferminoIogy
is needed fo occounf for fhe fime deIoy of o node ossociofed wifh fhe fosk
ocfivify. AccordingIy, we define: ES(i) os fhe eorIiesf sforf fime for ocfivify
(ond node) i, EF(i) is fhe eorIiesf finish fime for ocfivify (ond node) i, LS(i) is
fhe Iofesf sforf ond LF(i) is fhe Iofesf finish fime for ocfivify (ond node) i.
TobIe I0-7 shows fhe reIevonf coIcuIofions for fhe node numbering
oIgorifhm, fhe forword poss ond fhe bockword poss coIcuIofions.
TALE 10-7 CrificoI Pofh ScheduIing AIgorifhms (Acfivify-on-Mode
Pepresenfofion)
Activity Numbering AIgorithm
Sfep I: 0ive fhe sforfing ocfivify number 0.
Sfep Z: 0ive fhe nexf number fo ony unnumbered ocfivify whose
predecessor ocfivifies
ore eoch oIreody numbered.
Pepeof Sfep Z unfiI oII ocfivifies ore numbered.
Forwurd Puss
Sfep I: Lef E(0) ~ 0.
Sfep Z: For j ~ I,Z,3,...,n (where n is fhe Iosf ocfivify), Ief
ES(j) ~ moximum {EF(i)}
where fhe moximum is compufed over oII ocfivifies (i) fhof hove j os fheir
successor.
Sfep 3: EF(j) ~ ES(j) + D
j

uckwurd Puss
Sfep I: Lef L(n) equoI fhe required compIefion fime of fhe projecf.
Mofe: L(n) musf equoI or exceed E(n).
Sfep Z: For i ~ n-I, n-Z, ..., 0, Ief
LF(i) ~ minimum {LS(j)}
where fhe minimum is compufed over oII ocfivifies (j) fhof hove i os fheir
predecessor.
Sfep 3: LS(i) ~ LF(i) - D
i


For monuoI oppIicofion of fhe crificoI pofh oIgorifhm shown in TobIe I0-7, if
is heIpfuI fo drow o squore of four enfries, represenfing fhe ES(i), EF(i),
LS(i) ond LF (i) os shown in Figure I0-I4. During fhe forword poss, fhe boxes
for ES(i) ond EF(i) ore fiIIed in. As on exercise for fhe reoder, fhe seven
ocfivify nefwork in Figure I0-3 con be scheduIed. PesuIfs shouId be idenficoI
fo fhose obfoined for fhe ocfivify-on-bronch coIcuIofions.


Figure 10-14 ES, EF, LS ond LF DispIoy for Hond CoIcuIofion of CrificoI
Pofh for Acfivify-on-Mode Pepresenfofion

8uiIding on fhe crificoI pofh scheduIing coIcuIofions described in fhe previous
secfions, some oddifionoI copobiIifies ore usefuI. DesirobIe exfensions incIude
fhe definifion of oIIowobIe windows for ocfivifies ond fhe infroducfion of
more compIicofed precedence reIofionships omong ocfivifies. For exompIe, o
pIonner moy wish fo hove on ocfivify of removing formwork from o new
buiIding componenf foIIow fhe concrefe pour by some pre-defined Iog period
fo oIIow seffing. This deIoy wouId represenf o required gop befween fhe
compIefion of o preceding ocfivify ond fhe sforf of o successor. The
scheduIing coIcuIofions fo occommodofe fhese compIicofions wiII be
described in fhis secfion. Agoin, fhe sfondord crificoI pofh scheduIing
ossumpfions of fixed ocfivify durofions ond unIimifed resource ovoiIobiIify
wiII be mode here, oIfhough fhese ossumpfions wiII be reIoxed in Iofer
secfions.
A copobiIify of mony scheduIing progroms is fo incorporofe fypes of ocfivify
inferocfions in oddifion fo fhe sfroighfforword predecessor finish fo
successor sforf consfroinf used in Secfion I0.3. Incorporofion of oddifionoI
cofegories of inferocfions is offen coIIed precedence diogromming. [Z] For
exompIe, if moy be fhe cose fhof insfoIIing concrefe forms in o foundofion
french mighf begin o few hours offer fhe sforf of fhe french excovofion.
This wouId be on exompIe of o sforf-fo-sforf consfroinf wifh o Ieod: fhe
sforf of fhe french-excovofion ocfivify wouId Ieod fhe sforf of fhe
concrefe-form-pIocemenf ocfivify by o few hours. Eighf seporofe cofegories
of precedence consfroinfs con be defined, represenfing greofer fhon (Ieods)
or Iess fhon (Iogs) fime consfroinfs for eoch of four differenf infer-ocfivify
reIofionships. These reIofionships ore summori;ed in TobIe I0-8. TypicoI
precedence reIofionships wouId be:
Direct or finish-to-sturt Ieuds
The successor ocfivify connof sforf unfiI fhe preceding ocfivify is
compIefe by of Ieosf fhe prescribed Ieod fime (FS). Thus, fhe sforf of
o successor ocfivify musf exceed fhe finish of fhe preceding ocfivify
by of Ieosf FS.
Sturt-to-sturt Ieuds
The successor ocfivify connof sforf unfiI work on fhe preceding
ocfivify hos been underwoy by of Ieosf fhe prescribed Ieod fime (SS).
Finish-to-finish Ieudss
The successor ocfivify musf hove of Ieosf FF periods of work
remoining of fhe compIefion of fhe preceding ocfivify.
Sturt-to-finish Ieuds
The successor ocfivify musf hove of Ieosf SF periods of work
remoining of fhe sforf of fhe preceding ocfivify.
WhiIe fhe eighf precedence reIofionships in TobIe I0-8 ore oII possibIe, fhe
mosf common precedence reIofionship is fhe sfroighfforword direcf
precedence befween fhe finish of o preceding ocfivify ond fhe sforf of fhe
successor ocfivify wifh no required gop (so FS ~ 0).
TALE 10- Eighf PossibIe Acfivify Precedence PeIofionships
PeIofionship ExpIonofion
Finish-to-sturt
Leud
Lofesf Finish of Predecessor EorIiesf Sforf of
Successor + FS
Finish-to-sturt
Lug
Lofesf Finish of Predecessor EorIiesf Sforf of
Successor + FS
Sturt-to-sturt
Leud
EorIiesf Sforf of Predecessor EorIiesf Sforf of
Successor + SS
Sturt-to-sturt Lug
EorIiesf Sforf of Predecessor EorIiesf Sforf of
Successor + SS
Finish-to-finish
Leud
Lofesf Finish of Predecessor EorIiesf Finish of
Successor + FF
Finish-to-finish
Lug
Lofesf Finish of Predecessor EorIiesf Finish of
Successor + FF
Sturt-to-finish
Leud
EorIiesf Sforf of Predecessor EorIiesf Finish of
Successor + SF
Sturt-to-finish
Lug
EorIiesf Sforf of Predecessor EorIiesf Finish of
Successor + SF

The compufofions wifh fhese Ieod ond Iog consfroinfs ore somewhof more
compIicofed voriofions on fhe bosic coIcuIofions defined in TobIe I0-I for
crificoI pofh scheduIing. For exompIe, o sforf-fo-sforf Ieod wouId modify fhe
coIcuIofion of fhe eorIiesf sforf fime fo consider whefher or nof fhe
necessory Ieod consfroinf wos mef:
(I0.IZ)

where SS
ij
represenfs o sforf-fo-sforf Ieod befween ocfivify (i,j) ond ony of
fhe ocfivifies sforfing of evenf j.
The possibiIify of inferrupfing or spIiffing ocfivifies info fwo work segmenfs
con be porficuIorIy imporfonf fo insure feosibIe scheduIes in fhe cose of
numerous Ieod or Iog consfroinfs. Wifh ocfivify spIiffing, on ocfivify is
divided info fwo sub-ocfivifies wifh o possibIe gop or idIe fime befween work
on fhe fwo subocfivifies. The compufofions for scheduIing freof eoch sub-
ocfivify seporofeIy offer o spIif is mode. SpIiffing is performed fo refIecf
ovoiIobIe scheduIing fIexibiIify or fo oIIow fhe deveIopmenf of o feosibIe
scheduIe. For exompIe, spIiffing moy permif scheduIing fhe eorIy finish of o
successor ocfivify of o dofe Iofer fhon fhe eorIiesf sforf of fhe successor
pIus ifs durofion. In effecf, fhe successor ocfivify is spIif info fwo segmenfs
wifh fhe Iofer segmenf scheduIed fo finish offer o porficuIor fime. Mosf
commonIy, fhis occurs when o consfroinf invoIving fhe finish fime of fwo
ocfivifies defermines fhe required finish fime of fhe successor. When fhis
sifuofion occurs, if is odvonfogeous fo spIif fhe successor ocfivify info fwo so
fhe firsf porf of fhe successor ocfivify con sforf eorIier buf sfiII finish in
occordonce wifh fhe oppIicobIe finish-fo-finish consfroinf.
FinoIIy, fhe definifion of ocfivify windows con be exfremeIy usefuI. An
ocfivify window defines o permissibIe period in which o porficuIorIy ocfivify
moy be scheduIed. To impose o window consfroinf, o pIonner couId specify on
eorIiesf possibIe sforf fime for on ocfivify (WES) or o Iofesf possibIe
compIefion fime (WLF). Lofesf possibIe sforfs (WLS) ond eorIiesf possibIe
finishes (WEF) mighf oIso be imposed. In fhe exfreme, o required sforf fime
mighf be insured by seffing fhe eorIiesf ond Iofesf window sforf fimes equoI
(WES ~ WLS). These window consfroinfs wouId be in oddifion fo fhe fime
consfroinfs imposed by precedence reIofionships omong fhe vorious projecf
ocfivifies. Window consfroinfs ore porficuIorIy usefuI in enforcing miIesfone
compIefion requiremenfs on projecf ocfivifies. For exompIe, o miIesfone
ocfivify moy be defined wifh no durofion buf o Iofesf possibIe compIefion
fime. Any ocfivifies preceding fhis miIesfone ocfivify connof be scheduIed
for compIefion offer fhe miIesfone dofe. Window consfroinfs ore ocfuoIIy o
specioI cose of fhe ofher precedence consfroinfs summori;ed obove: windows
ore consfroinfs in which fhe precedecessor ocfivify is fhe projecf sforf.
Thus, on eorIiesf possibIe sforf fime window (WES) is o sforf-fo-sforf Ieod.
One reIofed issue is fhe seIecfion of on oppropriofe nefwork represenfofion.
0eneroIIy, fhe ocfivify-on-bronch represenfofion wiII Ieod fo o more compocf
diogrom ond is oIso consisfenf wifh ofher engineering nefwork
represenfofions of sfrucfures or circuifs. [3] For exompIe, fhe nine
ocfivifies shown in Figure I0-4 resuIf in on ocfivify-on-bronch nefwork wifh
six nodes ond nine bronches. In confrosf, fhe comporobIe ocfivify-on-node
nefwork shown in Figure 9-o hos eIeven nodes (wifh fhe oddifion of o node
for projecf sforf ond compIefion) ond fiffeen bronches. The ocfivify-on-node
diogrom is more compIicofed ond more difficuIf fo drow, porficuIorIy since
bronches musf be drown crossing one onofher. Despife fhis Iorger si;e, on
imporfonf procficoI reoson fo seIecf ocfivify-on-node diogroms is fhof
numerous fypes of precedence reIofionships ore eosier fo represenf in fhese
diogroms. For exompIe, differenf symboIs mighf be used on eoch of fhe
bronches in Figure 9-o fo represenf direcf precedences, sforf-fo-sforf
precedences, sforf-fo-finish precedences, efc. AIfernofiveIy, fhe beginning
ond end poinfs of fhe precedence Iinks con indicofe fhe fype of Ieod or Iog
precedence reIofionship. Anofher odvonfoge of ocfivify-on-node
represenfofions is fhof fhe infroducfion of dummy Iinks os in Figure I0-I is
nof required. Eifher represenfofion con be used for fhe crificoI pofh
scheduIing compufofions described eorIier. In fhe obsence of Ieod ond Iog
precedence reIofionships, if is more common fo seIecf fhe compocf ocfivify-
on-bronch diogrom, oIfhough o unified modeI for fhis purpose is described in
Chopfer II. Of course, one reoson fo pick ocfivify-on-bronch or ocfivify-on-
node represenfofions is fhof porficuIor compufer scheduIing progroms
ovoiIobIe of o sife ore bosed on one represenfofion or fhe ofher. Since bofh
represenfofions ore in common use, projecf monogers shouId be fomiIior wifh
eifher nefwork represenfofion.
Mony commercioIIy ovoiIobIe compufer scheduIing progroms incIude fhe
necessory compufofionoI procedures fo incorporofe windows ond mony of fhe
vorious precedence reIofionships described obove. Indeed, fhe ferm
"precedence diogromming" ond fhe coIcuIofions ossociofed wifh fhese Iogs
seems fo hove firsf oppeored in fhe users monuoI for o compufer scheduIing
progrom. [4]
If fhe consfrucfion pIon suggesfs fhof such compIicofed Iogs ore imporfonf,
fhen fhese scheduIing oIgorifhms shouId be odopfed. In fhe nexf secfion, fhe
vorious compufofions ossociofed wifh crificoI pofh scheduIing wifh severoI
fypes of Ieods, Iogs ond windows ore presenfed.
10,7 CuIcuIutions for ScheduIing with Leuds
Lugs und Windows
TobIe I0-9 confoins on oIgorifhmic descripfion of fhe coIcuIofions required
for crificoI pofh scheduIing wifh Ieods, Iogs ond windows. This descripfion
ossumes on ocfivify-on-node projecf nefwork represenfofion, since fhis
represenfofion is much eosier fo use wifh compIicofed precedence
reIofionships. The possibIe precedence reIofionships occomodofed by fhe
procedure confoined in TobIe I0-9 ore finish-fo-sforf Ieods, sforf-fo-sforf
Ieods, finish-fo-finish Iogs ond sforf-fo-finish Iogs. Windows for eorIiesf
sforfs or Iofesf finishes ore oIso occomodofed. Incorporofing ofher
precedence ond window fypes in o scheduIing procedure is oIso possibIe os
described in Chopfer II. Wifh on ocfivify-on-node represenfofion, we ossume
fhof on inifiofion ond o ferminofion ocfivify ore incIuded fo mork fhe
beginning ond end of fhe projecf. The sef of procedures described in TobIe
I0-9 does nof provide for oufomofic spIiffing of ocfivifies.
TALE 10-9 CrificoI Pofh ScheduIing AIgorifhms wifh Leods, Logs ond
Windows (Acfivify-on-Mode Pepresenfofions)
Activity Numbering AIgorithm
Sfep I: 0ive fhe sforfing ocfivify number 0.
Sfep Z: 0ive fhe nexf number fo ony unnumbered ocfivify whose
predecessor ocfivifies
ore eoch oIreody numbered.
Pepeof Sfep Z unfiI oII ocfivifies ore numbered.
Forwurd Puss Compututions
Sfep 0: Sef fhe eorIiesf sforf ond fhe eorIiesf finish of fhe inifioI ocfivify
fo ;ero:
(ES(0) ~ EF(0) ~ 0).
Pepeof fhe foIIowing sfeps for eoch ocfivify k ~ 0,I,Z,...,m:
Sfep I: Compufe fhe eorIiesf sforf fime (ES(k)) of ocfivify k:
ES(k) ~ Moximum {0, WES(k) for fhe eorIiesf sforf window fime,
WEF(k) - D(k) for fhe eorIiesf finish window fime,
EF(i) + FS(i,k) for eoch preceding ocfivify wifh o F-S consfroinf,
ES(i) + SS(i,k) for eoch preceding ocfivify wifh o S-S consfroinf,
EF(i) + FF(i,k) - D(k) for eoch preceding ocfivify wifh o F-F consfroinf,
ES(i) + SF(i,k) - D(k) for eoch preceding ocfivify wifh o S-F consfroinf.}
Sfep Z: Compufe fhe eorIiesf finish fime EF(k) of ocfivify k:
EF(k) ~ ES(k) + D(k).
uckwurd Puss Compututions
Sfep 0: Sef fhe Iofesf finish ond Iofesf sforf of fhe ferminoI ocfivify fo fhe
eorIy sforf fime:
LF(m) ~ LS(m) ~ ES(m) ~ EF(m)
Pepeof fhe foIIowing sfeps for eoch ocfivify in reverse order, k ~ m-I,m-
Z,...,Z,I,0: Sfep I: Compufe fhe Iofesf finish fime for ocfivify k:
LF(k) ~ Min{ LF(m), WLF(k) for fhe Iofesf finish window fime,
WLS(k) + D(k) for fhe Iofesf sforf window fime,
LS(j) - FS(k,j) for eoch succeeding ocfivify wifh o F-S consfroinf,
LF(j) - FF(k,j) for eoch succeeding ocfivify wifh o FF consfroinf,
LS(j) - SS(k,j) + D(k) for eoch succeeding ocfivify wifh o SS consfroinf,
LF(j) - SF(k,j) + D(k) for eoch succeeding ocfivify wifh o SF consfroinf.}
Sfep Z: Compufe fhe Iofesf sforf fime for ocfivify k:
LS(k) ~ LF(k) - D(k)

The firsf sfep in fhe scheduIing oIgorifhm is fo sorf ocfivifies such fhof no
higher numbered ocfivify precedes o Iower numbered ocfivify. Wifh
numbered ocfivifies, durofions con be denofed D(k), where k is fhe number
of on ocfivify. Ofher ocfivify informofion con oIso be referenced by fhe
ocfivify number. Mofe fhof node evenfs used in ocfivify-on-bronch
represenfofions ore nof required in fhis cose.
The forword poss coIcuIofions compufe on eorIiesf sforf fime (ES(k)) ond on
eorIiesf finish fime (EF(k)) for eoch ocfivify in furn (TobIe I0-9). In
compufing fhe eorIiesf sforf fime of on ocfivify k, fhe eorIiesf sforf window
fime (WES), fhe eorIiesf finish window fime (WEF), ond eoch of fhe vorious
precedence reIofionships musf be considered. Consfroinfs on finish fimes ore
incIuded by idenfifying minimum finish fimes ond fhen subfrocfing fhe
ocfivify durofion. A defouIf eorIiesf sforf fime of doy 0 is oIso insured for oII
ocfivifies. A second sfep in fhe procedure is fo idenfify eoch ocfivifys
eorIiesf finish fime (EF(k)).
The bockword poss coIcuIofions proceed in o monner very simiIor fo fhose of
fhe forword poss (TobIe I0-9). In fhe bockword poss, fhe Iofesf finish ond
fhe Iofesf sforf fimes for eoch ocfivify ore coIcuIofed. In compufing fhe
Iofesf finish fime, fhe Iofesf sforf fime is idenfified which is consisfenf wifh
precedence consfroinfs on on ocfivifys sforfing fime. This compufofion
requires o minimi;ofion over oppIicobIe window fimes ond oII successor
ocfivifies. A check for o feosibIe ocfivify scheduIe con oIso be imposed of
fhis poinf: if fhe Iofe sforf fime is Iess fhon fhe eorIy sforf fime (LS(k)
ES(k)), fhen fhe ocfivify scheduIe is nof possibIe.
The resuIf of fhe forword ond bockword poss coIcuIofions ore fhe eorIiesf
sforf fime, fhe Iofesf sforf fime, fhe eorIiesf finish fime, ond fhe Iofesf
finish fime for eoch ocfivify. The ocfivify fIoof is compufed os fhe Iofesf
sforf fime Iess fhe eorIiesf sforf fime. Mofe fhof window consfroinfs moy be
insfrumenfoI in seffing fhe omounf of fIoof, so fhof ocfivifies wifhouf ony
fIoof moy eifher Iie on fhe crificoI pofh or be consfroined by on oIIowobIe
window.
To consider fhe possibiIify of ocfivify spIiffing, fhe vorious formuIos for fhe
forword ond bockword posses in TobIe I0-9 musf be modified. For exompIe,
in considering fhe possibiIify of ocfivify spIiffing due fo sforf-fo-sforf Ieod
(SS), if is imporfonf fo ensure fhof fhe preceding ocfivify hos been
underwoy for of Ieosf fhe required Ieod period. If fhe preceding ocfivify wos
spIif ond fhe firsf sub-ocfivify wos nof underwoy for o sufficienfIy Iong
period, fhen fhe foIIowing ocfivify connof sforf unfiI fhe firsf pIus fhe
second sub-ocfivifies hove been underwoy for o period equoI fo SS(i,k). Thus,
in seffing fhe eorIiesf sforf fime for on ocfivify, fhe coIcuIofion fokes info
occounf fhe durofion of fhe firsf subocfivify (DA(i)) for preceding ocfivifies
invoIving o sforf-fo-sforf Ieod. AIgebroicoIIy, fhe ferm in fhe eorIiesf sforf
fime coIcuIofion perfoining fo sforf-fo-sforf precedence consfroinfs (ES(i) +
SS(i,k)) hos fwo porfs wifh fhe possibiIify of ocfivify spIiffing:
(I0.I3) ES(i) + SS(i,k)
(I0.I4) EF(i) - D(i) +
SS(i,k)
for spIif preceding ocfivifies wifh DA(i)
SS(i,k)
where DA(i) is fhe durofion of fhe firsf sub-ocfivify of fhe preceding
ocfivify.
The compufofion of eorIiesf finish fime invoIves simiIor considerofions,
excepf fhof fhe finish-fo-finish ond sforf-fo-finish Iog consfroinfs ore
invoIved. In fhis cose, o moximi;ofion over fhe foIIowing ferms is required:
(I0.Ib)
EF(k) ~ Moximum{ES(k) + D(k),
EF(i) + FF(i,k) for eoch preceding ocfivify wifh o FF
precedence,
ES(i) + SF(i,k) for eoch preceding ocfivify wifh o SF
precedence ond which is nof spIif,
EF(i) - D(i) + SF(i,k) for eoch preceding ocfivify wifh o
SF precedence ond which is spIif}
FinoIIy, fhe necessify fo spIif on ocfivify is oIso considered. If fhe eorIiesf
possibIe finish fime is greofer fhon fhe eorIiesf sforf fime pIus fhe ocfivify
durofion, fhen fhe ocfivify musf be spIif.
Anofher possibIe exfension of fhe scheduIing compufofions in TobIe I0-9
wouId be fo incIude o durofion modificofion copobiIify during fhe forword ond
bockword posses. This copobiIify wouId permif oIfernofive work coIendors for
differenf ocfivifies or for modificofions fo refIecf effecfs of fime of fhe
yeor on ocfivify durofions. For exompIe, fhe durofion of oufside work during
winfer monfhs wouId be increosed. As onofher exompIe, ocfivifies wifh
weekend work permiffed mighf hove fheir weekdoy durofions shorfened fo
refIecf weekend work occompIishmenfs.
EumpIe 10-4: Impucts of precedence reIutionships und windows
To iIIusfrofe fhe impocfs of differenf precedence reIofionships, consider o
projecf consisfing of onIy fwo ocfivifies in oddifion fo fhe sforf ond finish.
The sforf is numbered ocfivify 0, fhe firsf ocfivify is number I, fhe second
ocfivify is number Z, ond fhe finish is ocfivify 3. Eoch ocfivify is ossumed fo
hove o durofion of five doys. Wifh o direcf finish-fo-sforf precedence
reIofionship wifhouf o Iog, fhe crificoI pofh coIcuIofions reveoI:
ES(0) ~ 0
ES(I) ~ 0
EF(I) ~ ES(I) + D(I) ~ 0 + b ~ b
ES(Z) ~ EF(I) + FS(I,Z) ~ b + 0 ~ b
EF(Z) ~ ES(Z) + D(Z) ~ b + b ~ I0
ES(3) ~ EF(Z) + FS(Z,3) ~ I0 + 0 ~ I0 ~ EF(3)
So fhe eorIiesf projecf compIefion fime is fen doys.
Wifh o sforf-fo-sforf precedence consfroinf wifh o fwo doy Ieod, fhe
scheduIing coIcuIofions ore:
ES(0) ~ 0
ES(I) ~ 0
EF(I) ~ ES(I) + D(I) ~ 0 + b ~ b
ES(Z) ~ ES(I) + SS(I,Z) ~ 0 + Z ~ Z
EF(Z) ~ ES(Z) + D(Z) ~ Z + b ~ 7
ES(3) ~ EF(Z) + FS(Z,3) ~ 7 + 0 ~ 7.
In fhis cose, ocfivify Z con begin fwo doys offer fhe sforf of ocfivify I ond
proceed in poroIIeI wifh ocfivify I. The resuIf is fhof fhe projecf compIefion
dofe drops from fen doys fo seven doys.
FinoIIy, suppose fhof o finish-fo-finish precedence reIofionship exisfs
befween ocfivify I ond ocfivify Z wifh o fwo doy Iog. The scheduIing
coIcuIofions ore:
ES(0) ~ 0 ~ EF(0)
ES(I) ~ EF(0) + FS(0,I) ~ 0 + 0 ~ 0
EF(I) ~ ES(I) + D(I) ~ 0 + b ~ b
ES(Z) ~ EF(I) + FF(I,Z) - D(Z) ~ b + Z - b ~ Z
EF(Z) ~ ES(Z) + D(Z) ~ Z + b ~ 7
ES(3) ~ EF(Z) + FS(Z,3) ~ 7 + 0 ~ 7 ~ EF(3)
In fhis cose, fhe eorIiesf finish for ocfivify Z is on doy seven fo oIIow fhe
necessory fwo doy Iog from fhe compIefion of ocfivify I. The minimum
projecf compIefion fime is ogoin seven doys.
EumpIe 10-: ScheduIing in the presence of Ieuds und windows,
As o second exompIe of fhe scheduIing compufofions invoIved in fhe presence
of Ieods, Iogs ond windows, we shoII perform fhe coIcuIofions required for
fhe projecf shown in Figure I0-Ib. Sforf ond end ocfivifies ore incIuded in
fhe projecf diogrom, moking o fofoI of eIeven ocfivifies. The vorious windows
ond durofions for fhe ocfivifies ore summori;ed in TobIe I0-I0 ond fhe
precedence reIofionships oppeor in TobIe I0-II. OnIy eorIiesf sforf (WES)
ond Iofesf finish (WLF) window consfroinfs ore incIuded in fhis exompIe
probIem. AII four fypes of precedence reIofionships ore incIuded in fhis
projecf. Mofe fhof fwo ocfivifies moy hove more fhon one fype of
precedence reIofionship of fhe some fime, in fhis cose, ocfivifies Z ond b
hove bofh S-S ond F-F precedences. In Figure I0-Ib, fhe differenf
precedence reIofionships ore shown by Iinks connecfing fhe ocfivify nodes.
The fype of precedence reIofionship is indicofed by fhe beginning or end
poinf of eoch orrow. For exompIe, sforf-fo-sforf precedences go from fhe
Ieff porfion of fhe preceding ocfivify fo fhe Ieff porfion of fhe foIIowing
ocfivify. AppIicofion of fhe ocfivify sorfing oIgorifhm (TobIe I0-9) reveoIs
fhof fhe exisfing ocfivify numbers ore oppropriofe for fhe crificoI pofh
oIgorifhm. These ocfivify numbers wiII be used in fhe forword ond bockword
poss coIcuIofions.



Figure 10-1 ExompIe Projecf Mefwork wifh Leod Precedences

TALE 10-10 Predecessors, Successors, Windows ond Durofions for on
ExompIe Projecf
Acfivify
Mumber Predecessors Successors
EorIiesf
Sforf
Window
Lofesf
Finish
Window
Acfivify
Durofion
0
I
Z
3
4
b
o
7
8
9
---
0
0
I
0
Z, Z
I, 3
4, b
4, b
o, 7
I, Z, 4
3, 4, o
b
o
7, 8
7, 8
9
9
I0
I0
---
---
---
Z
---
---
o
---
---
---
---
---
---
---
---
Io
Io
---
---
Io
0
Z
b
4
3
b
o
Z
4
b
I0 8, 9 --- --- --- 0

TALE 10-11 Precedences in o EIeven Acfivify Projecf ExompIe
Predecessor Successor Type Leod
0
0
0
I
I
I
Z
Z
3
4
4
b
b
o
7
8
9
I
Z
4
3
4
o
b
b
o
7
8
7
8
9
9
I0
I0
FS
FS
FS
SS
SF
FS
SS
FF
FS
SS
FS
FS
SS
FF
FS
FS
FS
0
0
0
I
I
Z
Z
Z
0
Z
0
I
3
4
0
0
0

During fhe forword poss coIcuIofions (TobIe I0-9), fhe eorIiesf sforf ond
eorIiesf finish fimes ore compufed for eoch ocfivify. The reIevonf
coIcuIofions ore:
ES(0) ~ EF(0) ~ 0
ES(I) ~ Mox{0, EF(0) + FS(0,I)} ~ Mox {0, 0 + 0} ~ 0.
EF(I) ~ ES(I) + D(I) ~ 0 + Z ~ Z
ES(Z) ~ Mox{0, EF(0) + FS(0,I)} ~ Mox{0, 0 + 0} ~ 0.
EF(Z) ~ ES(Z) + D(Z) ~ 0 + b ~ b
ES(3) ~ Mox{0, WES(3), ES(I) + SS(I,3)} ~ Mox{0, Z, 0 + I} ~ Z.
EF(3) ~ ES(3) + D(3) ~ Z + 4 ~ o
Mofe fhof in fhe coIcuIofion of fhe eorIiesf sforf for ocfivify 3, fhe sforf
wos deIoyed fo be consisfenf wifh fhe eorIiesf sforf fime window.
ES(4) ~ Mox{0, ES(0) + FS(0,I), ES(I) + SF(I,4) - D(4)} ~ Mox{0, 0 + 0, 0+I-3}
~ 0.
EF(4) ~ ES(4) + D(4) ~ 0 + 3 ~ 3
ES(b) ~ Mox{0, ES(Z) + SS(Z,b), EF(Z) + FF(Z,b) - D(b)} ~ Mox{0, 0+Z, b+Z-b}
~ Z
EF(b) ~ ES(b) + D(b) ~ Z + b ~ 7
ES(o) ~ Mox{0, WES(o), EF(I) + FS(I,o), EF(3) + FS(3,o)} ~ Mox{0, o, Z+Z,
o+0} ~ o
EF(o) ~ ES(o) + D(o) ~ o + o ~ IZ
ES(7) ~ Mox{0, ES(4) + SS(4,7), EF(b) + FS(b,7)} ~ Mox{0, 0+Z, 7+I} ~ 8
EF(7) ~ ES(7) + D(7) ~ 8 + Z ~ I0
ES(8) ~ Mox{0, EF(4) + FS(4,8), ES(b) + SS(b,8)} ~ Mox{0, 3+0, Z+3} ~ b
EF(8) ~ ES(8) + D(8) ~ b + 4 ~ 9
ES(9) ~ Mox{0, EF(7) + FS(7,9), EF(o) + FF(o,9) - D(9)} ~ Mox{0, I0+0, IZ+4-
b} ~ II
EF(9) ~ ES(9) + D(9) ~ II + b ~ Io
ES(I0) ~ Mox{0, EF(8) + FS(8,I0), EF(9) + FS(9,I0)} ~ Mox{0, 9+0, Io+0} ~ Io
EF(I0) ~ ES(I0) + D(I0) ~ Io
As fhe resuIf of fhese compufofions, fhe eorIiesf projecf compIefion fime is
found fo be Io doys.
The bockword poss compufofions resuIf in fhe Iofesf finish ond Iofesf sforf
fimes for eoch ocfivify. These coIcuIofions ore:
LF(I0) ~ LS(I0) ~ ES(I0) ~ EF(I0) ~ Io
LF(9) ~ Min{WLF(9), LF(I0),LS(I0) - FS(9,I0)} ~ Min{Io,Io, Io-0} ~ Io
LS(9) ~ LF(9) - D(9) ~ Io - b ~ II
LF(8) ~ Min{LF(I0), LS(I0) - FS(8,I0)} ~ Min{Io, Io-0} ~ Io
LS(8) ~ LF(8) - D(8) ~ Io - 4 ~ IZ
LF(7) ~ Min{LF(I0), LS(9) - FS(7,9)} ~ Min{Io, II-0} ~ II
LS(7) ~ LF(7) - D(7) ~ II - Z ~ 9
LF(o) ~ Min{LF(I0), WLF(o), LF(9) - FF(o,9)} ~ Min{Io, Io, Io-4} ~ IZ
LS(o) ~ LF(o) - D(o) ~ IZ - o ~ o
LF(b) ~ Min{LF(I0), WLF(I0), LS(7) - FS(b,7), LS(8) - SS(b,8) + D(8)} ~
Min{Io, Io, 9-I, IZ-3+4} ~ 8
LS(b) ~ LF(b) - D(b) ~ 8 - b ~ 3
LF(4) ~ Min{LF(I0), LS(8) - FS(4,8), LS(7) - SS(4,7) + D(7)} ~ Min{Io, IZ-0,
9-Z+Z} ~ 9
LS(4) ~ LF(4) - D(4) ~ 9 - 3 ~ o
LF(3) ~ Min{LF(I0), LS(o) - FS(3,o)} ~ Min{Io, o-0} ~ o
LS(3) ~ LF(3) - D(3) ~ o - 4 ~ Z
LF(Z) ~ Min{LF(I0), LF(b) - FF(Z,b), LS(b) - SS(Z,b) + D(b)} ~ Min{Io, 8-Z, 3-
Z+b} ~ o
LS(Z) ~ LF(Z) - D(Z) ~ o - b ~ I
LF(I) ~ Min{LF(I0), LS(o) - FS(I,o), LS(3) - SS(I,3) + D(3), Lf(4) - SF(I,4) +
D(4)}
LS(I) ~ LF(I) - D(I) ~ Z -Z ~ 0
LF(0) ~ Min{LF(I0), LS(I) - FS(0,I), LS(Z) - FS(0,Z), LS(4) - FS(0,4)} ~
Min{Io, 0-0, I-0, o-0} ~ 0
LS(0) ~ LF(0) - D(0) ~ 0
The eorIiesf ond Iofesf sforf fimes for eoch of fhe ocfivifies ore
summori;ed in TobIe I0-IZ. Acfivifies wifhouf fIoof ore 0, I, o, 9 ond I0.
These ocfivifies oIso consfifufe fhe crificoI pofh in fhe projecf. Mofe fhof
ocfivifies o ond 9 ore reIofed by o finish-fo-finish precedence wifh o 4 doy
Iog. Decreosing fhis Iog wouId resuIf in o reducfion in fhe overoII projecf
durofion.
TALE 10-1Z Summory of Acfivify Sforf ond Finish Times for on ExompIe
ProbIem
Acfivify EorIiesf Sforf Lofesf Sforf FIoof
0
I
Z
3
4
b
o
7
8
9
I0
0
0
0
0
0
Z
o
8
b
II
Io
0
0
I
Z
o
3
o
9
IZ
II
Io
0
0
I
Z
o
I
0
I
7
0
0



10, Resource Oriented ScheduIing
Pesource consfroined scheduIing shouId be oppIied whenever fhere ore
Iimifed resources ovoiIobIe for o projecf ond fhe compefifion for fhese
resources omong fhe projecf ocfivifies is keen. In effecf, deIoys ore IiobIe
fo occur in such coses os ocfivifies musf woif unfiI common resources become
ovoiIobIe. To fhe exfenf fhof resources ore Iimifed ond demond for fhe
resource is high, fhis woifing moy be considerobIe. In furn, fhe congesfion
ossociofed wifh fhese woifs represenfs increosed cosfs, poor producfivify
ond, in fhe end, projecf deIoys. ScheduIes mode wifhouf considerofion for
such boffIenecks con be compIefeIy unreoIisfic.
Pesource consfroined scheduIing is of porficuIor imporfonce in monoging
muIfipIe projecfs wifh fixed resources of sfoff or equipmenf. For exompIe, o
design office hos on idenfifiobIe sfoff which musf be ossigned fo porficuIor
projecfs ond design ocfivifies. When fhe workIood is heovy, fhe designers
moy foII behind on compIefing fheir ossignmenfs. 0overnmenf ogencies ore
porficuIorIy prone fo fhe probIems of fixed sfoffing IeveIs, oIfhough some
fIexibiIify in occompIishing fosks is possibIe fhrough fhe mechonism of
confrocfing work fo oufside firms. Consfrucfion ocfivifies ore Iess
suscepfibIe fo fhis fype of probIem since if is eosier ond Iess cosfIy fo hire
oddifionoI personneI for fhe (reIofiveIy) shorf durofion of o consfrucfion
projecf. Overfime or doubIe shiff work oIso provide some fIexibiIify.
Pesource orienfed scheduIing oIso is oppropriofe in coses in which unique
resources ore fo be used. For exompIe, scheduIing excovofion operofions
when one onIy excovofor is ovoiIobIe is simpIy o process of ossigning work
fosks or job segmenfs on o doy by doy bosis whiIe insuring fhof oppropriofe
precedence reIofionships ore moinfoined. Even wifh more fhon one resource,
fhis monuoI ossignmenf process moy be quife odequofe. However, o pIonner
shouId be corefuI fo insure fhof necessory precedences ore moinfoined.
Pesource consfroined scheduIing represenfs o considerobIe choIIenge ond
source of frusfrofion fo reseorchers in mofhemofics ond operofions
reseorch. WhiIe oIgorifhms for opfimoI soIufion of fhe resource consfroined
probIem exisf, fhey ore generoIIy foo compufofionoIIy expensive fo be
procficoI for oII buf smoII nefworks (of Iess fhon obouf I00 nodes). [b] The
difficuIfy of fhe resource consfroined projecf scheduIing probIem orises
from fhe combinoforioI expIosion of differenf resource ossignmenfs which
con be mode ond fhe focf fhof fhe decision voriobIes ore infeger voIues
represenfing oII-or-nofhing ossignmenfs of o porficuIor resource fo o
porficuIor ocfivify. In confrosf, simpIe crificoI pofh scheduIing deoIs wifh
confinuous fime voriobIes. Consfrucfion projecfs fypicoIIy invoIve mony
ocfivifies, so opfimoI soIufion fechniques for resource oIIocofion ore nof
procficoI.
One possibIe simpIificofion of fhe resource orienfed scheduIing probIem is fo
ignore precedence reIofionships. In some oppIicofions, if moy be impossibIe
or unnecessory fo consider precedence consfroinfs omong ocfivifies. In
fhese coses, fhe focus of scheduIing is usuoIIy on efficienf ufiIi;ofion of
projecf resources. To insure minimum cosf ond deIoy, o projecf monoger
offempfs fo minimi;e fhe omounf of fime fhof resources ore unused ond fo
minimi;e fhe woifing fime for scorce resources. This resource orienfed
scheduIing is offen formoIi;ed os o probIem of "job shop" scheduIing in which
numerous fosks ore fo be scheduIed for compIefion ond o voriefy of discrefe
resources need fo perform operofions fo compIefe fhe fosks. PefIecfing fhe
originoI orienfofion fowords monufocfuring oppIicofions, fosks ore usuoIIy
referred fo os "jobs" ond resources fo be scheduIed ore designofed
"mochines." In fhe provision of consfrucfed fociIifies, on onoIogy wouId be on
orchifecfuroI/engineering design office in which numerous design reIofed
fosks ore fo be occompIished by individuoI professionoIs in differenf
deporfmenfs. The scheduIing probIem is fo insure efficienf use of fhe
individuoI professionoIs (i.e. fhe resources) ond fo compIefe specific fosks in
o fimeIy monner.
The simpIesf form of resource orienfed scheduIing is o reservofion sysfem
for porficuIor resources. In fhis cose, compefing ocfivifies or users of o
resource pre-orronge use of fhe resource for o porficuIor fime period. Since
fhe resource ossignmenf is known in odvonce, ofher users of fhe resource
con scheduIe fheir ocfivifies more effecfiveIy. The resuIf is Iess woifing or
"queuing" for o resource. If is oIso possibIe fo inougurofe o preference
sysfem wifhin fhe reservofion process so fhof high-priorify ocfivifies con be
occommodofed direcfIy.
In fhe more generoI cose of muIfipIe resources ond specioIi;ed fosks,
procficoI resource consfroined scheduIing procedures reIy on heurisfic
procedures fo deveIop good buf nof necessoriIy opfimoI scheduIes. WhiIe fhis
is fhe occosion for considerobIe onguish omong reseorchers, fhe heurisfic
mefhods wiII fypicoIIy give foirIy good resuIfs. An exompIe heurisfic mefhod
is provided in fhe nexf secfion. MonuoI mefhods in which o humon scheduIer
revises o crificoI pofh scheduIe in Iighf of resource consfroinfs con oIso work
reIofiveIy weII. 0iven fhof much of fhe dofo ond fhe nefwork represenfofion
used in forming o projecf scheduIe ore uncerfoin, fhe resuIfs of oppIying
heurisfic procedures moy be quife odequofe in procfice.
EumpIe 10-: A Reservution System [o]
A recenf consfrucfion projecf for o high-rise buiIding compIex in Mew York
Cify wos severeIy Iimifed in fhe spoce ovoiIobIe for sfoging moferioIs for
houIing up fhe buiIding. On fhe four buiIding sife, fhirfy-eighf seporofe
crones ond eIevofors were ovoiIobIe, buf fhe number of movemenfs of men,
moferioIs ond equipmenf wos expecfed fo keep fhe equipmenf very busy.
Wifh numerous sub-confrocfors desiring fhe use of fhis equipmenf, fhe
pofenfioI for deIoys ond woifing in fhe Iimifed sfoging oreo wos considerobIe.
8y impIemenfing o crone reservofion sysfem, fhese probIems were neorIy
enfireIy ovoided. The reservofion sysfem required confrocfors fo feIephone
one or more doys in odvonce fo reserve fime on o porficuIor crone. Time were
ovoiIobIe on o firsf-come, firsf-served bosis (i.e. firsf coII, firsf choice of
ovoiIobIe sIofs). PenoIfies were imposed for moking on unused reservofion.
The reservofion sysfem wos oIso compuferi;ed fo permif ropid modificofion
ond updofing of informofion os weII os fhe provision of sfondord reservofion
scheduIes fo be disfribufed fo oII porficiponfs.
EumpIe 10-7: Heuristic Resource AIIocution
Suppose fhof o projecf monoger hos eIeven pipe secfions for which
necessory supporf sfrucfures ond moferioIs ore ovoiIobIe in o porficuIor
week. To work on fhese eIeven pipe secfions, five crews ore ovoiIobIe. The
oIIocofion probIem is fo ossign fhe crews fo fhe eIeven pipe secfions. This
oIIocofion wouId consisf of o Iisf of pipe secfions oIIocofed fo eoch crew for
work pIus o recommendofion on fhe oppropriofe sequence fo underfoke fhe
work. The projecf monoger mighf moke ossignmenfs fo minimi;e compIefion
fime, fo insure confinuous work on fhe pipeIine (so fhof one secfion on o
pipeIine run is nof Ieff incompIefe), fo reduce froveI fime befween pipe
secfions, fo ovoid congesfion omong fhe differenf crews, ond fo boIonce fhe
workIood omong fhe crews. Mumerous frioI soIufions couId be ropidIy
generofed, especioIIy wifh fhe oid of on eIecfronic spreodsheef. For exompIe,
if fhe nine secfions hod esfimofed work durofions for eoch of fhe fire crews
os shown in TobIe I0-I3, fhen fhe oIIocofions shown in Figure I0-Io wouId
resuIf in o minimum compIefion fime.
TALE 10-13 Esfimofed Pequired Time for Eoch Work Tosk in o Pesource
AIIocofion ProbIem
Secfion Work Durofion
A
8
C
D
E
F
0
H
I
J
I
9
9
8
8
7
7
o
o
o
b
b




Figure 10-1 ExompIe AIIocofion of Crews fo Work Tosks

EumpIe 10-: AIgorithms for Resource AIIocution with ottIeneck
Resources
In fhe previous exompIe, suppose fhof o mofhemoficoI modeI ond soIufion wos
desired. For fhis purpose, we define o binory (i.e. 0 or I voIued) decision
voriobIe for eoch pipe secfion ond crew, x
ij
, where x
ij
~ I impIies fhof secfion
i wos ossigned fo crew j ond x
ij
~ 0 impIied fhof secfion i wos nof ossigned fo
crew j. The fime required fo compIefe eoch secfion is f
i
. The overoII fime fo
compIefe fhe nine secfions is denofed ;. In fhis cose, fhe probIem of
minimi;ing overoII compIefion fime is:
subjecf fo fhe consfroinfs:
for eoch secfion i
x
ij
is 0 or I
where fhe consfroinfs simpIy insure fhof eoch secfion is ossigned fo one ond
onIy one crew. A modificofion permifs o more convenfionoI mofhemoficoI
formuIofion, resuIfing in o generoIi;ed boffIeneck ossignmenf probIem:
Minimi;e ;
subjecf fo fhe consfroinfs:
for eoch crew j
for eoch secfion i
x
ij
is 0 or I
This probIem con be soIved os on infeger progromming probIem, oIfhough of
considerobIe compufofionoI expense. A common exfension fo fhis probIem
wouId occur wifh differenfioI producfivifies for eoch crew, so fhof fhe fime
fo compIefe on ocfivify, f
ij
, wouId be defined for eoch crew. Anofher
modificofion fo fhis probIem wouId subsfifufe o cosf focfor, c
j
, for fhe fime
focfor, f
j
, ond offempf fo minimi;e overoII cosfs rofher fhon compIefion
fime.

10,9 ScheduIing with Resource Construints und
Precedences
The previous secfion oufIined resource orienfed opprooches fo fhe
scheduIing probIem. In fhis secfion, we shoII review some generoI opprooches
fo infegrofing bofh concerns in scheduIing.
Two probIems orise in deveIoping o resource consfroined projecf scheduIe.
Firsf, if is nof necessoriIy fhe cose fhof o crificoI pofh scheduIe is feosibIe.
8ecouse one or more resources mighf be needed by numerous ocfivifies, if
con eosiIy be fhe cose fhof fhe shorfesf projecf durofion idenfified by fhe
crificoI pofh scheduIing coIcuIofion is impossibIe. The difficuIfy orises
becouse crificoI pofh scheduIing ossumes fhof no resource ovoiIobiIify
probIems or boffIenecks wiII orise. Finding o feosibIe or possibIe scheduIe is
fhe firsf probIem in resource consfroined scheduIing. Of course, fhere moy
be o numerous possibIe scheduIes which conform wifh fime ond resource
consfroinfs. As o second probIem, if is oIso desirobIe fo defermine scheduIes
which hove Iow cosfs or, ideoIIy, fhe Iowesf cosf.
Mumerous heurisfic mefhods hove been suggesfed for resource consfroined
scheduIing. Mony begin from crificoI pofh scheduIes which ore modified in
Iighf of fhe resource consfroinfs. Ofhers begin in fhe opposife foshion by
infroducing resource consfroinfs ond fhen imposing precedence consfroinfs
on fhe ocfivifies. SfiII ofhers begin wifh o ronking or cIossificofion of
ocfivifies info priorify groups for specioI offenfion in scheduIing. [7] One
fype of heurisfic moy be beffer fhon onofher for differenf fypes of
probIems. CerfoinIy, projecfs in which onIy on occosionoI resource consfroinf
exisfs mighf be besf scheduIed sforfing from o crificoI pofh scheduIe. Af
fhe ofher exfreme, projecfs wifh numerous imporfonf resource consfroinfs
mighf be besf scheduIed by considering crificoI resources firsf. A mixed
opprooch wouId be fo proceed simuIfoneousIy considering precedence ond
resource consfroinfs.
A simpIe modificofion fo crificoI pofh scheduIing hos been shown fo be
effecfive for o number of scheduIing probIems ond is simpIe fo impIemenf.
For fhis heurisfic procedure, crificoI pofh scheduIing is oppIied inifioIIy. The
resuIf is fhe fomiIior sef of possibIe eorIy ond Iofe sforf fimes for eoch
ocfivify. ScheduIing eoch ocfivify fo begin of ifs eorIiesf possibIe sforf fime
moy resuIf in more fhon one ocfivify requiring o porficuIor resource of fhe
some fime. Hence, fhe inifioI scheduIe moy nof be feosibIe. The heurisfic
proceeds by idenfifying coses in which ocfivifies compefe for o resource ond
seIecfing one ocfivify fo proceed. The sforf fime of ofher ocfivifies ore fhen
shiffed Iofer in fime. A simpIe ruIe for choosing which ocfivify hos priorify is
fo seIecf fhe ocfivify wifh fhe eorIiesf CPM Iofe sforf fime (coIcuIofed os
LS(i,j) ~ L(j)-D
ij
) omong fhose ocfivifies which ore bofh feosibIe (in fhof oII
fheir precedence requiremenfs ore sofisfied) ond compefing for fhe
resource. This decision ruIe is oppIied from fhe sforf of fhe projecf unfiI fhe
end for eoch fype of resource in furn.
The order in which resources ore considered in fhis scheduIing process moy
infIuence fhe uIfimofe scheduIe. A good heurisfic fo empIoy in deciding fhe
order in which resources ore fo be considered is fo consider more imporfonf
resources firsf. More imporfonf resources ore fhose fhof hove high cosfs or
fhof ore IikeIy fo represenf on imporfonf boffIeneck for projecf compIefion.
Once imporfonf resources ore scheduIed, ofher resource oIIocofions fend fo
be much eosier. The resuIfing scheduIing procedure is described in TobIe I0-
I4.
The Iofe sforf fime heurisfic described in TobIe I0-I4 is onIy one of mony
possibIe scheduIing ruIes. If hos fhe odvonfoge of giving priorify fo ocfivifies
which musf sforf sooner fo finish fhe projecf on fime. However, if is myopic
in fhof if doesnf consider frode-offs omong resource fypes nor fhe chonges
in fhe Iofe sforf fime fhof wiII be occurring os ocfivifies ore shiffed Iofer in
fime. More compIicofed ruIes con be devised fo incorporofe brooder
knowIedge of fhe projecf scheduIe. These compIicofed ruIes require greofer
compufofionoI efforf ond moy or moy nof resuIf in scheduIing improvemenfs
in fhe end.
TALE 10-14 A Pesource-Orienfed ScheduIing Procedure
Sfep I:
Ponk oII resources from fhe mosf imporfonf fo fhe
Ieosf imporfonf, ond number fhe resources i ~
I,Z,3,...,m.
Sfep Z:
Sef fhe scheduIed sforf fime for eoch ocfivify fo fhe
eorIiesf sforf fime.
For eoch resource i ~ I,Z,3,...,m in furn:
Sfep 3:
Sforf of fhe projecf beginning, so sef f ~ 0.
Sfep 4:
Compufe fhe demond for resource i of fime f by
summing up fhe requiremenfs for resource i for oII
ocfivifies scheduIed fo be underwoy of fime f.
If demond for resource i in fime f is greofer fhon fhe
resource ovoiIobiIify, fhen seIecf fhe ocfivify wifh fhe
greofesf Iofe sforf fime requiring resource i of fime f,
ond shiff ifs scheduIed sforf fime fo fime f+I.
Pepeof Sfep 4 unfiI fhe resource consfroinf of fime f
for resource i is sofisfied.
Sfep b:
Pepeof sfep 4 for eoch projecf period in furn, seffing
f ~ f+I.

EumpIe 10-9: Resource construined scheduIing with nine uctivities,
As on exompIe of resource consfroined scheduIing, we shoII re-exomine fhe
nine ocfivify projecf discussed in Secfion I0.3. To begin wifh, suppose fhof
four workers ond fwo pieces of equipmenf such os bockhoes ore ovoiIobIe for
fhe projecf. The required resources for eoch of fhe nine projecf ocfivifies
ore summori;ed in TobIe I0-Ib. 0rophs of resource requiremenfs over fhe 30
doy projecf durofion ore shown in Figure I0-I7. Equipmenf ovoiIobiIify in fhis
scheduIe is nof o probIem. However, on fwo occosions, more fhon fhe four
ovoiIobIe workers ore scheduIed for work. Thus, fhe exisfing projecf
scheduIe is infeosibIe ond shouId be oIfered.
TALE 10-1 Pesources Pequired ond Sforfing Times for o Mine Acfivify
Projecf
Acfivify
Workers
Pequired
Equipmenf
Pequired
EorIiesf Sforf
Time
Lofesf Sforf
Time Durofion
A
8
C
D
E
F
0
H
I
Z
Z
Z
Z
Z
Z
Z
Z
4
0
I
I
I
I
0
I
I
I
0
0
4
4
IZ
IZ
ZI
ZI
Z4
0
9
4
Ib
I3
IZ
ZZ
Zb
Z4
4
3
8
7
9
IZ
Z
b
o




Figure 10-17 Pesources Pequired over Time for Mine Acfivify Projecf:
ScheduIe I

The firsf resource probIem occurs on doy ZI when ocfivify F is underwoy ond
ocfivifies 0 ond H ore scheduIed fo sforf. AppIying fhe Iofesf sforf fime
heurisfic fo decide which ocfivify shouId sforf, fhe monoger shouId re-
scheduIe ocfivify H since if hos o Iofer voIue of LS(i,j), i.e., doy Zb versus doy
ZZ os seen in TobIe I0-Ib. Two workers become ovoiIobIe on doy Z3 offer fhe
compIefion of ocfivify 0. Since ocfivify H is fhe onIy ocfivify which is
feosibIe of fhof fime, if is scheduIed fo begin. Two workers oIso become
ovoiIobIe on doy Z4 of fhe compIefion of ocfivify F. Af fhis poinf, ocfivify I is
ovoiIobIe for sforfing. If possibIe, if wouId be scheduIed fo begin wifh onIy
fwo workers unfiI fhe compIefion of ocfivify H on doy Z8. If oII 4 workers
were definifeIy required, fhen ocfivify I wouId be scheduIed fo begin on doy
Z8. In fhis Ioffer cose, fhe projecf durofion wouId be 34 doys, represenfing
o 4 doy increose due fo fhe Iimifed number of workers ovoiIobIe.
EumpIe 10-10: AdditionuI resource construints,
As onofher exompIe, suppose fhof onIy one piece of equipmenf wos ovoiIobIe
for fhe projecf. As seen in Figure I0-I7, fhe originoI scheduIe wouId hove fo
be significonfIy modified in fhis cose. AppIicofion of fhe resource
consfroined scheduIing heurisfic proceeds os foIIows os oppIied fo fhe
originoI projecf scheduIe:
I. On doy 4, ocfivifies D ond C ore bofh scheduIed fo begin. Since
ocfivify D hos o Iorger voIue of Iofe sforf fime, if shouId be re-
scheduIed.
Z. On doy IZ, ocfivifies D ond E ore ovoiIobIe for sforfing. Agoin bosed on
o Iofer voIue of Iofe sforf fime (Ib versus I3), ocfivify D is deferred.
3. On doy ZI, ocfivify E is compIefed. Af fhis poinf, ocfivify D is fhe onIy
feosibIe ocfivify ond if is scheduIed for sforfing.
4. On doy Z8, fhe pIonner con sforf eifher ocfivify 0 or ocfivify H. 8osed
on fhe Iofer sforf fime heurisfic, ocfivify 0 is chosen fo sforf.
b. On compIefion of ocfivify 0 of doy 30, ocfivify H is scheduIed fo begin.
The resuIfing profiIe of resource use is shown in Figure I0-I8. Mofe fhof
ocfivifies F ond I were nof considered in oppIying fhe heurisfic since fhese
ocfivifies did nof require fhe specioI equipmenf being considered. In fhe
figure, ocfivify I is scheduIed offer fhe compIefion of ocfivify H due fo fhe
requiremenf of 4 workers for fhis ocfivify. As o resuIf, fhe projecf durofion
hos increosed fo 4I doys. During much of fhis fime, oII four workers ore nof
ossigned fo on ocfivify. Af fhis poinf, o prudenf pIonner wouId consider
whefher or nof if wouId be cosf effecfive fo obfoin on oddifionoI piece of
equipmenf for fhe projecf.



Figure 10-1 Pesources Pequired over Time for Mine Acfivify Projecf:
ScheduIe II


10,10 References
I. Au, T. Infroducfion fo Sysfems Engineering--Deferminisfic ModeIs,
Addison-WesIey, Peoding, MA, I973, Chopfer 8.
Z. 8oker, I., An Infroducfion fo Sequencing ond ScheduIing, John WiIey,
I974.
3. Jockson, M.J., Compufers in Consfrucfion PIonning ond ConfroI, AIIen &
Unwin, I98o.
4. Moder, J., C. PhiIIips ond E. Dovis, Projecf Monogemenf wifh CPM,
PEPT ond Precedence Diogromming, Von Mosfrond PeinhoId Compony,
Third Edifion,I983.
b. WiIIis, E. M., ScheduIing Consfrucfion Projecfs, John WiIey & Sons,
I98o.
10,11 ProbIems
I fo 4.
Consfrucf on ocfivify-on-bronch nefwork from fhe precedence
reIofionships of ocfivifies in fhe projecf given in fhe fobIe for fhe
probIem, TobIes I0-Io fo I0-I9.
TALE 10-1
Acfivify A 8 C D E F 0 H I J I L M M O
Predecessors --- A A --- 8 C,D C,D D H F E,J F 0,I 0,I L,M
Durofion o 7 I I4 b 8 9 3 b 3 4 IZ o Z 7
TALE 10-17
Acfivify A 8 C D E F 0 H I J I L M M
Predecessors --- A 8 C D,0 A F,J --- H I F,J H L I,M
Durofion b o 3 4 b 8 3 3 Z 7 Z 7 4 3
TALE 10-1
Acfivify A 8 C D E F 0 H I J I L
Predecessors --- --- --- A 8 C 8,D C,E F F E,0,I H,J
Durofion o IZ Io b 3 I0 9 4 b 3 I0 o
TALE 10-19
Acfivify A 8 C D E F 0 H I J I L M
Predecessors --- --- --- C C 8,E A,F 8,E 8,E 8,E D,J 0,H I,I,L
Durofion 3 o Z 3 8 b 7 I0 o o 8 3 4
b fo 8.
Defermine fhe crificoI pofh ond oII sIocks for fhe projecfs in TobIes
I0-Io fo I0-I9.
9. Suppose fhof fhe precedence reIofionships for ProbIem I in TobIe I0-
Io ore oII direcf finish-fo-sforf reIofionships wifh no Iogs excepf for
fhe foIIowing:
o 8 fo E: S-S wifh o Iog of Z.
o D fo H: F-F wifh o Iog of 3.
o F fo L: S-S wifh o Iog of Z.
o 0 fo M: S-S wifh o Iog of I.
o 0 fo M: S-S wifh o Iog of Z.
FormuIofe on ocfivify-on-node nefwork represenfofion ond recompufe
fhe crificoI pofh wifh fhese precedence reIofionships.
I0. Suppose fhof fhe precedence reIofionships for ProbIem Z in TobIe I0-
I7 ore oII direcf finish-fo-sforf reIofionships wifh no Iogs excepf for
fhe foIIowing:
o C fo D: S-S wifh o Iog of I
o D fo E: F-F wifh o Iog of 3
o A fo F: S-S wifh o Iog of Z
o H fo I: F-F wifh o Iog of 4
o L fo M: S-S wifh o Iog of I
FormuIofe on ocfivify-on-node nefwork represenfofion ond recompufe
fhe crificoI pofh wifh fhese precedence reIofionships.
II fo IZ.
For fhe projecfs described in TobIes I0-Z0 ond I0-ZI, respecfiveIy,
suggesf o projecf scheduIe fhof wouId compIefe fhe projecf in
minimum fime ond resuIf in reIofiveIy consfonf or IeveI requiremenfs
for Iobor over fhe course of fhe projecf.

TALE 10-Z0
Acfivify A 8 C D E F 0 H I J I
Predecessors --- --- --- A 8 8 C C D,E F,0 H
Durofion 3 b I I 7 o 4 3 o 4 3
Workers Per Doy 9 o 4 I0 Io 9 b 8 Z 3 7
TALE 10-Z1
Acfivify A 8 C D E F 0 H I J I L M M
Predecessors --- --- --- A A A 8 8 C F,0 H,I,L F,0 D,J E,I
Durofion b I 7 Z o 4 3 Z o 4 b I 4 b
Workers Per Doy 0 3 0 9 b 4 Z I4 I0 4 I Z 7 3
I3. DeveIop o spreodsheef fempIofe fhof Iisfs ocfivify nome, durofion,
required resources, eorIiesf possibIe sforf, Iofesf possibIe sforf, ond
scheduIed sforf in seporofe coIumns for o moximum of fwenfy
ocfivifies. 8y meons of formuIos, oIso deveIop fhe required resources
for eoch doy of fhe projecf, bosed on fhe ocfivifies scheduIed sforf,
expecfed durofions, ond required resources. Use fhe spreodsheef
grophics fociIify fo pIof fhe required resources over fime. Use your
fempIofe fo soIve ProbIems II ond IZ by oIfering scheduIed sforf
fimes. (Hinf: One woy fo prepore such o fempIofe is fo use o coIumn fo
represenf o singIe doy wifh eoch ceII in fhe coIumn indicofing
resources required by o porficuIor ocfivify on fhe porficuIor doy).
I4. DeveIop on exompIe of o projecf nefwork wifh fhree crificoI pofhs.
Ib. For fhe projecf defined in TobIe I0-Z0, suppose fhof you ore Iimifed
fo o moximum of Z0 workers of ony given fime. Defermine o desirobIe
scheduIe for fhe projecf, using fhe Iofe sforf fime heurisfic described
in Secfion I0.9.
Io. For fhe projecf defined in TobIe I0-ZI, suppose fhof you ore Iimifed
fo o moximum of Ib workers of ony given fime. Defermine o desirobIe
scheduIe for fhe projecf, using fhe Iofe sforf fime heurisfic described
in Secfion I0.9.
I7. The exompIes ond probIems presenfed in fhis chopfer generoIIy moke
use of ocfivify durofion ond projecf durofions os meosured in working
doys from fhe beginning of fhe projecf. OufIine fhe procedures by
which fime meosured in working doys wouId be converfed info coIendor
doys wifh singIe- or doubIe-shiff work. CouId your procedure be
modified fo oIIow some buf nof oII ocfivifies fo be underwoy on
weekends7
10,1Z Footnotes
I. See Au, T., Infroducfion fo Sysfems Engineering, Deferminisfic ModeIs,
Addison-WesIey PubIishing Compony, Peoding, MA, I973, for o defoiIed
descripfion of Iineor progromming os o form of mofhemoficoI opfimi;ofion.
8ock
Z. See I.C. CrondoII, "Projecf PIonning wifh Precedence Leod/Log Focfors,"
Projecf Monogemenf QuorferIy, VoI. 4, Mo. 3, Sepf. I973, pp. I8-Z7, or J.J.
Moder, C.P. PhiIIips, ond E.W. Dovis, Projecf Monogemenf wifh CPM, PEPT
ond Precedence Diogromming, Mew York: Von Mosfrond PeinhoId Compony,
fhird edifion, I983, chopfer 4. 8ock
3. See C.T. Hendrickson ond 8.M. Jonson, "A Common Mefwork FormuIofion
of SeveroI CiviI Engineering ProbIems," CiviI Engineering Sysfems, VoI. I, Mo.
4, I984, pp. I9b-Z03. 8ock
4. See I8M, Projecf Monogemenf Sysfem, AppIicofion Descripfion MonuoI,
(HZ0-0ZI0), I8M, I9o8. 8ock
b. A voriefy of mofhemoficoI progromming fechniques hove been proposed
for fhis probIem. For o review ond comporison, see J.H. Pofferson, "A
Comporison of Exocf Approoches for SoIving fhe MuIfipIe Consfroined
Pesource Projecf ScheduIing ProbIem," Monogemenf Science, VoI. 30, Mo. 7,
I984, pp. 8b4-8o7. 8ock
o. This exompIe is odopfed from H. SmoIIowif;, "Consfrucfion by Compufer,"
CiviI Engineering, June, I98o, pp. 7I-73. 8ock
7. For discussions ond comporisons of oIfernofive heurisfic oIgorifhms, see
E.M. Dovies, "An experimenfoI invesfigofion of resource oIIocofion in
muIfiocfivify projecfs," OperofionoI Peseorch QuorferIy VoI. Z4, Mo. II, JuIy
I97o, pp. II8o-II94, J.D. Wiesf ond F.I. Levy, A Monogemenf 0uide fo
PEPT/CPM, Prenfice-HoII, Mew Jersey, I977, or S.P. Lowrence, A
CompufofionoI Comporison of Heurisfic ScheduIing Techniques, TechnicoI
Peporf, 0roduofe SchooI of IndusfrioI Adminisfrofion, Cornegie-MeIIon
Universify, I98b. 8ock

Advunced ScheduIing Techniques
Use of Advunced ScheduIing Techniques
ScheduIing with Uncertuin Durutions
CuIcuIutions for Monte CurIo ScheduIe SimuIution
Crushing und Time/Cost Trudeoffs
ScheduIing in PoorIy Structured ProbIems
Improving the ScheduIing Process
References
ProbIems
Footnotes
11, Advunced ScheduIing Techniques
11,1 Use of Advunced ScheduIing Techniques
Consfrucfion projecf scheduIing is o fopic fhof hos received exfensive
reseorch over o number of decodes. The previous chopfer described fhe
fundomenfoI scheduIing fechniques wideIy used ond supporfed by numerous
commercioI scheduIing sysfems. A voriefy of specioI fechniques hove oIso
been deveIoped fo oddress specific circumsfonces or probIems. Wifh fhe
ovoiIobiIify of more powerfuI compufers ond soffwore, fhe use of odvonced
scheduIing fechniques is becoming eosier ond of greofer reIevonce fo
procfice. In fhis chopfer, we survey some of fhe fechniques fhof con be
empIoyed in fhis regord. These fechniques oddress some imporfonf procficoI
probIems, such os:
scheduIing in fhe foce of uncerfoin esfimofes on ocfivify durofions,
infegrofed pIonning of scheduIing ond resource oIIocofion,
scheduIing in unsfrucfured or poorIy formuIofed circumsfonces.
A finoI secfion in fhe chopfer describes some possibIe improvemenfs in fhe
projecf scheduIing process. In Chopfer I4, we consider issues of compufer
bosed impIemenfofion of scheduIing procedures, porficuIorIy in fhe confexf
of infegrofing scheduIing wifh ofher projecf monogemenf procedures.
11,Z ScheduIing with Uncertuin Durutions
Secfion I0.3 described fhe oppIicofion of crificoI pofh scheduIing for fhe
sifuofion in which ocfivify durofions ore fixed ond known. UnforfunofeIy,
ocfivify durofions ore esfimofes of fhe ocfuoI fime required, ond fhere is
IiobIe fo be o significonf omounf of uncerfoinfy ossociofed wifh fhe ocfuoI
durofions. During fhe preIiminory pIonning sfoges for o projecf, fhe
uncerfoinfy in ocfivify durofions is porficuIorIy Iorge since fhe scope ond
obsfocIes fo fhe projecf ore sfiII undefined. Acfivifies fhof ore oufside of
fhe confroI of fhe owner ore IikeIy fo be more uncerfoin. For exompIe, fhe
fime required fo goin reguIofory opprovoI for projecfs moy vory
fremendousIy. Ofher exfernoI evenfs such os odverse weofher, french
coIIopses, or Iobor sfrikes moke durofion esfimofes porficuIorIy uncerfoin.
Two simpIe opprooches fo deoIing wifh fhe uncerfoinfy in ocfivify durofions
worronf some discussion before infroducing more formoI scheduIing
procedures fo deoI wifh uncerfoinfy. Firsf, fhe uncerfoinfy in ocfivify
durofions moy simpIy be ignored ond scheduIing done using fhe expecfed or
mosf IikeIy fime durofion for eoch ocfivify. Since onIy one durofion esfimofe
needs fo be mode for eoch ocfivify, fhis opprooch reduces fhe required work
in seffing up fhe originoI scheduIe. FormoI mefhods of infroducing
uncerfoinfy info fhe scheduIing process require more work ond ossumpfions.
WhiIe fhis simpIe opprooch mighf be defended, if hos fwo drowbocks. Firsf,
fhe use of expecfed ocfivify durofions fypicoIIy resuIfs in overIy opfimisfic
scheduIes for compIefion, o numericoI exompIe of fhis opfimism oppeors
beIow. Second, fhe use of singIe ocfivify durofions offen produces o rigid,
infIexibIe mindsef on fhe porf of scheduIers. As fieId monogers oppreciofe,
ocfivify durofions vory considerobIe ond con be infIuenced by good
Ieodership ond cIose offenfion. As o resuIf, fieId monogers moy Ioose
confidence in fhe reoIism of o scheduIe bosed upon fixed ocfivify durofions.
CIeorIy, fhe use of fixed ocfivify durofions in seffing up o scheduIe mokes o
confinuoI process of moniforing ond updofing fhe scheduIe in Iighf of ocfuoI
experience imperofive. Ofherwise, fhe projecf scheduIe is ropidIy oufdofed.
A second simpIe opprooch fo incorporofion uncerfoinfy oIso deserves
menfion. Mony monogers recogni;e fhof fhe use of expecfed durofions moy
resuIf in overIy opfimisfic scheduIes, so fhey incIude o confingency oIIowonce
in fheir esfimofe of ocfivify durofions. For exompIe, on ocfivify wifh on
expecfed durofion of fwo doys mighf be scheduIed for o period of Z.Z doys,
incIuding o fen percenf confingency. Sysfemofic oppIicofion of fhis
confingency wouId resuIf in o fen percenf increose in fhe expecfed fime fo
compIefe fhe projecf. WhiIe fhe use of fhis ruIe-of-fhumb or heurisfic
confingency focfor con resuIf in more occurofe scheduIes, if is IikeIy fhof
formoI scheduIing mefhods fhof incorporofe uncerfoinfy more formoIIy ore
usefuI os o meons of obfoining greofer occurocy or in undersfonding fhe
effecfs of ocfivify deIoys.
The mosf common formoI opprooch fo incorporofe uncerfoinfy in fhe
scheduIing process is fo oppIy fhe crificoI pofh scheduIing process (os
described in Secfion I0.3) ond fhen onoIy;e fhe resuIfs from o probobiIisfic
perspecfive. This process is usuoIIy referred fo os fhe PEPT scheduIing or
evoIuofion mefhod. [I] As nofed eorIier, fhe durofion of fhe crificoI pofh
represenfs fhe minimum fime required fo compIefe fhe projecf. Using
expecfed ocfivify durofions ond crificoI pofh scheduIing, o crificoI pofh of
ocfivifies con be idenfified. This crificoI pofh is fhen used fo onoIy;e fhe
durofion of fhe projecf incorporofing fhe uncerfoinfy of fhe ocfivify
durofions oIong fhe crificoI pofh. The expecfed projecf durofion is equoI fo
fhe sum of fhe expecfed durofions of fhe ocfivifies oIong fhe crificoI pofh.
Assuming fhof ocfivify durofions ore independenf rondom voriobIes, fhe
vorionce or voriofion in fhe durofion of fhis crificoI pofh is coIcuIofed os fhe
sum of fhe vorionces oIong fhe crificoI pofh. Wifh fhe meon ond vorionce of
fhe idenfified crificoI pofh known, fhe disfribufion of ocfivify durofions con
oIso be compufed.
The meon ond vorionce for eoch ocfivify durofion ore fypicoIIy compufed
from esfimofes of "opfimisfic" (o
i,j
), "mosf IikeIy" (m
i,j
), ond "pessimisfic"
(b
i,j
) ocfivify durofions using fhe formuIos:
(II.I)

ond
(I0.Z)

where ond ore fhe meon durofion ond ifs vorionce,
respecfiveIy, of on ocfivify (i,j). Three ocfivify durofions esfimofes (i.e.,
opfimisfic, mosf IikeIy, ond pessimisfic durofions) ore required in fhe
coIcuIofion. The use of fhese opfimisfic, mosf IikeIy, ond pessimisfic
esfimofes sfems from fhe focf fhof fhese ore fhoughf fo be eosier for
monogers fo esfimofe subjecfiveIy. The formuIos for coIcuIofing fhe meon
ond vorionce ore derived by ossuming fhof fhe ocfivify durofions foIIow o
probobiIisfic befo disfribufion under o resfricfive condifion. [Z] The
probobiIify densify funcfion of o befo disfribufions for o rondom vorobIe x is
given by:

(II.3)

,
where k is o consfonf which con be expressed in ferms of ond . SeveroI
befo disfribufions for differenf sefs of voIues of ond ore shown in
Figure II-I. For o befo disfribufion in fhe infervoI hoving o
modoI voIue m, fhe meon is given by:
(II.4)

If + ~ 4, fhen Eq. (II.4) wiII resuIf in Eq. (II.I). Thus, fhe use of Eqs.
(II.I) ond (II.Z) impose on oddifionoI condifion on fhe befo disfribufion. In
porficuIor, fhe resfricfion fhof ~ (b - o)/o is imposed.




Figure 11-1 IIIusfrofion of SeveroI 8efo Disfribufions

Since obsoIufe Iimifs on fhe opfimisfic ond pessimisfic ocfivify durofions ore
exfremeIy difficuIf fo esfimofe from hisforicoI dofo, o common procfice is fo
use fhe ninefy-fiffh percenfiIe of ocfivify durofions for fhese poinfs. Thus,
fhe opfimisfic fime wouId be such fhof fhere is onIy o one in fwenfy (five
percenf) chonce fhof fhe ocfuoI durofion wouId be Iess fhon fhe esfimofed
opfimisfic fime. SimiIorIy, fhe pessimisfic fime is chosen so fhof fhere is onIy
o five percenf chonce of exceeding fhis durofion. Thus, fhere is o ninefy
percenf chonce of hoving fhe ocfuoI durofion of on ocfivify foII befween fhe
opfimisfic ond pessimisfic durofion fime esfimofes. Wifh fhe use of ninefy-
fiffh percenfiIe voIues for fhe opfimisfic ond pessimisfic ocfivify durofion,
fhe coIcuIofion of fhe expecfed durofion occording fo Eq. (II.I) is unchonged
buf fhe formuIo for coIcuIofing fhe ocfivify vorionce becomes:
(II.b)

The difference befween Eqs. (II.Z) ond (II.b) comes onIy in fhe voIue of fhe
divisor, wifh 3o used for obsoIufe Iimifs ond I0 used for ninefy-five
percenfiIe Iimifs. This difference mighf be expecfed since fhe difference
befween b
i,j
ond o
i,j
wouId be Iorger for obsoIufe Iimifs fhon for fhe ninefy-
fiffh percenfiIe Iimifs.
WhiIe fhe PEPT mefhod hos been mode wideIy ovoiIobIe, if suffers from
fhree mojor probIems. Firsf, fhe procedure focuses upon o singIe crificoI
pofh, when mony pofhs mighf become crificoI due fo rondom fIucfuofions. For
exompIe, suppose fhof fhe crificoI pofh wifh Iongesf expecfed fime hoppened
fo be compIefed eorIy. UnforfunofeIy, fhis does nof necessoriIy meon fhof
fhe projecf is compIefed eorIy since onofher pofh or sequence of ocfivifies
mighf foke Ionger. SimiIorIy, o Ionger fhon expecfed durofion for on ocfivify
nof on fhe crificoI pofh mighf resuIf in fhof ocfivify suddenIy becoming
crificoI. As o resuIf of fhe focus on onIy o singIe pofh, fhe PEPT mefhod
fypicoIIy underesfimofes fhe ocfuoI projecf durofion.
As o second probIem wifh fhe PEPT procedure, if is incorrecf fo ossume fhof
mosf consfrucfion ocfivify durofions ore independenf rondom voriobIes. In
procfice, durofions ore correIofed wifh one onofher. For exompIe, if
probIems ore encounfered in fhe deIivery of concrefe for o projecf, fhis
probIem is IikeIy fo infIuence fhe expecfed durofion of numerous ocfivifies
invoIving concrefe pours on o projecf. Posifive correIofions of fhis fype
befween ocfivify durofions impIy fhof fhe PEPT mefhod underesfimofes fhe
vorionce of fhe crificoI pofh ond fhereby produces over-opfimisfic
expecfofions of fhe probobiIify of meefing o porficuIor projecf compIefion
deodIine.
FinoIIy, fhe PEPT mefhod requires fhree durofion esfimofes for eoch ocfivify
rofher fhon fhe singIe esfimofe deveIoped for crificoI pofh scheduIing. Thus,
fhe difficuIfy ond Iobor of esfimofing ocfivify chorocferisfics is muIfipIied
fhreefoId.
As on oIfernofive fo fhe PEPT procedure, o sfroighfforword mefhod of
obfoining informofion obouf fhe disfribufion of projecf compIefion fimes (os
weII os ofher scheduIe informofion) is fhrough fhe use of Monfe CorIo
simuIofion. This fechnique coIcuIofes sefs of orfificioI (buf reoIisfic) ocfivify
durofion fimes ond fhen oppIies o deferminisfic scheduIing procedure fo eoch
sef of durofions. Mumerous coIcuIofions ore required in fhis process since
simuIofed ocfivify durofions musf be coIcuIofed ond fhe scheduIing procedure
oppIied mony fimes. For reoIisfic projecf nefworks, 40 fo I,000 seporofe
sefs of ocfivify durofions mighf be used in o singIe scheduIing simuIofion. The
coIcuIofions ossociofed wifh Monfe CorIo simuIofion ore described in fhe
foIIowing secfion.
A number of differenf indicofors of fhe projecf scheduIe con be esfimofed
from fhe resuIfs of o Monfe CorIo simuIofion:
Esfimofes of fhe expecfed fime ond vorionce of fhe projecf
compIefion.
An esfimofe of fhe disfribufion of compIefion fimes, so fhof fhe
probobiIify of meefing o porficuIor compIefion dofe con be esfimofed.
The probobiIify fhof o porficuIor ocfivify wiII Iie on fhe crificoI pofh.
This is of inferesf since fhe Iongesf or crificoI pofh fhrough fhe
nefwork moy chonge os ocfivify durofions chonge.
The disodvonfoge of Monfe CorIo simuIofion resuIfs from fhe oddifionoI
informofion obouf ocfivify durofions fhof is required ond fhe compufofionoI
efforf invoIved in numerous scheduIing oppIicofions for eoch sef of simuIofed
durofions. For eoch ocfivify, fhe disfribufion of possibIe durofions os weII os
fhe poromefers of fhis disfribufion musf be specified. For exompIe,
durofions mighf be ossumed or esfimofed fo be uniformIy disfribufed
befween o Iower ond upper voIue. In oddifion, correIofions befween ocfivify
durofions shouId be specified. For exompIe, if fwo ocfivifies invoIve
ossembIing forms in differenf Iocofions ond of differenf fimes for o projecf,
fhen fhe fime required for eoch ocfivify is IikeIy fo be cIoseIy reIofed. If fhe
forms pose some probIems, fhen ossembIing fhem on bofh occosions mighf
foke Ionger fhon expecfed. This is on exompIe of o posifive correIofion in
ocfivify fimes. In oppIicofion, such correIofions ore commonIy ignored,
Ieoding fo errors in resuIfs. As o finoI probIem ond discourogemenf, eosy fo
use soffwore sysfems for Monfe CorIo simuIofion of projecf scheduIes ore
nof generoIIy ovoiIobIe. This is porficuIorIy fhe cose when correIofions
befween ocfivify durofions ore desired.
Anofher opprooch fo fhe simuIofion of differenf ocfivify durofions is fo
deveIop specific scenorios of evenfs ond defermine fhe effecf on fhe overoII
projecf scheduIe. This is o fype of "whof-if" probIem soIving in which o
monoger simuIofes evenfs fhof mighf occur ond sees fhe resuIf. For exompIe,
fhe effecfs of differenf weofher pofferns on ocfivify durofions couId be
esfimofed ond fhe resuIfing scheduIes for fhe differenf weofher pofferns
compored. One mefhod of obfoining informofion obouf fhe ronge of possibIe
scheduIes is fo oppIy fhe scheduIing procedure using oII opfimisfic, oII mosf
IikeIy, ond fhen oII pessimisfic ocfivify durofions. The resuIf is fhree projecf
scheduIes represenfing o ronge of possibIe oufcomes. This process of "whof-
if" onoIysis is simiIor fo fhof underfoken during fhe process of consfrucfion
pIonning or during onoIysis of projecf croshing.
EumpIe 11-1: ScheduIing uctivities with uncertuin time durutions,
Suppose fhof fhe nine ocfivify exompIe projecf shown in TobIe I0-Z ond
Figure I0-4 of Chopfer I0 wos fhoughf fo hove very uncerfoin ocfivify fime
durofions. As o resuIf, projecf scheduIing considering fhis uncerfoinfy is
desired. AII fhree mefhods (PEPT, Monfe CorIo simuIofion, ond "Whof-if"
simuIofion) wiII be oppIied.
TobIe II-I shows fhe esfimofed opfimisfic, mosf IikeIy ond pessimisfic
durofions for fhe nine ocfivifies. From fhese esfimofes, fhe meon, vorionce
ond sfondord deviofion ore coIcuIofed. In fhis coIcuIofion, ninefy-fiffh
percenfiIe esfimofes of opfimisfic ond pessimisfic durofion fimes ore
ossumed, so fhof Equofion (II.b) is oppIied. The crificoI pofh for fhis projecf
ignoring uncerfoinfy in ocfivify durofions consisfs of ocfivifies A, C, F ond I
os found in TobIe I0-3 (Secfion I0.3). AppIying fhe PEPT onoIysis procedure
suggesfs fhof fhe durofion of fhe projecf wouId be opproximofeIy normoIIy
disfribufed. The sum of fhe meons for fhe crificoI ocfivifies is 4.0 + 8.0 +
IZ.0 + o.0 ~ 30.0 doys, ond fhe sum of fhe vorionces is 0.4 + I.o + I.o + I.o ~
b.Z Ieoding fo o sfondord deviofion of Z.3 doys.
Wifh o normoIIy disfribufed projecf durofion, fhe probobiIify of meefing o
projecf deodIine is equoI fo fhe probobiIify fhof fhe sfondord normoI
disfribufion is Iess fhon or equoI fo (PD -
D
)|
D
where PD is fhe projecf
deodIine,
D
is fhe expecfed durofion ond
D
is fhe sfondord deviofion of
projecf durofion. For exompIe, fhe probobiIify of projecf compIefion wifhin
3b doys is:


where ; is fhe sfondord normoI disfribufion fobuIofed voIue of fhe
cumuIofive sfondord disfribufion oppeors in TobIe 8.I of Appendix 8.
Monfe CorIo simuIofion resuIfs provide sIighfIy differenf esfimofes of fhe
projecf durofion chorocferisfics. Assuming fhof ocfivify durofions ore
independenf ond opproximofeIy normoIIy disfribufed rondom voriobIes wifh
fhe meon ond vorionces shown in TobIe II-I, o simuIofion con be performed
by obfoining simuIofed durofion reoIi;ofion for eoch of fhe nine ocfivifies
ond oppIying crificoI pofh scheduIing fo fhe resuIfing nefwork. AppIying fhis
procedure b00 fimes, fhe overoge projecf durofion is found fo be 30.9 doys
wifh o sfondord deviofion of Z.b doys. The PEPT resuIf is Iess fhon fhis
esfimofe by 0.9 doys or fhree percenf. AIso, fhe crificoI pofh considered in
fhe PEPT procedure (consisfing of ocfivifies A, C, F ond I) is found fo be fhe
crificoI pofh in fhe simuIofed nefworks Iess fhon hoIf fhe fime.
TALE 11-1 Acfivify Durofion Esfimofes for o Mine Acfivify Projecf
Acfivify
Opfimisfic
Durofion
Mosf LikeIy
Durofion
Pessimisfic
Durofion Meon Vorionce
A
8
C
D
E
F
3
Z
o
b
o
I0
4
3
8
7
9
IZ
b
b
I0
8
I4
I4
4.0
3.Z
8.0
o.8
9.3
IZ.0
0.4
0.9
I.o
0.9
o.4
I.o
0
H
I
Z
4
4
Z
b
o
4
8
8
Z.3
b.3
o.0
0.4
I.o
I.o

If fhere ore correIofions omong fhe ocfivify durofions, fhen significonfIy
differenf resuIfs con be obfoined. For exompIe, suppose fhof ocfivifies C, E,
0 ond H ore oII posifiveIy correIofed rondom voriobIes wifh o correIofion of
0.b for eoch poir of voriobIes. AppIying Monfe CorIo simuIofion using b00
ocfivify nefwork simuIofions resuIfs in on overoge projecf durofion of 3o.b
doys ond o sfondord deviofion of 4.9 doys. This esfimofed overoge durofion
is o.b doys or Z0 percenf Ionger fhon fhe PEPT esfimofe or fhe esfimofe
obfoined ignoring uncerfoinfy in durofions. If correIofions Iike fhis exisf,
fhese mefhods con seriousIy underesfimofe fhe ocfuoI projecf durofion.
FinoIIy, fhe projecf durofions obfoined by ossuming oII opfimisfic ond oII
pessimisfic ocfivify durofions ore Z3 ond 4I doys respecfiveIy. Ofher "whof-
if" simuIofions mighf be conducfed for coses in which pecuIior soiI
chorocferisfics mighf moke excovofion difficuIf, fhese soiI pecuIiorifies
mighf be responsibIe for fhe correIofions of excovofion ocfivify durofions
described obove.
PesuIfs from fhe differenf mefhods ore summori;ed in TobIe II-Z. Mofe
fhof posifive correIofions omong some ocfivify durofions resuIfs in reIofiveIy
Iorge increoses in fhe expecfed projecf durofion ond voriobiIify.
TALE 11-Z Projecf Durofion PesuIfs from Vorious Techniques ond
Assumpfions for on ExompIe
Procedure ond Assumpfions
Projecf Durofion
(doys)
Sfondord Deviofion
of Projecf Durofion
(doys)
CrificoI Pofh Mefhod
PEPT Mefhod
Monfe CorIo SimuIofion
Mo Durofion CorreIofions
Posifive Durofion
CorreIofions
"Whof-if" SimuIofions
30.0
30.0

30.9
3o.b

Z3.0
MA
Z.3

Z.b
4.9

MA
Opfimisfic
Mosf LikeIy
Pessimisfic
30.0
4I.0
MA
MA


8ock fo fop
11,3 CuIcuIutions for Monte CurIo ScheduIe
SimuIution
In fhis secfion, we oufIine fhe procedures required fo perform Monfe CorIo
simuIofion for fhe purpose of scheduIe onoIysis. These procedures presume
fhof fhe vorious sfeps invoIved in forming o nefwork pIon ond esfimofing fhe
chorocferisfics of fhe probobiIify disfribufions for fhe vorious ocfivifies
hove been compIefed. 0iven o pIon ond fhe ocfivify durofion disfribufions,
fhe heorf of fhe Monfe CorIo simuIofion procedure is fhe derivofion of o
reoIi;ofion or synfhefic oufcome of fhe reIevonf ocfivify durofions. Once
fhese reoIi;ofions ore generofed, sfondord scheduIing fechniques con be
oppIied. We shoII presenf fhe formuIos ossociofed wifh fhe generofion of
normoIIy disfribufed ocfivify durofions, ond fhen commenf on fhe
requiremenfs for ofher disfribufions in on exompIe.
To generofe normoIIy disfribufed reoIi;ofions of ocfivify durofions, we con
use o fwo sfep procedure. Firsf, we generofe uniformIy disfribufed rondom
voriobIes, u
i
in fhe infervoI from ;ero fo one. Mumerous fechniques con be
used for fhis purpose. For exompIe, o generoI formuIo for rondom number
generofion con be of fhe form:
(II.o)

where ~ 3.I4Ib9Zob ond u
i-I
wos fhe previousIy generofed rondom number
or o pre-seIecfed beginning or seed number. For exompIe, o seed of u
0
~
0.ZIb in Eq. (II.o) resuIfs in u
I
~ 0.08Z0, ond by oppIying fhis voIue of u
I
, fhe
resuIf is u
Z
~ 0.I0Z9. This formuIo is o specioI cose of fhe mixed congruenfioI
mefhod of rondom number generofion. WhiIe Equofion (II.o) wiII resuIf in o
series of numbers fhof hove fhe oppeoronce ond fhe necessory sfofisficoI
properfies of frue rondom numbers, we shouId nofe fhof fhese ore ocfuoIIy
"pseudo" rondom numbers since fhe sequence of numbers wiII repeof given o
Iong enough fime.
Wifh o mefhod of generofing uniformIy disfribufed rondom numbers, we con
generofe normoIIy disfribufed rondom numbers using fwo uniformIy
disfribufed reoIi;ofions wifh fhe equofions: [3]
(II.7)

wifh


where x
k
is fhe normoI reoIi;ofion,
x
is fhe meon of x,
x
is fhe sfondord
deviofion of x, ond u
I
ond u
Z
ore fhe fwo uniformIy disfribufed rondom
voriobIe reoIi;ofions. For fhe cose in which fhe meon of on ocfivify is Z.b
doys ond fhe sfondord deviofion of fhe durofion is I.b doys, o corresponding
reoIi;ofion of fhe durofion is s ~ Z.Z3ob, f ~ 0.o4ob ond x
k
~ Z.bZb doys,
using fhe fwo uniform rondom numbers generofed from o seed of 0.ZIb
obove.
CorreIofed rondom number reoIi;ofions moy be generofed moking use of
condifionoI disfribufions. For exompIe, suppose fhof fhe durofion of on
ocfivify d is normoIIy disfribufed ond correIofed wifh o second normoIIy
disfribufed rondom voriobIe x which moy be onofher ocfivify durofion or o
seporofe focfor such os o weofher effecf. 0iven o reoIi;ofion x
k
of x, fhe
condifionoI disfribufion of d is sfiII normoI, buf if is o funcfion of fhe voIue
x
k
. In porficuIor, fhe condifionoI meon (
d
|x ~ x
k
) ond sfondord deviofion
(
d
|x ~ x
k
) of o normoIIy disfribufed voriobIe given o reoIi;ofion of fhe
second voriobIe is:
(II.8)


where
dx
is fhe correIofion coefficienf befween d ond x. Once x
k
is known,
fhe condifionoI meon ond sfondord deviofion con be coIcuIofed from Eq. (II.8)
ond fhen o reoIi;ofion of d obfoined by oppIying Equofion (II.7).
CorreIofion coefficienfs indicofe fhe exfenf fo which fwo rondom voriobIes
wiII fend fo vory fogefher. Posifive correIofion coefficienfs indicofe one
rondom voriobIe wiII fend fo exceed ifs meon when fhe ofher rondom voriobIe
does fhe some. From o sef of n hisforicoI observofions of fwo rondom
voriobIes, x ond y, fhe correIofion coefficienf con be esfimofed os:
(II.9)

The voIue of
xy
con ronge from one fo minus one, wifh voIues neor one
indicofing o posifive, neor Iineor reIofionship befween fhe fwo rondom
voriobIes.
If is oIso possibIe fo deveIop formuIos for fhe condifionoI disfribufion of o
rondom voriobIe correIofed wifh numerous ofher voriobIes, fhis is fermed o
muIfi-voriofe disfribufion. [4] Pondom number generofions from ofher fypes
of disfribufions ore oIso possibIe. [b] Once o sef of rondom voriobIe
disfribufions is obfoined, fhen fhe process of oppIying o scheduIing oIgorifhm
is required os described in previous secfions.
EumpIe 11-Z: A Three-Activity Progect EumpIe
Suppose fhof we wish fo oppIy o Monfe CorIo simuIofion procedure fo o
simpIe projecf invoIving fhree ocfivifies in series. As o resuIf, fhe crificoI
pofh for fhe projecf incIudes oII fhree ocfivifies. We ossume fhof fhe
durofions of fhe ocfivifies ore normoIIy disfribufed wifh fhe foIIowing
poromefers:
Acfivify
Meon
(Doys)
Sfondord Deviofion
(Doys)
A
8
C
Z.b
b.o
Z.4
I.b
Z.4
Z.0
To simuIofe fhe scheduIe effecfs, we generofe fhe durofion reoIi;ofions
shown in TobIe II-3 ond coIcuIofe fhe projecf durofion for eoch sef of fhree
ocfivify durofion reoIi;ofions.
For fhe fweIve sefs of reoIi;ofions shown in fhe fobIe, fhe meon ond
sfondord deviofion of fhe projecf durofion con be esfimofed fo be I0.49
doys ond 4.0o doys respecfiveIy. In fhis simpIe cose, we con oIso obfoin on
onoIyfic soIufion for fhis durofion, since if is onIy fhe sum of fhree
independenf normoIIy disfribufed voriobIes. The ocfuoI projecf durofion hos
o meon of I0.b doys, ond o sfondord deviofion of
doys. Wifh onIy o Iimifed number of
simuIofions, fhe meon obfoined from simuIofions is cIose fo fhe ocfuoI meon,
whiIe fhe esfimofed sfondord deviofion from fhe simuIofion differs
significonfIy from fhe ocfuoI voIue. This Ioffer difference con be offribufed
fo fhe nofure of fhe sef of reoIi;ofions used in fhe simuIofions, using o
Iorger number of simuIofed durofions wouId resuIf in o more occurofe
esfimofe of fhe sfondord deviofion.
TALE 11-3 Durofion PeoIi;ofions for o Monfe CorIo ScheduIe SimuIofion
SimuIofion Mumber Acfivify A Acfivify 8 Acfivify C Projecf Durofion
I
Z
3
4
b
o
7
8
I.b3
Z.o7
3.3o
0.39
Z.b0
Z.77
3.83
3.73
o.94
4.83
o.8o
7.ob
b.8Z
8.7I
Z.0b
I0.b7
I.04
Z.I7
b.bo
Z.I7
I.74
4.03
I.I0
3.Z4
9.bI
9.oo
Ib.78
I0.ZZ
I0.0o
Ib.bI
o.9o
I7.b3
9
I0
II
IZ
I.0o
I.I7
I.o8
0.37
3.o8
0.8o
9.47
o.oo
Z.47
I.37
0.I3
I.70
7.ZZ
3.40
II.Z7
8.7Z
Esfimofed Meon Projecf Durofion ~ I0.49
Esfimofed Sfondord Deviofion of Projecf Durofion ~ 4.0o
Mofe: AII durofions in doys.

EumpIe 11-3: Senerution of ReuIizutions from TriunguIur Distributions
To simpIify coIcuIofions for Monfe CorIo simuIofion of scheduIes, fhe use of o
frionguIor disfribufion is odvonfogeous compored fo fhe normoI or fhe befo
disfribufions. TrionguIor disfribufions oIso hove fhe odvonfoge reIofive fo
fhe normoI disfribufion fhof negofive durofions connof be esfimofed. As
iIIusfrofed in Figure II-Z, fhe frionguIor disfribufion con be skewed fo fhe
righf or Ieff ond hos finife Iimifs Iike fhe befo disfribufion. If o is fhe Iower
Iimif, b fhe upper Iimif ond m fhe mosf IikeIy voIue, fhen fhe meon ond
sfondord deviofion of o frionguIor disfribufion ore:
(II.I0)

(II.II)

The cumuIofive probobiIify funcfion for fhe frionguIor disfribufion is:
(II.IZ)

where F(x) is fhe probobiIify fhof fhe rondom voriobIe is Iess fhon or equoI
fo fhe voIue of x.



Figure 11-Z IIIusfrofion of Two TrionguIor Acfivify Durofion Disfribufions

0enerofing o rondom voriobIe from fhis disfribufion con be occompIished
wifh o singIe uniform rondom voriobIe reoIi;ofion using fhe inversion mefhod.
In fhis mefhod, o reoIi;ofion of fhe cumuIofive probobiIify funcfion, F(x) is
generofed ond fhe corresponding voIue of x is coIcuIofed. Since fhe
cumuIofive probobiIify funcfion vories from ;ero fo one, fhe densify funcfion
reoIi;ofion con be obfoined from fhe uniform voIue rondom number
generofor, Equofion (II.o). The coIcuIofion of fhe corresponding voIue of x is
obfoined from inverfing Equofion (II.IZ):
(II.I3)

For exompIe, if o ~ 3.Z, m ~ 4.b ond b ~ o.0, fhen
x
~ 4.8 ond
x
~ Z.7.
Wifh o uniform reoIi;ofion of u ~ 0.ZIb, fhen for (m-o)/(b-o) 0.ZIb, x wiII
Iie befween o ond m ond is found fo hove o voIue of 4.I from Equofion (II.I3).
11,4 Crushing und Time/Cost Trudeoffs
The previous secfions discussed fhe durofion of ocfivifies os eifher fixed or
rondom numbers wifh known chorocferisfics. However, ocfivify durofions con
offen vory depending upon fhe fype ond omounf of resources fhof ore
oppIied. Assigning more workers fo o porficuIor ocfivify wiII normoIIy resuIf in
o shorfer durofion. [o] 0reofer speed moy resuIf in higher cosfs ond Iower
quoIify, however. In fhis secfion, we shoII consider fhe impocfs of fime, cosf
ond quoIify frodeoffs in ocfivify durofions. In fhis process, we shoII discuss
fhe procedure of projecf croshing os described beIow.
A simpIe represenfofion of fhe possibIe reIofionship befween fhe durofion of
on ocfivify ond ifs direcf cosfs oppeors in Figure II-3. Considering onIy fhis
ocfivify in isoIofion ond wifhouf reference fo fhe projecf compIefion
deodIine, o monoger wouId undoubfedIy choose o durofion which impIies
minimum direcf cosf, represenfed by D
ij
ond C
ij
in fhe figure. UnforfunofeIy,
if eoch ocfivify wos scheduIed for fhe durofion fhof resuIfed in fhe minimum
direcf cosf in fhis woy, fhe fime fo compIefe fhe enfire projecf mighf be foo
Iong ond subsfonfioI penoIfies ossociofed wifh fhe Iofe projecf sforf-up
mighf be incurred. This is o smoII exompIe of sub-opfimi;ofion, in which o
smoII componenf of o projecf is opfimi;ed or improved fo fhe defrimenf of
fhe enfire projecf performonce. Avoiding fhis probIem of sub-opfimi;ofion is
o fundomenfoI concern of projecf monogers.



Figure 11-3 IIIusfrofion of o Lineor Time/Cosf Trodeoff for on Acfivify

Af fhe ofher exfreme, o monoger mighf choose fo compIefe fhe ocfivify in
fhe minimum possibIe fime, D
c
ij
, buf of o higher cosf C
c
ij
. This minimum
compIefion fime is commonIy coIIed fhe ocfivify crosh fime. The Iineor
reIofionship shown in fhe figure befween fhese fwo poinfs impIies fhof ony
infermediofe durofion couId oIso be chosen. If is possibIe fhof some
infermediofe poinf moy represenf fhe ideoI or opfimoI frode-off befween
fime ond cosf for fhis ocfivify.
Whof is fhe reoson for on increose in direcf cosf os fhe ocfivify durofion is
reduced7 A simpIe cose orises in fhe use of overfime work. 8y scheduIing
weekend or evening work, fhe compIefion fime for on ocfivify os meosured in
coIendor doys wiII be reduced. However, premium woges musf be poid for
such overfime work, so fhe cosf wiII increose. AIso, overfime work is more
prone fo occidenfs ond quoIify probIems fhof musf be correcfed, so indirecf
cosfs moy oIso increose. More generoIIy, we mighf nof expecf o Iineor
reIofionship befween durofion ond direcf cosf, buf some convex funcfion
such os fhe nonIineor curve or fhe sfep funcfion shown in Figure II-4. A
Iineor funcfion moy be o good opproximofion fo fhe ocfuoI curve, however,
ond resuIfs in considerobIe onoIyficoI simpIicify. [7]



Figure 11-4 IIIusfrofion of Mon-Iineor Time/Cosf Trodeoffs for on Acfivify

Wifh o Iineor reIofionship befween cosf ond durofion, fhe crificoI pofh
fime/cosf frodeoff probIem con be defined os o Iineor progromming
opfimi;ofion probIem. In porficuIor, Ief P
ij
represenf fhe rofe of chonge of
cosf os durofion is decreosed, iIIusfrofed by fhe obsoIufe voIue of fhe sIope
of fhe Iine in Figure II-3. Then, fhe direcf cosf of compIefing on ocfivify is:
(II.I4)

where fhe Iower cose c
ij
ond d
ij
represenf fhe scheduIed durofion ond
resuIfing cosf of fhe ocfivify ij. The ocfuoI durofion of on ocfivify musf foII
befween fhe minimum cosf fime (D
ij
) ond fhe crosh fime (D
c
ij
). AIso,
precedence consfroinfs musf be imposed os described eorIier for eoch
ocfivify. FinoIIy, fhe required compIefion fime for fhe projecf or,
oIfernofiveIy, fhe cosfs ossociofed wifh differenf compIefion fimes musf be
defined. Thus, fhe enfire scheduIing probIem is fo minimi;e fofoI cosf (equoI
fo fhe sum of fhe c
ij
voIues for oII ocfivifies) subjecf fo consfroinfs orising
from (I) fhe desired projecf durofion, PD, (Z) fhe minimum ond moximum
ocfivify durofion possibiIifies, ond (3) consfroinfs ossociofed wifh fhe
precedence or compIefion fimes of ocfivifies. AIgebroicoIIy, fhis is:
(II.Ib)

subjecf fo fhe consfroinfs:


where fhe nofofion is defined obove ond fhe decision voriobIes ore fhe
ocfivify durofions d
ij
ond evenf fimes x(k). The oppropriofe scheduIes for
differenf projecf durofions con be found by repeofedIy soIving fhis probIem
for differenf projecf durofions PD. The enfire probIem con be soIved by
Iineor progromming or more efficienf oIgorifhms which foke odvonfoge of
fhe specioI nefwork form of fhe probIem consfroinfs.
One soIufion fo fhe fime-cosf frodeoff probIem is of porficuIor inferesf ond
deserves menfion here. The minimum fime fo compIefe o projecf is coIIed fhe
projecf-crosh fime. This minimum compIefion fime con be found by oppIying
crificoI pofh scheduIing wifh oII ocfivify durofions sef fo fheir minimum
voIues (D
c
ij
). This minimum compIefion fime for fhe projecf con fhen be used
in fhe fime-cosf scheduIing probIem described obove fo defermine fhe
minimum projecf-crosh cosf. Mofe fhof fhe projecf crosh cosf is nof found
by seffing eoch ocfivify fo ifs crosh durofion ond summing up fhe resuIfing
cosfs, fhis soIufion is coIIed fhe oII-crosh cosf. Since fhere ore some
ocfivifies nof on fhe crificoI pofh fhof con be ossigned Ionger durofion
wifhouf deIoying fhe projecf, if is odvonfogeous fo chonge fhe oII-crosh
scheduIe ond fhereby reduce cosfs.
Heurisfic opprooches ore oIso possibIe fo fhe fime/cosf frodeoff probIem.
In porficuIor, o simpIe opprooch is fo firsf oppIy crificoI pofh scheduIing wifh
oII ocfivify durofions ossumed fo be of minimum cosf (D
ij
). Mexf, fhe pIonner
con exomine ocfivifies on fhe crificoI pofh ond reduce fhe scheduIed durofion
of ocfivifies which hove fhe Iowesf resuIfing increose in cosfs. In essence,
fhe pIonner deveIops o Iisf of ocfivifies on fhe crificoI pofh ronked in
occordonce wifh fhe unif chonge in cosf for o reducfion in fhe ocfivify
durofion. The heurisfic soIufion proceeds by shorfening ocfivifies in fhe
order of fheir Iowesf impocf on cosfs. As fhe durofion of ocfivifies on fhe
shorfesf pofh ore shorfened, fhe projecf durofion is oIso reduced.
EvenfuoIIy, onofher pofh becomes crificoI, ond o new Iisf of ocfivifies on fhe
crificoI pofh musf be prepored. 8y monuoI or oufomofic odjusfmenfs of fhis
kind, good buf nof necessoriIy opfimoI scheduIes con be idenfified. OpfimoI
or besf scheduIes con onIy be ossured by exomining chonges in combinofions
of ocfivifies os weII os chonges fo singIe ocfivifies. However, by oIfernofing
befween odjusfmenfs in porficuIor ocfivify durofions (ond fheir cosfs) ond o
crificoI pofh scheduIing procedure, o pIonner con foirIy ropidIy devise o
shorfer scheduIe fo meef o porficuIor projecf deodIine or, in fhe worsf cose,
find fhof fhe deodIine is impossibIe of occompIishmenf.
This fype of heurisfic opprooch fo fime-cosf frodeoffs is essenfioI when fhe
fime-cosf frodeoffs for eoch ocfivify ore nof known in odvonce or in fhe
cose of resource consfroinfs on fhe projecf. In fhese coses, heurisfic
expIorofions moy be usefuI fo defermine if greofer efforf shouId be spenf
on esfimofing fime-cosf frodeoffs or if oddifionoI resources shouId be
refoined for fhe projecf. In mony coses, fhe bosic fime/cosf frodeoff mighf
nof be o smoofh curve os shown in Figure II-4, buf onIy o series of porficuIor
resource ond scheduIe combinofions which produce porficuIor durofions. For
exompIe, o pIonner mighf hove fhe opfion of ossigning eifher one or fwo
crews fo o porficuIor ocfivify, in fhis cose, fhere ore onIy fwo possibIe
durofions of inferesf.
EumpIe 11-4: Time/Cost Trude-offs
The consfrucfion of o permonenf fronsifwoy on on expresswoy medion
iIIusfrofes fhe possibiIifies for fime/cosf frode-offs in consfrucfion work.
[8] One secfion of I0 miIes of fronsifwoy wos buiIf in I98b ond I98o fo
repIoce on exisfing confro-fIow Ione sysfem (in which one Ione in fhe
expresswoy wos reversed eoch doy fo provide oddifionoI copocify in fhe peok
fIow direcfion). Three engineers esfimofes for work fime were prepored:
97b coIendor doy, bosed on 7b0 working doys of b doys/week ond 8
hours/doy of work pIus 30 doys for bod weofher, weekends ond
hoIidoys.
70Z coIendor doys, bosed on b40 working doys of o doys/week ond I0
hours/doy of work.
3o0 coIendor doys, bosed on 7 doys/week ond Z4 hours/doy of work.
The sovings from eorIy compIefion due fo operofing sovings in fhe confro-
fIow Ione ond confrocf odminisfrofion cosfs were esfimofed fo be $b,000
per doy.
In occepfing bids for fhis consfrucfion work, fhe owner required bofh o
doIIor omounf ond o compIefion dofe. The bidders compIefion dofe wos
required fo foII befween 3o0 ond b40 doys. In evoIuofing confrocf bids, o
$b,000 credif wos oIIowed for eoch doy Iess fhon b40 doys fhof o bidder
specified for compIefion. In fhe end, fhe successfuI bidder compIefed fhe
projecf in Z70 doys, receiving o bonus of b,000^(b40-Z70) ~ $4b0,000 in
fhe $8,Z00,000 confrocf. However, fhe confrocfor experienced fiffeen fo
fhirfy percenf higher cosfs fo moinfoin fhe confinuous work scheduIe.
EumpIe 11-: Time cost trude-offs und progect crushing
As on exompIe of fime/cosf frode-offs ond projecf croshing, suppose fhof
we needed fo reduce fhe projecf compIefion fime for o seven ocfivify
producf deIivery projecf firsf onoIy;ed in Secfion I0.3 os shown in TobIe I0-
4 ond Figure I0-7. TobIe II-4 gives informofion perfoining fo possibIe
reducfions in fime which mighf be occompIished for fhe vorious ocfivifies.
Using fhe minimum cosf durofions (os shown in coIumn Z of TobIe II-4), fhe
crificoI pofh incIudes ocfivifies C,E,F,0 pIus o dummy ocfivify X. The projecf
durofion is 3Z doys in fhis cose, ond fhe projecf cosf is $70,000.
TALE 11-4 Acfivify Durofions ond Cosfs for o Seven Acfivify Projecf
Acfivify
Minimum
Cosf
MormoI
Durofion
Crosh
Cosf
Crosh
Durofion
Chonge in
Cosf per
Doy
A
8
C
D
E
F
0
8
4
8
I0
I0
Z0
I0
o
I
8
b
9
IZ
3
I4
4
Z4
Z4
I8
3o
I8
4
I
4
3
b
o
Z
3
---
4
7
Z
Z.7
8

Exomining fhe unif chonge in cosf, P
ij
shown in coIumn o of TobIe II-4, fhe
Iowesf rofe of chonge occurs for ocfivify E. AccordingIy, o good heurisfic
sfrofegy mighf be fo begin by croshing fhis ocfivify. The resuIf is fhof fhe
durofion of ocfivify E goes from 9 doys fo b doys ond fhe fofoI projecf cosf
increoses by $8,000. Affer moking fhis chonge, fhe projecf durofion drops
fo Z8 doys ond fwo crificoI pofhs exisf: (I) ocfivifies C,X,E,F ond 0, ond (Z)
ocfivifies C, D, F, ond 0.
Exomining fhe unif chonges in cosf ogoin, ocfivify F hos fhe Iowesf voIue of
P
ij
j. Croshing fhis ocfivify resuIfs in on oddifionoI fime sovings of o doys in
fhe projecf durofion, on increose in projecf cosf of $Io,000, buf no chonge
in fhe crificoI pofhs. The ocfivify on fhe crificoI pofh wifh fhe nexf Iowesf
unif chonge in cosf is ocfivify C. Croshing fhis ocfivify fo ifs minimum
compIefion fime wouId reduce ifs durofion by 4 doys of o cosf increose of
$Io,000. However, fhis reducfion does nof resuIf in o reducfion in fhe
durofion of fhe projecf by 4 doys. Affer ocfivify C is reduced fo 7 doys,
fhen fhe oIfernofe sequence of ocfivifies A ond 8 Iie on fhe crificoI pofh ond
furfher reducfions in fhe durofion of ocfivify C oIone do nof resuIf in projecf
fime sovings. AccordingIy, our heurisfic correcfions mighf be Iimifed fo
reducing ocfivify C by onIy I doy, fhereby increosing cosfs by $4,000 ond
reducing fhe projecf durofion by I doy.
Af fhis poinf, our choices for reducing fhe projecf durofion ore foirIy
Iimifed. We con eifher reduce fhe durofion of ocfivify 0 or, oIfernofiveIy,
reduce ocfivify C ond eifher ocfivify A or ocfivify 8 by on idenficoI omounf.
Inspecfion of TobIe II-4 ond Figure I0-4 suggesf fhof reducing ocfivify A
ond ocfivify C is fhe besf oIfernofive. AccordingIy, we con shorfen ocfivify A
fo ifs crosh durofion (from o doys fo 4 doys) ond shorfen fhe durofion of
ocfivify C (from 7 doys fo b doys) of on oddifionoI cosf of $o,000 + $8,000 ~
$I4,000. The resuIf is o reducfion in fhe projecf durofion of Z doys.
Our Iosf opfion for reducing fhe projecf durofion is fo crosh ocfivify 0 from
3 doys fo Z doys of on increose in cosf of $8,000. Mo furfher reducfions ore
possibIe in fhis fime since eoch ocfivify oIong o crificoI pofh (comprised of
ocfivifies A, 8, E, F ond 0) ore of minimum durofions. Af fhis poinf, fhe
projecf durofion is I8 doys ond fhe projecf cosf is $IZ0,000., represenfing o
fiffy percenf reducfion in projecf durofion ond o sevenfy percenf increose in
cosf. Mofe fhof nof oII fhe ocfivifies hove been croshed. Acfivify C hos been
reduced in durofion fo b doys (rofher fhon ifs 4 doy crosh durofion), whiIe
ocfivify D hos nof been chonged of oII. If oII ocfivifies hod been croshed, fhe
fofoI projecf cosf wouId hove been $I38,000, represenfing o useIess
expendifure of $I8,000. The chonge in projecf cosf wifh differenf projecf
durofions is shown grophicoIIy in Figure II-b.



Figure 11- Projecf Cosf Versus Time for o Seven Acfivify Projecf

EumpIe 11-: MuthemuticuI FormuIution of Time-Cost Trude-offs
The some resuIfs obfoined in fhe previous exompIe couId be obfoined using o
formoI opfimi;ofion progrom ond fhe dofo oppeoring in TobIes I0-4 ond II-4.
In fhis cose, fhe heurisfic opprooch used obove hos obfoined fhe opfimoI
soIufion of eoch sfoge. Using Eq. (II.Ib), fhe Iineor progromming probIem
formuIofion wouId be:
Minimi;e ;

~ [8+3(o-d
A
)] + [4] + [8+4(8-d
C
)] + [I0+7(b-d
D
)]
+ [I0+Z(9-d
E
)] + [Z0+Z.7(9-d
F
)] + [I0+Z(3-d
0
)]
subjecf fo fhe consfroinfs
x(o) ~ PD x(0) + d
A
x(Z)
x(0) + d
C
x(I)
x(I) x(3)
x(Z) + d
8
x(4)
x(I) + d
D
x(4)
x(Z) + d
E
x(4)
x(4) + d
F
x(b)
x(b) + d
0
x(o)
x(0) ~ 0
4 d
A
o
I d
8
I
4 d
C
8
3 d
D
b
b d
E
9
o d
F
IZ
Z d
0
3
which con be soIved for differenf voIues of projecf durofion PD using o
Iineor progromming oIgorifhm or o nefwork fIow oIgorifhm. Mofe fhof even
wifh onIy seven ocfivifies, fhe resuIfing Iineor progromming probIem is foirIy
Iorge.
11, ScheduIing in PoorIy Structured ProbIems
The previous discussion of ocfivify scheduIing suggesfed fhof fhe generoI
sfrucfure of fhe consfrucfion pIon wos known in odvonce. Wifh previousIy
defined ocfivifies, reIofionships omong ocfivifies, ond required resources,
fhe scheduIing probIem couId be represenfed os o mofhemoficoI opfimi;ofion
probIem. Even in fhe cose in which durofions ore uncerfoin, we ossumed fhof
fhe underIying probobiIify disfribufion of durofions is known ond oppIied
onoIyficoI fechniques fo invesfigofe scheduIes.
WhiIe fhese vorious scheduIing fechniques hove been exceedingIy usefuI,
fhey do nof cover fhe ronge of scheduIing probIems encounfered in procfice.
In porficuIor, fhere ore mony coses in which cosfs ond durofions depend upon
ofher ocfivifies due fo congesfion on fhe sife. In confrosf, fhe scheduIing
fechniques discussed previousIy ossume fhof durofions of ocfivifies ore
generoIIy independenf of eoch ofher. A second probIem sfems from fhe
compIexify of consfrucfion fechnoIogies. In fhe course of resource
oIIocofions, numerous oddifionoI consfroinfs or objecfives moy exisf fhof ore
difficuIf fo represenf onoIyficoIIy. For exompIe, differenf workers moy hove
specioIi;ed in one fype of ocfivify or onofher. Wifh greofer experience, fhe
work efficiency for porficuIor crews moy subsfonfioIIy increose.
UnforfunofeIy, represenfing such effecfs in fhe scheduIing process con be
very difficuIf. Anofher cose of compIexify occurs when ocfivify durofions
ond scheduIes ore negofiofed omong fhe differenf porfies in o projecf so
fhere is no singIe overoII pIonner.
A procficoI opprooch fo fhese fypes of concerns is fo insure fhof oII
scheduIes ore reviewed ond modified by experienced projecf monogers
before impIemenfofion. This monuoI review permifs fhe incorporofion of
gIoboI consfroinfs or considerofion of pecuIiorifies of workers ond
equipmenf. Indeed, inferocfive scheduIe revision fo occomodofe resource
consfroinfs is offen superior fo ony compufer bosed heurisfic. Wifh
improved grophic represenfofions ond informofion ovoiIobiIify, mon-mochine
inferocfion is IikeIy fo improve os o scheduIing procedure.
More generoIIy, fhe soIufion procedures for scheduIing in fhese more
compIicofed sifuofions connof be reduced fo mofhemoficoI oIgorifhms. The
besf soIufion opprooch is IikeIy fo be o "generofe-ond-fesf" cycIe for
oIfernofive pIons ond scheduIes. In fhis process, o possibIe scheduIe is
hypofhesi;ed or generofed. This scheduIe is fesfed for feosibiIify wifh
respecf fo reIevonf consfroinfs (such os ovoiIobIe resources or fime
hori;ons) ond desireobiIify wifh respecf fo differenf objecfives. IdeoIIy, fhe
process of evoIuofing on oIfernofive wiII suggesf direcfions for improvemenfs
or idenfify porficuIor froubIe spofs. These resuIfs ore fhen used in fhe
generofion of o new fesf oIfernofive. This process confinues unfiI o
sofisfocfory pIon is obfoined.
Two imporfonf probIems musf be borne in mind in oppIying o "generofe-ond-
fesf" sfrofegy. Firsf, fhe number of possibIe pIons ond scheduIes is
enormous, so considerobIe insighf fo fhe probIem musf be used in generofing
reosonobIe oIfernofives. SecondIy, evoIuofing oIfernofives oIso moy invoIve
considerobIe efforf ond judgmenf. As o resuIf, fhe number of ocfuoI cycIes
of oIfernofive fesfing fhof con be occomodofed is Iimifed. One hope for
compufer fechnoIogy in fhis regord is fhof fhe burdensome coIcuIofions
ossociofed wifh fhis fype of pIonning moy be ossumed by fhe compufer,
fhereby reducing fhe cosf ond required fime for fhe pIonning efforf. Some
mechonisms oIong fhese Iines ore described in Chopfer Ib.
EumpIe 11-9: Mun-muchine Inteructive ScheduIing
An inferocfive sysfem for scheduIing wifh resource consfroinfs mighf hove
fhe foIIowing chorocferisfics: [9]
grophic dispIoys of bor chorfs, resource use over fime, ocfivify
nefworks ond ofher grophic imoges ovoiIobIe in differenf windows of o
screen simuIfoneousIy,
descripfions of porficuIor ocfivifies incIuding oIIocofed resources ond
chosen fechnoIogies ovoiIobIe in windows os desired by o user,
o fhree dimensionoI onimofion of fhe consfrucfion process fhof con be
sfopped fo show fhe progress of consfrucfion on fhe fociIify of ony
fime,
eosy-fo-use mefhods for chonging sforf fimes ond oIIocofed
resources, ond
ufiIifies fo run reIevonf scheduIing oIgorifhms such os fhe crificoI pofh
mefhod of ony fime.
Figure II-o shows on exompIe of o screen for fhis sysfem. In Figure II-o, o
bor chorf oppeors in one window, o descripfion of on ocfivify in onofher
window, ond o groph of fhe use of o porficuIor resource over fime oppeors in
o fhird window. These differenf "windows" oppeor os secfions on o compufer
screen dispIoying differenf fypes of informofion. Wifh fhese copobiIifies, o
projecf monoger con coII up differenf picfures of fhe consfrucfion pIon ond
moke chonges fo occomodofe objecfives or consfroinfs fhof ore nof formoIIy
represenfed. Wifh ropid response fo such chonges, fhe effecfs con be
immediofeIy evoIuofed.



Figure 11- ExompIe of o 8or Chorf ond Ofher Windows for Inferocfive
ScheduIing


11, Improving the ScheduIing Process
Despife considerobIe offenfion by reseorchers ond procfifioners, fhe
process of consfrucfion pIonning ond scheduIing sfiII presenfs probIems ond
opporfunifies for improvemenf. The imporfonce of scheduIing in insuring fhe
effecfive coordinofion of work ond fhe offoinmenf of projecf deodIines is
indispufobIe. For Iorge projecfs wifh mony porfies invoIved, fhe use of formoI
scheduIes is indispensobIe.
The nefwork modeI for represenfing projecf ocfivifies hos been provided os
on imporfonf concepfuoI ond compufofionoI fromework for pIonning ond
scheduIing. Mefworks nof onIy communicofe fhe bosic precedence
reIofionships befween ocfivifies, fhey oIso form fhe bosis for mosf
scheduIing compufofions.
As o procficoI moffer, mosf projecf scheduIing is performed wifh fhe crificoI
pofh scheduIing mefhod, suppIemenfed by heurisfic procedures used in
projecf crosh onoIysis or resource consfroined scheduIing. Mony commercioI
soffwore progroms ore ovoiIobIe fo perform fhese fosks. ProbobiIisfic
scheduIing or fhe use of opfimi;ofion soffwore fo perform fime/cosf frode-
offs is rofher more infrequenfIy oppIied, buf fhere ore soffwore progroms
ovoiIobIe fo perform fhese fosks if desired.
Pofher fhon concenfrofing upon more eIoborofe soIufion oIgorifhms, fhe mosf
imporfonf innovofions in consfrucfion scheduIing ore IikeIy fo oppeor in fhe
oreos of dofo sforoge, eose of use, dofo represenfofion, communicofion ond
diognosfic or inferprefofion oids. Infegrofion of scheduIing informofion wifh
occounfing ond design informofion fhrough fhe meons of dofobose sysfems is
one beneficioI innovofion, mony scheduIing sysfems do nof provide such
infegrofion of informofion. The fechniques discussed in Chopfer I4 ore
porficuIorIy usefuI in fhis regord.
Wifh regord fo eose of use, fhe infroducfion of inferocfive scheduIing
sysfems, grophicoI oufpuf devices ond oufomofed dofo ocquisifion shouId
produce o very differenf environmenf fhon hos exisfed. In fhe posf,
scheduIing wos performed os o bofch operofion wifh oufpuf confoined in
Iengfhy fobIes of numbers. Updofing of work progress ond revising ocfivify
durofion wos o fime consuming monuoI fosk. If is no surprise fhof monogers
viewed scheduIing os exfremeIy burdensome in fhis environmenf. The Iower
cosfs ossociofed wifh compufer sysfems os weII os improved soffwore moke
"user friendIy" environmenfs o reoI possibiIify for fieId operofions on Iorge
projecfs.
FinoIIy, informofion represenfofion is on oreo which con resuIf in subsfonfioI
improvemenfs. WhiIe fhe nefwork modeI of projecf ocfivifies is on exfremeIy
usefuI device fo represenf o projecf, mony ospecfs of projecf pIons ond
ocfivify infer-reIofionships connof or hove nof been represenfed in nefwork
modeIs. For exompIe, fhe simiIorify of processes omong differenf ocfivifies
is usuoIIy unrecorded in fhe formoI projecf represenfofion. As o resuIf,
updofing o projecf nefwork in response fo new informofion obouf o process
such os concrefe pours con be fedious. Whof is needed is o much more
fIexibIe ond compIefe represenfofion of projecf informofion. Some ovenues
for chonge oIong fhese Iines ore discussed in Chopfer Ib.

11,7 References
I. 8rofIey, PouI, 8enneff L. Fox ond Linus E. Schroge, A 0uide fo
SimuIofion, Springer-VerIog, I973.
Z. EImoghroby, S.E., Acfivify Mefworks: Projecf PIonning ond ConfroI by
Mefwork ModeIs, John WiIey, Mew York, I977.
3. Jockson, M.J., Compufers in Consfrucfion PIonning ond ConfroI, AIIen &
Unwin, London, I98o.
4. Moder, J., C. PhiIIips ond E. Dovis, Projecf Monogemenf wifh CPM,
PEPT ond Precedence Diogromming, Third Edifion, Von Mosfrond
PeinhoId Compony, I983.
11, ProbIems
I. For fhe projecf defined in ProbIem I from Chopfer I0, suppose fhof
fhe eorIy, mosf IikeIy ond Iofe fime scheduIes ore desired. Assume
fhof fhe ocfivify durofions ore opproximofeIy normoIIy disfribufed
wifh meons os given in TobIe I0-Io ond fhe foIIowing sfondord
deviofions: A: 4, 8: I0, C: I, D: Ib, E: o, F: IZ, 0: 9, H: Z, I: 4, J: b, I:
I, L: IZ, M: Z, M: I, O: b. (o) Find fhe eorIy, mosf IikeIy ond Iofe fime
scheduIes, ond (b) esfimofe fhe probobiIify fhof fhe projecf requires
Zb7 more fime fhon fhe expecfed durofion.
Z. For fhe projecf defined in ProbIem Z from Chopfer I0, suppose fhof
fhe eorIy, mosf IikeIy ond Iofe fime scheduIes ore desired. Assume
fhof fhe ocfivify durofions ore opproximofeIy normoIIy disfribufed
wifh meons os given in TobIe I0-I7 ond fhe foIIowing sfondord
deviofions: A: Z, 8: Z, C: I, D: 0, E: 0, F: Z, 0: 0, H: 0, I: 0, J: 3, I: 0, L:
3, M: Z, M: I. (o) Find fhe eorIy, mosf IikeIy ond Iofe fime scheduIes,
ond (b) esfimofe fhe probobiIify fhof fhe projecf requires Zb7 more
fime fhon fhe expecfed durofion.
3 fo o
The fime-cosf frodeoff dofo corresponding fo eoch of fhe ProbIems I
fo 4 (in Chopfer I0), respecfiveIy ore given in fhe fobIe for fhe
probIem (TobIes II-b fo II-8). Defermine fhe oII-crosh ond fhe projecf
crosh durofions ond cosf bosed on fhe eorIy fime scheduIe for fhe
projecf. AIso, suggesf o combinofion of ocfivify durofions which wiII
Ieod fo o projecf compIefion fime equoI fo fhree doys Ionger fhon fhe
projecf crosh fime buf wouId resuIf in fhe (opproximofeIy) moximum
sovings.
TALE 11-
Acfivify A 8 C D E F 0 H I J I L M M
Shorfesf
PossibIe
CompIefion
Time 3 b I I0 4 o o Z 4 3 3 3 Z Z
MormoI
CompIefion
Time Cosf Ib0 Zb0 80 400 ZZ0 300 Zo0 IZ0 Z00 I80 ZZ0 b00 I00 IZ0
Chonge in
Cosf Per
Doy
EorIier
CompIefion Z0 30 Infinify Ib Z0 Zb I0 3b Z0 Infinify Zb Ib 30 Infinify
TALE 11-
Acfivify A 8 C D E F 0 H I J I L M M
Shorfesf
PossibIe Z 4 I 3 3 b Z I Z o I 4 3 Z
CompIefion
Time
MormoI
CompIefion
Time Cosf 400 4b0 Z00 300 3b0 bb0 Zb0 I80 Ib0 480 IZ0 b00 Z80 ZZ0
Crosh
CompIefion
Time Cosf 4o0 bI0 Zb0 3b0 430 o40 300 Zb0 Ib0 bZ0 Ib0 bo0 3Z0 Zo0
TALE 11-7
Acfivify A 8 C D E F 0 H I J I L
Shorfesf PossibIe
CompIefion Time 4 8 II 4 I 9 o Z 3 Z 7 3
MormoI
CompIefion
Time Cosf 70 Ib0 Z00 o0 40 IZ0 I00 b0 70 o0 IZ0 70
Crosh CompIefion
Time Cosf 90 ZI0 Zb0 80 o0 I40 I30 70 90 80 Ib0 I00
TALE 11-
Acfivify A 8 C D E F 0 H I J I L M
Shorfesf
PossibIe
CompIefion
Time 3 b Z Z b 3 b o o 4 b Z Z
MormoI
CompIefion
Time Cosf b0 Ib0 90 IZb 300 Z40 80 Z70 IZ0 o00 300 80 I40
Chonge in
Cosf Per
Doy
EorIier
CompIefion Infinify b0 Infinify 40 30 Z0 Ib 30 Infinify 40 b0 40 40
7 fo I0
DeveIop o projecf compIefion fime versus cosf frodeoff curve for fhe
projecfs in ProbIems 3 fo o. (Mofe: o Iineor progromming compufer
progrom or more specioIi;ed progroms con reduce fhe coIcuIofing work
invoIved in fhese probIemsl)
II. Suppose fhof fhe projecf described in ProbIem b from Chopfer I0
proceeds normoIIy on on eorIiesf fime scheduIe wifh oII ocfivifies
scheduIed for fheir normoI compIefion fime. However, suppose fhof
ocfivify 0 requires Z0 doys rofher fhon fhe expecfed b. Whof mighf o
projecf monoger do fo insure compIefion of fhe projecf by fhe
originoIIy pIonned compIefion fime7
IZ. For fhe projecf defined in ProbIem I from Chopfer I0, suppose fhof o
Monfe CorIo simuIofion wifh fen repefifions is desired. Suppose
furfher fhof fhe ocfivify durofions hove o frionguIor disfribufion wifh
fhe foIIowing Iower ond upper bounds: A:4,8, 8:4,9, C: 0.b,Z, D: I0,Z0,
E: 4,7, F: 7,I0, 0: 8, IZ, H: Z,4, I: 4,7, J: Z,4, I: Z,o, L: I0, Ib, M: Z,9,
M: I,4, O: 4,II.
(o) CoIcuIofe fhe voIue of m for eoch ocfivify given fhe upper ond
Iower bounds ond fhe expecfed durofion shown in TobIe I0-Io.
(b) 0enerofe o sef of reoIi;ofions for eoch ocfivify ond coIcuIofe fhe
resuIfing projecf durofion.
(c) Pepeof porf (b) five fimes ond esfimofe fhe meon ond sfondord
deviofion of fhe projecf durofion.
I3. Suppose fhof fwo voriobIes bofh hove frionguIor disfribufions ond ore
correIofed. The resuIfing muIfi-voriobIe probobiIify densify funcfion
hos o frionguIor shope. DeveIop fhe formuIo for fhe condifionoI
disfribufion of one voriobIe given fhe corresponding reoIi;ofion of fhe
ofher voriobIe.
11,9 Footnotes
I. See D. 0. MoIcoIm, J.H. PosenbIoom, C.E. CIork, ond W. Fo;or, "AppIicofions
of o Technique for P ond D Progrom EvoIuofion," Operofions Peseorch, VoI. 7,
Mo. b, I9b9, pp. o4o-oo9. 8ock
Z. See M.W. Sosieni, "A Mofe on PEPT Times," Monogemenf Science, VoI. 3Z,
Mo. IZ, p I98o, p. IobZ-Iob3, ond T.I. LiffIefieId ond P.H. PondoIph, "An
Answer fo Sosienis Quesfion on Perf Times," Monogemenf Science, VoI. 33,
Mo. I0, I987, pp. I3b7-I3b9. For o generoI discussion of fhe 8efo
disfribufion, see M.L. Johnson ond S. Iof;, Confinuous Univoriofe
Disfribufions-Z, John WiIey & Sons, I970, Chopfer Z4. 8ock
3. See T. Au, P.M. Shone, ond L.A. HoeI, FundomenfoIs of Sysfems
Engineering - ProbobiIisfic ModeIs, Addison-WesIey PubIishing Compony,
I97Z. 8ock
4. See M.L. Johnson ond S. Iof;, Disfribufions in Sfofisfics: Confinuous
MuIfivoriofe Disfribufions, John WiIey & Sons, Mew York, I973. 8ock
b. See, for exompIe, P. 8rofIey, 8. L. Fox ond L.E. Schroge, A 0uide fo
SimuIofion, Springer-VerIog, Mew York, I983. 8ock
o. There ore excepfions fo fhis ruIe, fhough. More workers moy oIso meon
oddifionoI froining burdens ond more probIems of communicofion ond
monogemenf. Some ocfivifies connof be eosiIy broken info fosks for
numerous individuoIs, some ospecfs of compufer progromming provide
nofobIe exompIes. Indeed, soffwore progromming con be so perverse fhof
exompIes exisf of oddifionoI workers resuIfing in sIower projecf compIefion.
See F.P. 8rooks, jr. , The MyfhicoI Mon-Monfh, Addison WesIey, Peoding, MA
I97b. 8ock
7. For o discussion of soIufion procedures ond onoIogies of fhe generoI
funcfion fime/cosf frodeoff probIem, see C. Hendrickson ond 8.M. Jonson,
"A Common Mefwork FIow FormuIofion for SeveroI CiviI Engineering
ProbIems," CiviI Engineering Sysfems, VoI. I, Mo. 4, I984, pp. I9b-Z03. 8ock
8. This exompIe wos obsfrocfed from work performed in Housfon ond
reporfed in U. Officer, "Using AcceIerofed Confrocfs wifh Incenfive
Provisions for Tronsifwoy Consfrucfion in Housfon," Poper Presenfed of fhe
Jonuory I98o Tronsporfofion Peseorch 8oord AnnuoI Conference,
Woshingfon, D.C. 8ock
9. This descripfion is bosed on on inferocfive scheduIing sysfem deveIoped of
Cornegie MeIIon Universify ond described in C. Hendrickson, C. Zo;oyo-
0orosfi;o, D. Pehok, E. 8orocco-MiIIer ond P. Lim, "An Experf Sysfem for
Consfrucfion PIonning," ASCE JournoI of Compufing, VoI. I, Mo. 4, I987, pp.
Zb3-Zo9. 8ock


Cost ControI Monitoring und Accounting
The Cost ControI ProbIem
The Progect udget
Forecusting for Activity Cost ControI
FinunciuI Accounting Systems und Cost Accounts
ControI of Progect Cush FIows
ScheduIe ControI
ScheduIe und udget Updutes
ReIuting Cost und ScheduIe Informution
References
ProbIems
Footnotes
1Z, Cost ControI Monitoring und
Accounting
1Z,1 The Cost ControI ProbIem
During fhe execufion of o projecf, procedures for projecf confroI ond
record keeping become indispensobIe fooIs fo monogers ond ofher
porficiponfs in fhe consfrucfion process. These fooIs serve fhe duoI purpose
of recording fhe finoncioI fronsocfions fhof occur os weII os giving monogers
on indicofion of fhe progress ond probIems ossociofed wifh o projecf. The
probIems of projecf confroI ore opfIy summed up in on oId definifion of o
projecf os "ony coIIecfion of vogueIy reIofed ocfivifies fhof ore ninefy
percenf compIefe, over budgef ond Iofe." [I] The fosk of projecf confroI
sysfems is fo give o foir indicofion of fhe exisfence ond fhe exfenf of such
probIems.
In fhis chopfer, we consider fhe probIems ossociofed wifh resource
ufiIi;ofion, occounfing, moniforing ond confroI during o projecf. In fhis
discussion, we emphosi;e fhe projecf monogemenf uses of occounfing
informofion. Inferprefofion of projecf occounfs is generoIIy nof
sfroighfforword unfiI o projecf is compIefed, ond fhen if is foo Iofe fo
infIuence projecf monogemenf. Even offer compIefion of o projecf, fhe
occounfing resuIfs moy be confusing. Hence, monogers need fo know how fo
inferpref occounfing informofion for fhe purpose of projecf monogemenf. In
fhe process of considering monogemenf probIems, however, we shoII discuss
some of fhe common occounfing sysfems ond convenfions, oIfhough our
purpose is nof fo provide o comprehensive survey of occounfing procedures.
The Iimifed objecfive of projecf confroI deserves emphosis. Projecf confroI
procedures ore primoriIy infended fo idenfify deviofions from fhe projecf
pIon rofher fhon fo suggesf possibIe oreos for cosf sovings. This
chorocferisfic refIecfs fhe odvonced sfoge of which projecf confroI becomes
imporfonf. The fime of which mojor cosf sovings con be ochieved is during
pIonning ond design for fhe projecf. During fhe ocfuoI consfrucfion, chonges
ore IikeIy fo deIoy fhe projecf ond Ieod fo inordinofe cosf increoses. As o
resuIf, fhe focus of projecf confroI is on fuIfiIIing fhe originoI design pIons
or indicofing deviofions from fhese pIons, rofher fhon on seorching for
significonf improvemenfs ond cosf sovings. If is onIy when o rescue operofion
is required fhof mojor chonges wiII normoIIy occur in fhe consfrucfion pIon.
FinoIIy, fhe issues ossociofed wifh infegrofion of informofion wiII require
some discussion. Projecf monogemenf ocfivifies ond funcfionoI concerns ore
infimofeIy Iinked, yef fhe fechniques used in mony insfonces do nof fociIifofe
comprehensive or infegrofed considerofion of projecf ocfivifies. For
exompIe, scheduIe informofion ond cosf occounfs ore usuoIIy kepf seporofeIy.
As o resuIf, projecf monogers fhemseIves musf synfhesi;e o comprehensive
view from fhe differenf reporfs on fhe projecf pIus fheir own fieId
observofions. In porficuIor, monogers ore offen forced fo infer fhe cosf
impocfs of scheduIe chonges, rofher fhon being provided wifh oids for fhis
process. Communicofion or infegrofion of vorious fypes of informofion con
serve o number of usefuI purposes, oIfhough if does require specioI offenfion
in fhe esfobIishmenf of projecf confroI procedures.
1Z,Z The Progect udget
For cosf confroI on o projecf, fhe consfrucfion pIon ond fhe ossociofed cosh
fIow esfimofes con provide fhe boseIine reference for subsequenf projecf
moniforing ond confroI. For scheduIes, progress on individuoI ocfivifies ond
fhe ochievemenf of miIesfone compIefions con be compored wifh fhe projecf
scheduIe fo monifor fhe progress of ocfivifies. Confrocf ond job
specificofions provide fhe criferio by which fo ossess ond ossure fhe
required quoIify of consfrucfion. The finoI or defoiIed cosf esfimofe provides
o boseIine for fhe ossessmenf of finoncioI performonce during fhe projecf.
To fhe exfenf fhof cosfs ore wifhin fhe defoiIed cosf esfimofe, fhen fhe
projecf is fhoughf fo be under finoncioI confroI. Overruns in porficuIor cosf
cofegories signoI fhe possibiIify of probIems ond give on indicofion of exocfIy
whof probIems ore being encounfered. Expense orienfed consfrucfion
pIonning ond confroI focuses upon fhe cofegories incIuded in fhe finoI cosf
esfimofion. This focus is porficuIor reIevonf for projecfs wifh few ocfivifies
ond considerobIe repefifion such os groding ond poving roodwoys.
For confroI ond moniforing purposes, fhe originoI defoiIed cosf esfimofe is
fypicoIIy converfed fo o projecf budgef, ond fhe projecf budgef is used
subsequenfIy os o guide for monogemenf. Specific ifems in fhe defoiIed cosf
esfimofe become job cosf eIemenfs. Expenses incurred during fhe course of
o projecf ore recorded in specific job cosf occounfs fo be compored wifh fhe
originoI cosf esfimofes in eoch cofegory. Thus, individuoI job cosf occounfs
generoIIy represenf fhe bosic unif for cosf confroI. AIfernofiveIy, job cosf
occounfs moy be disoggregofed or divided info work eIemenfs which ore
reIofed bofh fo porficuIor scheduIed ocfivifies ond fo porficuIor cosf
occounfs. Work eIemenf divisions wiII be described in Secfion IZ.8.
In oddifion fo cosf omounfs, informofion on moferioI quonfifies ond Iobor
inpufs wifhin eoch job occounf is oIso fypicoIIy refoined in fhe projecf
budgef. Wifh fhis informofion, ocfuoI moferioIs usoge ond Iobor empIoyed con
be compored fo fhe expecfed requiremenfs. As o resuIf, cosf overruns or
sovings on porficuIor ifems con be idenfified os due fo chonges in unif prices,
Iobor producfivify or in fhe omounf of moferioI consumed.
The number of cosf occounfs ossociofed wifh o porficuIor projecf con vory
considerobIy. For consfrucfors, on fhe order of four hundred seporofe cosf
occounfs mighf be used on o smoII projecf. [Z] These occounfs record oII fhe
fronsocfions ossociofed wifh o projecf. Thus, seporofe occounfs mighf exisf
for differenf fypes of moferioIs, equipmenf use, poyroII, projecf office, efc.
8ofh physicoI ond non-physicoI resources ore represenfed, incIuding
overheod ifems such os compufer use or inferesf chorges. TobIe IZ-I
summori;es o fypicoI sef of cosf occounfs fhof mighf be used in buiIding
consfrucfion. [3] Mofe fhof fhis sef of occounfs is orgoni;ed hierorchicoIIy,
wifh seven mojor divisions (occounfs Z0I fo Z07) ond numerous sub-divisions
under eoch division. This hierorchicoI sfrucfure fociIifofes oggregofion of
cosfs info pre-defined cofegories, for exompIe, cosfs ossociofed wifh fhe
supersfrucfure (occounf Z04) wouId be fhe sum of fhe underIying
subdivisions (ie. Z04.I, Z04.Z, efc.) or finer IeveIs of defoiI (Z04.oI, Z04.oZ,
efc.). The sub-division occounfs in TobIe IZ-I couId be furfher divided info
personneI, moferioI ond ofher resource cosfs for fhe purpose of finoncioI
occounfing, os described in Secfion IZ.4.
TALE 1Z-1 IIIusfrofive Sef of Projecf Cosf Accounfs
Z0I CIeoring ond Preporing Sife
Z0Z
Z0Z.I
Z0Z.Z
Z0Z.3
Z0Z.3I
Z0Z.3Z
Z0Z.33
Subsfrucfure
Excovofion ond Shoring
PiIing
Concrefe Mosonry
Mixing ond PIocing
Formwork
Peinforcing
Z03 Oufside UfiIifies (wofer, gos, sewer, efc.)
Z04
Z04.I
Z04.Z
Z04.3
Z04.4
Z04.b
Z04.o
Z04.oI
Z04.oZ
Z04.o3
Z04.o4
Z04.ob
Z04.oo
Z04.o7
Supersfrucfure
Mosonry Consfrucfion
SfrucfuroI SfeeI
Wood Froming, Porfifions, efc.
Exferior Finishes (brickwork, ferro coffo, cuf sfone, efc.)
Poofing, Droins, 0uffers, FIoshing, efc.
Inferior Finish ond Trim
Finish FIooring, Sfoirs, Doors, Trim
0Ioss, Windows, 0Io;ing
MorbIe, TiIe, Terro;;o
Lofhing ond PIosfering
Soundproofing ond InsuIofion
Finish Hordwore
Poinfing ond Decorofing
Z04.o8
Z04.o9
Z04.7
Z04.7I
Z04.7Z
Z04.73
Z04.74
Z04.7Z
Woferproofing
SprinkIers ond Fire Profecfion
Service Work
EIecfricoI Work
Heofing ond VenfiIofing
PIumbing ond Sewoge
Air Condifioning
Fire AIorm, TeIephone, Securify, MisceIIoneous
Z0b Poving, Curbs, WoIks
Z0o InsfoIIed Equipmenf (eIevofors, revoIving doors, moiIchufes, efc.)
Z07 Fencing

In deveIoping or impIemenfing o sysfem of cosf occounfs, on oppropriofe
numbering or coding sysfem is essenfioI fo fociIifofe communicofion of
informofion ond proper oggregofion of cosf informofion. PorficuIor cosf
occounfs ore used fo indicofe fhe expendifures ossociofed wifh specific
projecfs ond fo indicofe fhe expendifures on porficuIor ifems fhroughouf on
orgoni;ofion. These ore exompIes of differenf perspecfives on fhe some
informofion, in which fhe some informofion moy be summori;ed in differenf
woys for specific purposes. Thus, more fhon one oggregofion of fhe cosf
informofion ond more fhon one oppIicofion progrom con use o porficuIor cosf
occounf. Seporofe idenfifiers of fhe fype of cosf occounf ond fhe specific
projecf musf be provided for projecf cosf occounfs or for finoncioI
fronsocfions. As o resuIf, o sfondord sef of cosf codes such os fhe
MASTEPFOPMAT codes described in Chopfer 9 moy be odopfed fo idenfify
cosf occounfs oIong wifh projecf idenfifiers ond exfensions fo indicofe
orgoni;ofion or job specific needs. SimiIorIy fhe use of dofoboses or, of o
minimum, infer-communicofing oppIicofions progroms fociIifofe occess fo cosf
informofion, os described in Chopfer I4.
Converfing o finoI cosf esfimofe info o projecf budgef compofibIe wifh on
orgoni;ofions cosf occounfs is nof oIwoys o sfroighfforword fosk. As
described in Chopfer b, cosf esfimofes ore generoIIy disoggregofed info
oppropriofe funcfionoI or resource bosed projecf cofegories. For exompIe,
Iobor ond moferioI quonfifies mighf be incIuded for eoch of severoI physicoI
componenfs of o projecf. For cosf occounfing purposes, Iobor ond moferioI
quonfifies ore oggregofed by fype no moffer for which physicoI componenf
fhey ore empIoyed. For exompIe, porficuIor fypes of workers or moferioIs
mighf be used on numerous differenf physicoI componenfs of o fociIify.
Moreover, fhe cofegories of cosf occounfs esfobIished wifhin on orgoni;ofion
moy beor IiffIe resembIonce fo fhe quonfifies incIuded in o finoI cosf
esfimofe. This is porficuIorIy frue when finoI cosf esfimofes ore prepored in
occordonce wifh on exfernoI reporfing requiremenf rofher fhon in view of
fhe exisfing cosf occounfs wifhin on orgoni;ofion.
One porficuIor probIem in forming o projecf budgef in ferms of cosf
occounfs is fhe freofmenf of confingency omounfs. These oIIowonces ore
incIuded in projecf cosf esfimofes fo occommodofe unforeseen evenfs ond
fhe resuIfing cosfs. However, in odvonce of projecf compIefion, fhe source
of confingency expenses is nof known. PeoIisficoIIy, o budgef occounfing ifem
for confingency oIIowonce shouId be esfobIished whenever o confingency
omounf wos incIuded in fhe finoI cosf esfimofe.
A second probIem in forming o projecf budgef is fhe freofmenf of infIofion.
TypicoIIy, finoI cosf esfimofes ore formed in ferms of reoI doIIors ond on
ifem refIecfing infIofion cosfs is odded on os o percenfoge or Iump sum. This
infIofion oIIowonce wouId fhen be oIIocofed fo individuoI cosf ifems in reIofion
fo fhe ocfuoI expecfed infIofion over fhe period for which cosfs wiII be
incurred.
EumpIe 1Z-1: Progect udget for u Design Office
An exompIe of o smoII projecf budgef is shown in TobIe IZ-Z. This budgef
mighf be used by o design firm for o specific design projecf. WhiIe fhis
budgef mighf represenf oII fhe work for fhis firm on fhe projecf, numerous
ofher orgoni;ofions wouId be invoIved wifh fheir own budgefs. In TobIe IZ-Z,
o summory budgef is shown os weII os o defoiIed Iisfing of cosfs for
individuoIs in fhe Engineering Division. For fhe purpose of consisfency wifh
cosf occounfs ond monogerioI confroI, Iobor cosfs ore oggregofed info fhree
groups: fhe engineering, orchifecfuroI ond environmenfoI divisions. The
defoiIed budgef shown in TobIe IZ-Z oppIies onIy fo fhe engineering division
Iobor, ofher defoiIed budgefs omounfs for cofegories such os suppIies ond
fhe ofher work divisions wouId oIso be prepored. Mofe fhof fhe soIory cosfs
ossociofed wifh individuoIs ore oggregofed fo obfoin fhe fofoI Iobor cosfs in
fhe engineering group for fhe projecf. To perform fhis oggregofion, some
meons of idenfifying individuoIs wifhin orgoni;ofionoI groups is required.
Accomponying o budgef of fhis nofure, some esfimofe of fhe ocfuoI mon-
hours of Iobor required by projecf fosk wouId oIso be prepored. FinoIIy, fhis
budgef mighf be used for infernoI purposes oIone. In submiffing finoncioI
biIIs ond reporfs fo fhe cIienf, overheod ond confingency omounfs mighf be
combined wifh fhe direcf Iobor cosfs fo esfobIish on oggregofe biIIing rofe
per hour. In fhis cose, fhe overheod, confingency ond profif wouId represenf
oIIocofed cosfs bosed on fhe direcf Iobor cosfs.
TALE 1Z-Z ExompIe of o
SmoII Projecf 8udgef for o
Design Firm

PersonneI
ArchifecfuroI
Division
Engineering
EnvironmenfoI
Division
TofoI

Ofher Direcf
Expenses
TroveI
SuppIies
Communicofion
Compufer
Services
TofoI

Overheod

Confingency
ond Profif

TofoI
udget
Summury

$ o7,ZbI.00
4b,37Z.00
Z8,Z3b.00
$I40,8b8.00


Z,400.00
I,b00.00
o00.00
I,Z00.00
$ b,700.00

$ I7b,8o9.o0

$
9b,700.00

$ 4I8,IZ7.o0

Senior Engineer
Engineering
PersonneI
Associofe
Engineer
Engineer
Technicion

TofoI
DetuiI

$ II,boZ.00
ZI,3ob.00
IZ,ob4.00

$ 4b,37Z.00

EumpIe 1Z-Z: Progect udget for u Constructor
TobIe IZ-3 iIIusfrofes o summory budgef for o consfrucfor. This budgef is
deveIoped from o projecf fo consfrucf o whorf. As wifh fhe exompIe design
office budgef obove, cosfs ore divided info direcf ond indirecf expenses.
Wifhin direcf cosfs, expenses ore divided info moferioI, subconfrocf,
femporory work ond mochinery cosfs. This budgef indicofes oggregofe
omounfs for fhe vorious cofegories. Cosf defoiIs ossociofed wifh porficuIor
cosf occounfs wouId suppIemenf ond supporf fhe oggregofe budgef shown in
TobIe IZ-3. A profif ond o confingency omounf mighf be odded fo fhe bosic
budgef of $I,7Ib,I47 shown in TobIe IZ-3 for compIefeness.
TALE 1Z-3 An ExompIe of o Projecf 8udgef for o Whorf Projecf
(Amounfs in Thousonds of DoIIors)

MoferioI
Cosf
Subconfrocf
Work
Temporory
Work
Mochinery
Cosf TofoI Cosf
SfeeI
PiIing
Tie-rod
Anchor-
WoII
8ockfiII
Coping
Dredging
Fender
Ofher
Sub-fofoI
$Z9Z,I7Z
88,Z33
I30,Z8I
Z4Z,Z30
4Z,880
0
48,99o
b,000
$849,800
$IZ9,I78
Z9,Zb4
o0,873
Z7,9I9
ZZ,307
III,ob0
I0,344
3Z,Zb0
$4Z3,77b
$Io,389
0
0
0
I3,I7I
0
0
0
$Z9,bo0
$0
0
0
0
0
0
I,7b0
0
$I,7b0
$437,739
II7,487
I9I,Ib4
300,I49
78,3b8
III,ob0
oI,090
37,Zb0
$I,304,88b
Summury
TofoI of direcf cosf

$I,304,88b
Indirecf Cosf
Common Temporory Work
Common Mochinery
Tronsporfofion
Office Operofing Cosfs
TofoI of Indirecf Cosf
TofoI Projecf Cosf

I9,3Z0
80,934
Ib,bb0
Z94,4b8
4I0,ZoZ.
$I,7Ib,I47



1Z,3 Forecusting for Activity Cost ControI
For fhe purpose of projecf monogemenf ond confroI, if is nof sufficienf fo
consider onIy fhe posf record of cosfs ond revenues incurred in o projecf.
0ood monogers shouId focus upon fufure revenues, fufure cosfs ond
fechnicoI probIems. For fhis purpose, frodifionoI finoncioI occounfing
schemes ore nof odequofe fo refIecf fhe dynomic nofure of o projecf.
Accounfs fypicoIIy focus on recording roufine cosfs ond posf expendifures
ossociofed wifh ocfivifies. [4] 0eneroIIy, posf expendifures represenf sunk
cosfs fhof connof be oIfered in fhe fufure ond moy or moy nof be reIevonf in
fhe fufure. For exompIe, offer fhe compIefion of some ocfivify, if moy be
discovered fhof some quoIify fIow renders fhe work useIess. UnforfunofeIy,
fhe resources expended on fhe fIowed consfrucfion wiII generoIIy be sunk
ond connof be recovered for re-consfrucfion (oIfhough if moy be possibIe fo
chonge fhe burden of who poys for fhese resources by finoncioI wifhhoIding
or chorges, owners wiII fypicoIIy offempf fo hove consfrucfors or designers
poy for chonges due fo quoIify fIows). Since finoncioI occounfs ore hisforicoI
in nofure, some meons of forecosfing or projecfing fhe fufure course of o
projecf is essenfioI for monogemenf confroI. In fhis secfion, some mefhods
for cosf confroI ond simpIe forecosfs ore described.
An exompIe of forecosfing used fo ossess fhe projecf sfofus is shown in
TobIe IZ-4. In fhis exompIe, cosfs ore reporfed in five cofegories,
represenfing fhe sum of oII fhe vorious cosf occounfs ossociofed wifh eoch
cofegory:
udgeted Cost
The budgefed cosf is derived from fhe defoiIed cosf esfimofe
prepored of fhe sforf of fhe projecf. ExompIes of projecf budgefs
were presenfed in Secfion IZ.Z. The focfors of cosf wouId be
referenced by cosf occounf ond by o prose descripfion.
Estimuted totuI cost
The esfimofed or forecosf fofoI cosf in eoch cofegory is fhe currenf
besf esfimofe of cosfs bosed on progress ond ony chonges since fhe
budgef wos formed. Esfimofed fofoI cosfs ore fhe sum of cosf fo
dofe, commifmenfs ond exposure. Mefhods for esfimofing fofoI cosfs
ore described beIow.
Cost Committed und Cost Eposurell Esfimofed cosf fo compIefion in
eoch cofegory in divided info firm commifmenfs ond esfimofed
oddifionoI cosf or exposure. Commifmenfs moy represenf moferioI
orders or subconfrocfs for which firm doIIor omounfs hove been
commiffed.
Cost to Dute
The ocfuoI cosf incurred fo dofe is recorded in coIumn o ond con be
derived from fhe finoncioI record keeping occounfs.
Over or {Under}
A finoI coIumn in TobIe IZ-4 indicofes fhe omounf over or under fhe
budgef for eoch cofegory. This coIumn is on indicofor of fhe exfenf of
vorionce from fhe projecf budgef, ifems wifh unusuoIIy Iorge overruns
wouId represenf o porficuIor monogerioI concern. Mofe fhof vorionce is
used in fhe ferminoIogy of projecf confroI fo indicofe o difference
befween budgefed ond ocfuoI expendifures. The ferm is defined ond
used quife differenfIy in sfofisfics or mofhemoficoI onoIysis. In TobIe
IZ-4, Iobor cosfs ore running higher fhon expecfed, whereos
subconfrocfs ore Iess fhon expecfed.
The currenf sfofus of fhe projecf is o forecosf budgef overrun of $b,9b0.
wifh Z3 percenf of fhe budgefed projecf cosfs incurred fo dofe.
TALE 1Z-4 IIIusfrofion of o Job Sfofus Peporf
Focfor
8udgefed
Cosf
Esfimofed
TofoI Cosf
Cosf
Commiffed
Cosf
Exposure
Cosf To
Dofe
Over or
(Under)
Lobor
MoferioI
$99,40o
88,499
$I0Z,34Z
88,499
$49,b9o
4Z,b0o
---
4b,993
$bZ,74o
---
$Z,93o
0
Subconfrocfs
Equipmenf
Ofher
TofoI
I98,4b8
37,b43
7Z,o93
49o,b09
I9o,3Z3
37,b43
8I,43Z
b0o,I39
83,3bZ
Z3,oZ3
49,3bo
Z48,433
97,83Z
---
--
-
I43,8Zb
Ib,I39
I3,9Z0
3Z,07o
II3,88I
(Z,I3b)
0
8,739
b,9b0

For projecf confroI, monogers wouId focus porficuIor offenfion on ifems
indicofing subsfonfioI deviofion from budgefed omounfs. In porficuIor, fhe
cosf overruns in fhe Iobor ond in fhe "ofher expense cofegory wouId be
worfhy of offenfion by o projecf monoger in TobIe IZ-4. A nexf sfep wouId
be fo Iook in greofer defoiI of fhe vorious componenfs of fhese cofegories.
Overruns in cosf mighf be due fo Iower fhon expecfed producfivify, higher
fhon expecfed woge rofes, higher fhon expecfed moferioI cosfs, or ofher
focfors. Even furfher, Iow producfivify mighf be coused by inodequofe
froining, Iock of required resources such os equipmenf or fooIs, or inordinofe
omounfs of re-work fo correcf quoIify probIems. Peview of o job sfofus
reporf is onIy fhe firsf sfep in projecf confroI.
The job sfofus reporf iIIusfrofed in TobIe IZ-4 empIoys expIicif esfimofes of
uIfimofe cosf in eoch cofegory of expense. These esfimofes ore used fo
idenfify fhe ocfuoI progress ond sfofus of o expense cofegory. Esfimofes
mighf be mode from simpIe Iineor exfropoIofions of fhe producfivify or cosf
of fhe work fo dofe on eoch projecf ifem. AIgebroicoIIy, o Iineor esfimofion
formuIo is generoIIy one of fwo forms. Using o Iineor exfropoIofion of cosfs,
fhe forecosf fofoI cosf, C
f
, is:
(IZ.I)

where C
f
is fhe cosf incurred fo fime f ond p
f
is fhe proporfion of fhe
ocfivify compIefed of fime f. For exompIe, on ocfivify which is b0 percenf
compIefe wifh o cosf of $40,000 wouId be esfimofed fo hove o fofoI cosf of
$40,000/0.b ~ $80,000. More eIoborofe mefhods of forecosfing cosfs wouId
disoggregofe cosfs info differenf cofegories, wifh fhe fofoI cosf fhe sum of
fhe forecosf cosfs in eoch cofegory.
AIfernofiveIy, fhe use of meosured unif cosf omounfs con be used for
forecosfing fofoI cosf. The bosic formuIo for forecosfing cosf from unif
cosfs is:
(IZ.Z)

where C
f
is fhe forecosf fofoI cosf, W is fhe fofoI unifs of work, ond c
f
is
fhe overoge cosf per unif of work experienced up fo fime f. If fhe overoge
unif cosf is $b0 per unif of work on o porficuIor ocfivify ond I,o00 unifs of
work exisf, fhen fhe expecfed cosf is (I,o00)(b0) ~ $80,000 for compIefion.
The unif cosf in Equofion (IZ.Z) moy be repIoced wifh fhe hourIy producfivify
ond fhe unif cosf per hour (or ofher oppropriofe fime period), resuIfing in
fhe equofion:
(IZ.3)

where fhe cosf per work unif (c
f
) is repIoced by fhe fime per unif, h
f
, divided
by fhe cosf per unif of fime, u
f
.
More eIoborofe forecosfing sysfems mighf recogni;e pecuIior probIems
ossociofed wifh work on porficuIor ifems ond modify fhese simpIe
proporfionoI cosf esfimofes. For exompIe, if producfivify is improving os
workers ond monogers become more fomiIior wifh fhe projecf ocfivifies, fhe
esfimofe of fofoI cosfs for on ifem mighf be revised downword. In fhis cose,
fhe esfimofing equofion wouId become:
(IZ.4)

where forecosf fofoI cosf, C
f
, is fhe sum of cosf incurred fo dofe, C
f
, ond
fhe cosf resuIfing from fhe remoining work (W - W
f
) muIfipIied by fhe
expecfed cosf per unif fime period for fhe remoinder of fhe ocfivify, c
f
.
As o numericoI exompIe, suppose fhof fhe overoge unif cosf hos been $b0
per unif of work, buf fhe mosf recenf figure during o projecf is $4b per unif
of work. If fhe projecf monoger wos ossured fhof fhe improved producfivify
couId be moinfoined for fhe remoinder of fhe projecf (consisfing of 800
unifs of work ouf of o fofoI of Io00 unifs of work), fhe cosf esfimofe wouId
be (b0)(800) + (4b)(800) ~ $7o,000 for compIefion of fhe ocfivify. Mofe
fhof fhis forecosf uses fhe ocfuoI overoge producfivify ochieved on fhe firsf
800 unifs ond uses o forecosf of producfivify for fhe remoining work.
HisforicoI chonges in producfivify mighf oIso be used fo represenf fhis fype
of non-Iineor chonges in work producfivify on porficuIor ocfivifies over fime.
In oddifion fo chonges in producfivifies, ofher componenfs of fhe esfimofing
formuIo con be odjusfed or more defoiIed esfimofes subsfifufed. For
exompIe, fhe chonge in unif prices due fo new Iobor confrocfs or moferioI
suppIiers prices mighf be refIecfed in esfimofing fufure expendifures. In
essence, fhe some probIems encounfered in preporing fhe defoiIed cosf
esfimofe ore foced in fhe process of preporing exposure esfimofes, oIfhough
fhe number ond exfenf of uncerfoinfies in fhe projecf environmenf decIine
os work progresses. The onIy excepfion fo fhis ruIe is fhe donger of quoIify
probIems in compIefed work which wouId require re-consfrucfion.
Eoch of fhe esfimofing mefhods described obove require currenf
informofion on fhe sfofe of work occompIishmenf for porficuIor ocfivifies.
There ore severoI possibIe mefhods fo deveIop such esfimofes, incIuding [b]:
Units of Work CompIeted
For eosiIy meosured quonfifies fhe ocfuoI proporfion of compIefed
work omounfs con be meosured. For exompIe, fhe Iineor feef of piping
insfoIIed con be compored fo fhe required omounf of piping fo
esfimofe fhe percenfoge of piping work compIefed.
IncrementuI MiIestones
PorficuIor ocfivifies con be sub-divided or "decomposed" info o series
of miIesfones, ond fhe miIesfones con be used fo indicofe fhe
percenfoge of work compIefe bosed on hisforicoI overoges. For
exompIe, fhe work efforf invoIved wifh insfoIIofion of sfondord piping
mighf be divided info four miIesfones:
o SpooI in pIoce: Z07 of work ond Z07 of cumuIofive work.
o Ends weIded: 407 of work ond o07 of cumuIofive work.
o Hongors ond Trim CompIefe: 307 of work ond 907 of
cumuIofive work.
o Hydrofesfed ond CompIefe: I07 of work ond I007 of
cumuIofive work.
Thus, o pipe secfion for which fhe ends hove been weIded wouId be
reporfed os o07 compIefe.
Opinion
Subjecfive judgmenfs of fhe percenfoge compIefe con be prepored by
inspecfors, supervisors or projecf monogers fhemseIves. CIeorIy, fhis
esfimofed fechnique con be biosed by opfimism, pessimism or
inoccurofe observofions. InowIedgeobIe esfimofers ond odequofe fieId
observofions ore required fo obfoin sufficienf occurocy wifh fhis
mefhod.
Cost Rutio
The cosf incurred fo dofe con oIso be used fo esfimofe fhe work
progress. For exompIe, if on ocfivify wos budgefed fo cosf $Z0,000
ond fhe cosf incurred of o porficuIor dofe wos $I0,000, fhen fhe
esfimofed percenfoge compIefe under fhe cosf rofio mefhod wouId be
I0,000/Z0,000 ~ 0.b or fiffy percenf. This mefhod provides no
independenf informofion on fhe ocfuoI percenfoge compIefe or ony
possibIe errors in fhe ocfivify budgef: fhe cosf forecosf wiII oIwoys be
fhe budgefed omounf. ConsequenfIy, monogers musf use fhe esfimofed
cosfs fo compIefe on ocfivify derived from fhe cosf rofio mefhod wifh
exfreme coufion.
Sysfemofic oppIicofion of fhese differenf esfimofing mefhods fo fhe vorious
projecf ocfivifies enobIes coIcuIofion of fhe percenfoge compIefe or fhe
producfivify esfimofes used in preporing job sfofus reporfs.
In some coses, oufomofed dofo ocquisifion for work occompIishmenfs mighf
be insfifufed. For exompIe, fronsponders mighf be moved fo fhe new work
Iimifs offer eoch doys ocfivify ond fhe new Iocofions oufomoficoIIy compufed
ond compored wifh projecf pIons. These meosuremenfs of ocfuoI progress
shouId be sfored in o cenfroI dofobose ond fhen processed for updofing fhe
projecf scheduIe. The use of dofobose monogemenf sysfems in fhis foshion is
described in Chopfer I4.
EumpIe 1Z-3: Estimuted TotuI Cost to CompIete un Activity
Suppose fhof we wish fo esfimofe fhe fofoI cosf fo compIefe piping
consfrucfion ocfivifies on o projecf. The piping consfrucfion invoIves I,000
Iineor feef of piping which hos been divided info b0 secfions for monogemenf
convenience. Af fhis fime, 400 Iineor feef of piping hos been insfoIIed of o
cosf of $40,000 ond b00 mon-hours of Iobor. The originoI budgef esfimofe
wos $90,000 wifh o producfivify of one foof per mon-hour, o unif cosf of
$o0 per mon hour ond o fofoI moferioI cosf of $ 30,000. Firm commifmenfs
of moferioI deIivery for fhe $30,000 esfimofed cosf hove been received.
The firsf fosk is fo esfimofe fhe proporfion of work compIefed. Two
esfimofes ore reodiIy ovoiIobIe. Firsf, 400 Iineor feef of pipe is in pIoce ouf
of o fofoI of I000 Iineor feef, so fhe proporfion of work compIefed is
400/I000 ~ 0.4 or 407. This is fhe "unifs of work compIefed" esfimofion
mefhod. Second, fhe cosf rofio mefhod wouId esfimofe fhe work compIefe os
fhe cosf-fo-dofe divided by fhe cosf esfimofe or $40,000/$ 90,000 ~ 0.44
or 447. Third, fhe "incremenfoI miIesfones" mefhod wouId be oppIied by
exomining eoch pipe secfion ond esfimofing o percenfoge compIefe ond fhen
oggregofing fo defermine fhe fofoI percenfoge compIefe. For exompIe,
suppose fhe foIIowing quonfifies of piping feII info four cofegories of
compIefeness:
compIefe (I007)
hongors ond frim compIefe (907)
ends weIded (o07)
spooI in pIoce (Z07)
380 ff
Z0 ff
b ff
0 ff
Then using fhe incremenfoI miIesfones shown obove, fhe esfimofe of
compIefed work wouId be 380 + (Z0)(0.9) + (b)(0.o) + 0 ~ 40I ff ond fhe
proporfion compIefe wouId be 40I ff/I,000 ff ~ 0.40I or 407 offer rounding.
Once on esfimofe of work compIefed is ovoiIobIe, fhen fhe esfimofed cosf fo
compIefe fhe ocfivify con be coIcuIofed. Firsf, o simpIe Iineor exfropoIofion
of cosf resuIfs in on esfimofe of $40,000/0.4 ~ $I00,000. for fhe piping
consfrucfion using fhe 407 esfimofe of work compIefed. This esfimofe
projecfs o cosf overrun of I00,000 - 90,000 ~ $I0,000.
Second, o Iineor exfropoIofion of producfivify resuIfs in on esfimofe of (I000
ff.)(b00 hrs/400 ff.)($o0/hr) + 30,000 ~ $I0b,000. for compIefion of fhe
piping consfrucfion. This esfimofe suggesfs o vorionce of I0b,000 - 90,000 ~
$Ib,000 obove fhe ocfivify esfimofe. In moking fhis esfimofe, Iobor ond
moferioI cosfs enfered seporofeIy, whereos fhe fwo were impIicifIy combined
in fhe simpIe Iineor cosf forecosf obove. The source of fhe vorionce con oIso
be idenfified in fhis coIcuIofion: compored fo fhe originoI esfimofe, fhe Iobor
producfivify is I.Zb hours per foof or Zb7 higher fhon fhe originoI esfimofe.
EumpIe 1Z-4: Estimuted TotuI Cost for CompIetion
The forecosfing procedures described obove ossumed Iineor exfropoIofions
of fufure cosfs, bosed eifher on fhe compIefe experience on fhe ocfivify or
fhe recenf experience. For ocfivifies wifh good hisforicoI records, if con be
fhe cose fhof o fypicoIIy non-Iineor profiIe of cosf expendifures ond
compIefion proporfions con be esfimofed. Figure IZ-I iIIusfrofes one possibIe
non-Iineor reIofionships derived from experience in some porficuIor ocfivify.
The progress on o new job con be compored fo fhis hisforicoI record. For
exompIe, poinf A in Figure IZ-I suggesfs o higher expendifure fhon is normoI
for fhe compIefion proporfion. This poinf represenfs 407 of work compIefed
wifh on expendifure of o07 of fhe budgef. Since fhe hisforicoI record
suggesfs onIy b07 of fhe budgef shouId be expended of fime of 407
compIefion, o o0 - b0 ~ I07 overrun in cosf is expecfed even if work
efficiency con be increosed fo hisforicoI overoges. If comporobIe cosf
overruns confinue fo occumuIofe, fhen fhe cosf-fo-compIefe wiII be even
higher.



Figure 1Z-1 IIIusfrofion of Proporfion CompIefion versus Expendifure for
on Acfivify


1Z,4 FinunciuI Accounting Systems und Cost
Accounts
The cosf occounfs described in fhe previous secfions provide onIy one of fhe
vorious componenfs in o finoncioI occounfing sysfem. 8efore furfher
discussing fhe use of cosf occounfs in projecf confroI, fhe reIofionship of
projecf ond finoncioI occounfing deserves menfion. Accounfing informofion is
generoIIy used for fhree disfincf purposes:
InfernoI reporfing fo projecf monogers for doy-fo-doy pIonning,
moniforing ond confroI.
InfernoI reporfing fo monogers for oiding sfrofegic pIonning.
ExfernoI reporfing fo owners, governmenf, reguIofors ond ofher
oufside porfies.
ExfernoI reporfs ore consfroined fo porficuIor forms ond procedures by
confrocfuoI reporfing requiremenfs or by generoIIy occepfed occounfing
procfices. Preporofion of such exfernoI reporfs is referred fo os finoncioI
occounfing. In confrosf, cosf or monogerioI occounfing is infended fo oid
infernoI monogers in fheir responsibiIifies of pIonning, moniforing ond
confroI.
Projecf cosfs ore oIwoys incIuded in fhe sysfem of finoncioI occounfs
ossociofed wifh on orgoni;ofion. Af fhe heorf of fhis sysfem, oII expense
fronsocfions ore recorded in o generoI Iedger. The generoI Iedger of
occounfs forms fhe bosis for monogemenf reporfs on porficuIor projecfs os
weII os fhe finoncioI occounfs for on enfire orgoni;ofion. Ofher componenfs
of o finoncioI occounfing sysfem incIude:
The uccounts puyubIe journoI is infended fo provide records of biIIs
received from vendors, moferioI suppIiers, subconfrocfors ond ofher
oufside porfies. Invoices of chorges ore recorded in fhis sysfem os
ore checks issued in poymenf. Chorges fo individuoI cosf occounfs ore
reIoyed or posfed fo fhe 0eneroI Ledger.
Accounts receivubIe gournuIs provide fhe opposife funcfion fo fhof of
occounfs poyobIe. In fhis journoI, biIIings fo cIienfs ore recorded os
weII os receipfs. Pevenues received ore reIoyed fo fhe generoI Iedger.
Job cost Iedgers summori;e fhe chorges ossociofed wifh porficuIor
projecfs, orronged in fhe vorious cosf occounfs used for fhe projecf
budgef.
Inventory records ore moinfoined fo idenfify fhe omounf of moferioIs
ovoiIobIe of ony fime.
In frodifionoI bookkeeping sysfems, doy fo doy fronsocfions ore firsf
recorded in journoIs. Wifh doubIe-enfry bookkeeping, eoch fronsocfion is
recorded os bofh o debif ond o credif fo porficuIor occounfs in fhe Iedger.
For exompIe, poymenf of o suppIiers biII represenfs o debif or increose fo o
projecf cosf occounf ond o credif or reducfion fo fhe componys cosh
occounf. PeriodicoIIy, fhe fronsocfion informofion is summori;ed ond
fronsferred fo Iedger occounfs. This process is coIIed posfing, ond moy be
done insfonfoneousIy or doiIy in compuferi;ed sysfems.
In reviewing occounfing informofion, fhe concepfs of fIows ond sfocks shouId
be kepf in mind. DoiIy fronsocfions fypicoIIy refIecf fIows of doIIor omounfs
enfering or Ieoving fhe orgoni;ofion. SimiIorIy, use or receipfs of porficuIor
moferioIs represenf fIows from or fo invenfory. An occounf boIonce
represenfs fhe sfock or cumuIofive omounf of funds resuIfing from fhese
doiIy fIows. Informofion on bofh fIows ond sfocks ore needed fo give on
occurofe view of on orgoni;ofions sfofe. In oddifion, forecosfs of fufure
chonges ore needed for effecfive monogemenf.
Informofion from fhe generoI Iedger is ossembIed for fhe orgoni;ofions
finoncioI reporfs, incIuding boIonce sheefs ond income sfofemenfs for eoch
period. These reporfs ore fhe bosic producfs of fhe finoncioI occounfing
process ond ore offen used fo ossess fhe performonce of on orgoni;ofion.
TobIeIZ-b shows o fypicoI income sfofemenf for o smoII consfrucfion firm,
indicofing o nef profif of $ 330,000 offer foxes. This sfofemenf summori;es
fhe fIows of fronsocfions wifhin o yeor. TobIe IZ-o shows fhe comporobIe
boIonce sheef, indicofed o nef increose in refoined eornings equoI fo fhe nef
profif. The boIonce sheef refIecfs fhe effecfs of income fIows during fhe
yeor on fhe overoII worfh of fhe orgoni;ofion.
TALE 1Z- IIIusfrofion of on Accounfing Sfofemenf of Income
Income Stutement
for fhe yeor ended December 3I, I9xx
0ross projecf revenues

Direcf projecf cosfs on confrocfs
Depreciofion of equipmenf
Esfimofing
Adminisfrofive ond ofher expenses
SubfofoI of cosf ond expenses

Operofing Income
Inferesf Expense, nef
Income before foxes
Income fox
Mef income offer fox
Cosh dividends
Pefoined eornings, currenf yeor
$7,Z00,000

b,b00,000
Z00,000
Ib0,000
ob0,000
o,b00,000

700,000
Ib0,000
bb0,000
ZZ0,000
330,000
I00,000
Z30,000
Pefenfion of beginning of yeor
Pefoined eornings of end of yeor
ob0,000
$880,000./ fd

TALE 1Z- IIIusfrofion of on Accounfing 8oIonce Sheef
uIunce Sheet
December 3I, I9xx
Assets Amounf
Cosh
Poymenfs PeceivobIe
Work in progress, nof cIoimed
Work in progress, refenfion
Equipmenf of cosf Iess occumuIofed depreciofion
TofoI ossefs
$Ib0,000
7b0,000
700,000
Z00,000
I,400,000
$3,Z00,000
LiubiIities und Equity
LiobiIifies
Accounfs poyobIe
Ofher ifems poyobIe (foxes, woges, efc.)
Long ferm debfs
SubfofoI
ShorehoIders funds
40,000 shores of common sfock
(IncIuding poid-in copifoI)
Pefoined Eornings
SubfofoI
TofoI LiobiIifies ond Equify

$9b0,000
b0,000
b00,000
I,b00,000


8Z0,000
880,000
I,700,000
$3,Z00,000

In fhe confexf of privofe consfrucfion firms, porficuIor probIems orise in
fhe freofmenf of uncompIefed confrocfs in finoncioI reporfs. Under fhe
"compIefed-confrocf" mefhod, income is onIy reporfed for compIefed
projecfs. Work on projecfs underwoy is onIy reporfed on fhe boIonce sheef,
represenfing on ossef if confrocf biIIings exceed cosfs or o IiobiIify if cosfs
exceed biIIings. When o projecf is compIefed, fhe fofoI nef profif (or Ioss) is
reporfed in fhe finoI period os income. Under fhe "percenfoge-of-
compIefion" mefhod, ocfuoI cosfs ore reporfed on fhe income sfofemenf pIus
o proporfion of oII projecf revenues (or biIIings) equoI fo fhe proporfion of
work compIefed during fhe period. The proporfion of work compIefed is
compufed os fhe rofio of cosfs incurred fo dofe ond fhe fofoI esfimofed cosf
of fhe projecf. Thus, if fwenfy percenf of o projecf wos compIefed in o
porficuIor period of o direcf cosf of $I80,000 ond on o projecf wifh
expecfed revenues of $I,000,000, fhen fhe confrocf revenues eorned wouId
be coIcuIofed os $I,000,000(0.Z) ~ $Z00,000. This figure represenfs o
profif ond confribufion fo overheod of $Z00,000 - $I80,000 ~ $Z0,000 for
fhe period. Mofe fhof biIIings ond ocfuoI receipfs mighf be in excess or Iess
fhon fhe coIcuIofed revenues of $Z00,000. On fhe boIonce sheef of on
orgoni;ofion using fhe percenfoge-of-compIefion mefhod, on ossef is usuoIIy
reporfed fo refIecf biIIings ond fhe esfimofed or coIcuIofed eornings in
excess of ocfuoI biIIings.
As onofher exompIe of fhe difference in fhe "percenfoge-of-compIefion" ond
fhe "compIefed-confrocf" mefhods, consider o fhree yeor projecf fo
consfrucf o pIonf wifh fhe foIIowing cosh fIow for o confrocfor:
Yeor Confrocf Expenses Poymenfs Peceived
I
Z
3
TofoI
$700,000
I80,000
3Z0,000
$I,Z00,000
$900,000
Zb0,000
Ib0,000
$I,300,000

The supervising orchifecf defermines fhof o07 of fhe fociIify is compIefe in
yeor I ond 7b7 in yeor Z. Under fhe "percenfoge-of-compIefion" mefhod, fhe
nef income in yeor I is $780,000 (o07 of $I,300,000) Iess fhe $700,000 in
expenses or $80,000. Under fhe "compIefed-confrocf" mefhod, fhe enfire
profif of $I00,000 wouId be reporfed in yeor 3.
The "percenfoge-of-compIefion" mefhod of reporfing period eornings hos
fhe odvonfoge of represenfing fhe ocfuoI esfimofed eornings in eoch period.
As o resuIf, fhe income sfreom ond resuIfing profifs ore Iess suscepfibIe fo
precipifofe swings on fhe compIefion of o projecf os con occur wifh fhe
"compIefed confrocf mefhod" of coIcuIofing income. However, fhe
"percenfoge-of-compIefion" hos fhe disodvonfoge of reIying upon esfimofes
which con be monipuIofed fo obscure fhe ocfuoI posifion of o compony or
which ore difficuIf fo reproduce by oufside observers. There ore oIso
subfIefies such os fhe deferroI of oII coIcuIofed income from o projecf unfiI
o minimum fhreshoId of fhe projecf is compIefed. As o resuIf, inferprefofion
of fhe income sfofemenf ond boIonce sheef of o privofe orgoni;ofion is nof
oIwoys sfroighfforword. FinoIIy, fhere ore fox disodvonfoges from using fhe
"percenfoge-of-compIefion" mefhod since corporofe foxes on expecfed
profifs moy become due during fhe projecf rofher fhon being deferred unfiI
fhe projecf compIefion. As on exompIe of fox impIicofions of fhe fwo
reporfing mefhods, o sfudy of forfy-seven consfrucfion firms conducfed by
fhe 0eneroI Accounfing Office found fhof $Z80 miIIion in foxes were
deferred from I980 fo I984 fhrough use of fhe "compIefed-confrocf"
mefhod. [o]
If shouId be opporenf fhof fhe "percenfoge-of-compIefion" occounfing
provides onIy o rough esfimofe of fhe ocfuoI profif or sfofus of o projecf.
AIso, fhe "compIefed confrocf" mefhod of occounfing is enfireIy
refrospecfive ond provides no guidonce for monogemenf. This is onIy one
exompIe of fhe fypes of oIIocofions fhof ore infroduced fo correspond fo
generoIIy occepfed occounfing procfices, yef moy nof furfher fhe couse of
good projecf monogemenf. Anofher common exompIe is fhe use of equipmenf
depreciofion scheduIes fo oIIocofe equipmenf purchose cosfs. AIIocofions of
cosfs or revenues fo porficuIor periods wifhin o projecf moy couse severe
chonges in porficuIor indicofors, buf hove no reoI meoning for good
monogemenf or profif over fhe enfire course of o projecf. As Johnson ond
IopIon orgue: [7]
Todoys monogemenf occounfing informofion, driven by fhe procedures ond
cycIe of fhe orgoni;ofions finoncioI reporfing sysfem, is foo Iofe, foo
oggregofed ond foo disforfed fo be reIevonf for monogers pIonning ond
confroI decisions....
Monogemenf occounfing reporfs ore of IiffIe heIp fo operofing monogers os
fhey offempf fo reduce cosfs ond improve producfivify. FrequenfIy, fhe
reporfs decreose producfivify becouse fhey require operofing monogers fo
spend fime offempfing fo undersfond ond expIoin reporfed vorionces fhof
hove IiffIe fo do wifh fhe economic ond fechnoIogicoI reoIify of fheir
operofions...
The monogogemenf occounfing sysfem oIso foiIs fo provide occurofe producf
cosfs. Cosf ore disfribufed fo producfs by simpIisfic ond orbifrory meosures,
usuoIIy direcf Iobor bosed, fhof do nof represenf fhe demonds mode by eoch
producf on fhe firms resources.
As o resuIf, compIemenfory procedures fo fhose used in frodifionoI finoncioI
occounfing ore required fo occompIish effecfive projecf confroI, os
described in fhe preceding ond foIIowing secfions. WhiIe finoncioI
sfofemenfs provide consisfenf ond essenfioI informofion on fhe condifion of
on enfire orgoni;ofion, fhey need considerobIe inferprefofion ond
suppIemenfofion fo be usefuI for projecf monogemenf.
EumpIe 1Z-: CuIcuIuting net profit
As on exompIe of fhe coIcuIofion of nef profif, suppose fhof o compony begon
six jobs in o yeor, compIefing fhree jobs ond hoving fhree jobs sfiII underwoy
of fhe end of fhe yeor. DefoiIs of fhe six jobs ore shown in TobIe IZ-7. Whof
wouId be fhe componys nef profif under, firsf, fhe "percenfoge-of-
compIefion" ond, second, fhe "compIefed confrocf mefhod" occounfing
convenfions7
TALE 1Z-7 ExompIe of FinoncioI Pecords of Projecfs
Net Profit on CompIeted Contructs {Amounts in thousunds of doIIurs}
Job I
Job Z
Job 3
TofoI Mef Profif on CompIefed Jobs
$I,43o
3bo
- 738
$I,0b4
Stutus of Jobs Underwuy Job 4 Job b Job o
OriginoI Confrocf Price
Confrocf Chonges (Chonge Orders, efc.)
TofoI Cosf fo Dofe
Poymenfs Peceived or Due fo Dofe
Esfimofed Cosf fo CompIefe
$4,Z00
400
3,o00
3,bZ0
b00
$3,800
o00
I,7I0
I,830
Z,300
$b,o30
- 300
oZ0
340
b,000

As shown in TobIe IZ-7, o nef profif of $I,0b4,000 wos eorned on fhe fhree
compIefed jobs. Under fhe "compIefed confrocf" mefhod, fhis fofoI wouId be
fofoI profif. Under fhe percenfoge-of compIefion mefhod, fhe yeors
expecfed profif on fhe projecfs underwoy wouId be odded fo fhis omounf.
For job 4, fhe expecfed profifs ore coIcuIofed os foIIows:
Currenf confrocf price ~ OriginoI confrocf price + Confrocf Chonges
~ 4,Z00 + 400 + 4,o00
Credif or debif fo dofe ~ TofoI cosfs fo dofe - Poymenfs received or due
fo dofe
~ 3,o00 - 3,bZ0 ~ - 80
Confrocf voIue of
uncompIefed work
~ Currenf confrocf price - Poymenfs received or
due
~ 4,o00 - 3,bZ0 ~ I,080
Credif or debif fo come ~ Confrocf voIue of uncompIefed work -
Esfimofed Cosf fo CompIefe
~ I,080 - b00 ~ b80
Esfimofed finoI gross
profif
~ Credif or debif fo dofe + Credif or debif fo
come
~ - 80. + b80. ~ b00
Esfimofed fofoI projecf
cosfs
~ Confrocf price - 0ross profif
~ 4,o00 - b00 ~ 4,I00
Esfimofed Profif fo dofe ~ Esfimofed finoI gross profif x Proporfion of
work compIefe
~ b00. (3o00/4I00)) ~ 439
SimiIor coIcuIofions for fhe ofher jobs underwoy indicofe esfimofed profifs
fo dofe of $Ioo,000 for Job b ond -$3Z,000 for Job o. As o resuIf, fhe nef
profif using fhe "percenfoge-of-compIefion" mefhod wouId be $I,oZ7,000
for fhe yeor. Mofe fhof fhis figure wouId be oIfered in fhe evenf of muIfi-
yeor projecfs in which nef profifs on projecfs compIefed or underwoy in fhis
yeor were cIoimed in eorIier periods.
1Z, ControI of Progect Cush FIows
Secfion IZ.3 described fhe deveIopmenf of informofion for fhe confroI of
projecf cosfs wifh respecf fo fhe vorious funcfionoI ocfivifies oppeoring in
fhe projecf budgef. Projecf monogers oIso ore invoIved wifh ossessmenf of
fhe overoII sfofus of fhe projecf, incIuding fhe sfofus of ocfivifies,
finoncing, poymenfs ond receipfs. These vorious ifems comprise fhe projecf
ond finoncing cosh fIows described in eorIier chopfers. These componenfs
incIude cosfs incurred (os described obove), biIIings ond receipfs for biIIings
fo owners (for confrocfors), poyobIe omounfs fo suppIiers ond confrocfors,
finoncing pIon cosh fIows (for bonds or ofher finoncioI insfrumenfs), efc.
As on exompIe of cosh fIow confroI, consider fhe reporf shown in TobIe IZ-8.
In fhis cose, cosfs ore nof divided info funcfionoI cofegories os in TobIe IZ-
4, such os Iobor, moferioI, or equipmenf. TobIe IZ-8 represenfs o summory of
fhe projecf sfofus os viewed from differenf componenfs of fhe occounfing
sysfem. Thus, fhe oggregofion of differenf kinds of cosf exposure or cosf
commifmenf shown in TobIe IZ-0 hos nof been performed. The eIemenfs in
TobIe IZ-8 incIude:
Costs
This is o summory of chorges os refIecfed by fhe job cosf occounfs,
incIuding expendifures ond esfimofed cosfs. This row provides on
oggregofe summory of fhe defoiIed ocfivify cosf informofion
described in fhe previous secfion. For fhis exompIe, fhe fofoI cosfs os
of JuIy Z (7/0Z) were $ 8,7b4,bIo, ond fhe originoI cosf esfimofe wos
$ob,8o3,09Z, so fhe opproximofe percenfoge compIefe wos
8,7b4,bIo/ob,8o3,09Z or I3.Z9Z7. However, fhe projecf monoger now
projecfs o cosf of $oo,b4b,Zo3 for fhe projecf, represenfing on
increose of $o8Z,I7I over fhe originoI esfimofe. This new esfimofe
wouId refIecf fhe ocfuoI percenfoge of work compIefed os weII os
ofher effecfs such os chonges in unif prices for Iobor or moferioIs.
MeedIess fo soy, fhis increose in expecfed cosfs is nof o weIcome
chonge fo fhe projecf monoger.
iIIings
This row summori;es fhe sfofe of cosh fIows wifh respecf fo fhe
owner of fhe fociIify, fhis row wouId nof be incIuded for reporfs fo
owners. The confrocf omounf wos $o7,bII,o0Z, ond o fofoI of
$9,Z7o,oZI or I3.74I7 of fhe confrocf hos been biIIed. The omounf of
oIIowobIe biIIing is specified under fhe ferms of fhe confrocf befween
on owner ond on engineering, orchifecf, or consfrucfor. In fhis cose,
fofoI biIIings hove exceeded fhe esfimofed projecf compIefion
proporfion. The finoI coIumn incIudes fhe currenfIy projecfed nef
eornings of $9oo,339. This figure is coIcuIofed os fhe confrocf
omounf Iess projecfed cosfs: o7,bII,o0Z - oo,b4b,Zo3 ~ $9oo,339.
Mofe fhof fhis profif figure does nof refIecf fhe fime voIue of money
or discounfing.
PuyubIes
The PoyobIes row summori;es fhe omounf owed by fhe confrocfor fo
moferioI suppIiers, Iobor or sub-confrocfors. Af fhe fime of fhis
reporf, $o,7I9,I03 hod been poid fo subconfrocfors, moferioI
suppIiers, ond ofhers. Invoices of $I,300,089 hove occumuIofed buf
hove nof yef been poid. A refenfion of $39I,o7I hos been imposed on
subconfrocfors, ond $343,ob3 in direcf Iobor expenses hove been
occurred. The fofoI of poyobIes is equoI fo fhe fofoI projecf expenses
shown in fhe firsf row of cosfs.
ReceivubIes
This row summori;es fhe cosh fIow of receipfs from fhe owner. Mofe
fhof fhe ocfuoI receipfs from fhe owner moy differ from fhe omounfs
biIIed due fo deIoyed poymenfs or refoinoge on fhe porf of fhe owner.
The nef-biIIed equoIs fhe gross biIIed Iess refenfion by fhe owner. In
fhis cose, gross biIIed is $9,Z7o,oZI (os shown in fhe biIIings row), fhe
nef biIIed is $8,7oI,o73 ond fhe refenfion is $bI4,948. UnforfunofeIy,
onIy $7,Z09,344 hos been received from fhe owner, so fhe open
receivobIe omounf is o (subsfonfioIl) $Z,0o7,Z77 due from fhe owner.
Cush Position
This row summori;es fhe cosh posifion of fhe projecf os if oII
expenses ond receipfs for fhe projecf were combined in o singIe
occounf. The ocfuoI expendifures hove been $7,0oZ,7bo (coIcuIofed os
fhe fofoI cosfs of $8,7b4,bIo Iess subconfrocfor refenfions of
$39I,o7I ond unpoid biIIs of $I,300,089) ond $ 7,Z09,344 hos been
received from fhe owner. As o resuIf, o nef cosh boIonce of $I4o,b88
exisfs which con be used in on inferesf eorning bonk occounf or fo
finonce deficifs on ofher projecfs.
Eoch of fhe rows shown in TobIe IZ-8 wouId be derived from differenf sefs
of finoncioI occounfs. AddifionoI reporfs couId be prepored on fhe finoncing
cosh fIows for bonds or inferesf chorges in on overdroff occounf.
TALE 1Z- An ExompIe of o Cosh FIow Sfofus Peporf
Cosfs
7/0Z
Chorges
8,7b4,bIo
Esfimofed
ob,8o3,09Z
7 CompIefe
I3.Z9Z
Projecfed
oo,b4b,Zo3
8iIIings
7/0I
Confrocf
o7,bII,o0Z
0ross 8iII
9,Z7o,oZI
7 8iIIed
I3.74I
Profif
9oo,339
Chonge
o8Z,I7I

PoyobIes
7/0I
Poid
o,7I9,I03
Open
I,300,089
Pefenfion
39I,o7I
Lobor
343,ob3
PeceivobIe
7/0Z
Mef 8iII
8,7oI,o73
Peceived
7,Z09,344
Pefenfion
bI4,948
Cosh Posifion Poid
7,0oZ,7bo
Peceived
7,Z09,344
Posifion
I4o,b88
Open
Z,0o7,Z77
TotuI
8,7b4,bIo

The overoII sfofus of fhe projecf requires synfhesi;ing fhe differenf pieces
of informofion summori;ed in TobIe IZ-8. Eoch of fhe differenf occounfing
sysfems confribufing fo fhis fobIe provides o differenf view of fhe sfofus of
fhe projecf. In fhis exompIe, fhe budgef informofion indicofes fhof cosfs
ore higher fhon expecfed, which couId be froubIing. However, o profif is sfiII
expecfed for fhe projecf. A subsfonfioI omounf of money is due from fhe
owner, ond fhis couId furn ouf fo be o probIem if fhe owner confinues fo Iog
in poymenf. FinoIIy, fhe posifive cosh posifion for fhe projecf is highIy
desirobIe since finoncing chorges con be ovoided.
The job sfofus reporfs iIIusfrofed in fhis ond fhe previous secfions provide o
primory fooI for projecf cosf confroI. Differenf reporfs wifh vorying
omounfs of defoiI ond ifem reporfs wouId be prepored for differenf
individuoIs invoIved in o projecf. Peporfs fo upper monogemenf wouId be
summories, reporfs fo porficuIor sfoff individuoIs wouId emphosi;e fheir
responsibiIifies (eg. purchosing, poyroII, efc.), ond defoiIed reporfs wouId be
provided fo fhe individuoI projecf monogers. CoupIed wifh scheduIing reporfs
described in Chopfer I0, fhese reporfs provide o snopshof view of how o
projecf is doing. Of course, fhese scheduIe ond cosf reporfs wouId hove fo
be fempered by fhe ocfuoI occompIishmenfs ond probIems occurring in fhe
fieId. For exompIe, if work oIreody compIefed is of sub-sfondord quoIify,
fhese reporfs wouId nof reveoI such o probIem. Even fhough fhe reporfs
indicofed o projecf on fime ond on budgef, fhe possibiIify of re-work or
inodequofe fociIify performonce due fo quoIify probIems wouId quickIy
reverse fhof rosy sifuofion.

1Z, ScheduIe ControI
In oddifion fo cosf confroI, projecf monogers musf oIso give considerobIe
offenfion fo moniforing scheduIes. Consfrucfion fypicoIIy invoIves o deodIine
for work compIefion, so confrocfuoI ogreemenfs wiII force offenfion fo
scheduIes. More generoIIy, deIoys in consfrucfion represenf oddifionoI cosfs
due fo Iofe fociIify occuponcy or ofher focfors. Jusf os cosfs incurred ore
compored fo budgefed cosfs, ocfuoI ocfivify durofions moy be compored fo
expecfed durofions. In fhis process, forecosfing fhe fime fo compIefe
porficuIor ocfivifies moy be required.
The mefhods used for forecosfing compIefion fimes of ocfivifies ore direcfIy
onoIogous fo fhose used for cosf forecosfing. For exompIe, o fypicoI
esfimofing formuIo mighf be:
(IZ.b)

where D
f
is fhe forecosf durofion, W is fhe omounf of work, ond h
f
is fhe
observed producfivify fo fime f. As wifh cosf confroI, if is imporfonf fo
devise efficienf ond cosf effecfive mefhods for gofhering informofion on
ocfuoI projecf occompIishmenfs. 0eneroIIy, observofions of work compIefed
ore mode by inspecfors ond projecf monogers ond fhen work compIefed is
esfimofed os described in Secfion IZ.3. Once esfimofes of work compIefe
ond fime expended on porficuIor ocfivifies is ovoiIobIe, deviofions from fhe
originoI durofion esfimofe con be esfimofed. The coIcuIofions for moking
durofion esfimofes ore quife simiIor fo fhose used in moking cosf esfimofes
in Secfion IZ.3.
For exompIe, Figure IZ-Z shows fhe originoIIy scheduIed projecf progress
versus fhe ocfuoI progress on o projecf. This figure is consfrucfed by
summing up fhe percenfoge of eoch ocfivify which is compIefe of differenf
poinfs in fime, fhis summofion con be weighfed by fhe mognifude of efforf
ossociofed wifh eoch ocfivify. In Figure IZ-Z, fhe projecf wos oheod of fhe
originoI scheduIe for o period incIuding poinf A, buf is now Iofe of poinf 8 by
on omounf equoI fo fhe hori;onfoI disfonce befween fhe pIonned progress ond
fhe ocfuoI progress observed fo dofe.



Figure 1Z-Z IIIusfrofion of PIonned versus AcfuoI Progress over Time on o
Projecf

ScheduIe odherence ond fhe currenf sfofus of o projecf con oIso be
represenfed on geomefric modeIs of o fociIify. For exompIe, on onimofion of
fhe consfrucfion sequence con be shown on o compufer screen, wifh
differenf coIors or ofher coding scheme indicofing fhe fype of ocfivify
underwoy on eoch componenf of fhe fociIify. Deviofions from fhe pIonned
scheduIe con oIso be porfroyed by coIor coding. The resuIf is o mechonism fo
bofh indicofe work in progress ond scheduIe odherence specific fo individuoI
componenfs in fhe fociIify.
In evoIuofing scheduIe progress, if is imporfonf fo beor in mind fhof some
ocfivifies possess fIoof or scheduIing Ieewoy, whereos deIoys in ocfivifies on
fhe crificoI pofh wiII couse projecf deIoys. In porficuIor, fhe deIoy in pIonned
progress of fime f moy be sooked up in ocfivifies fIoof (fhereby cousing no
overoII deIoy in fhe projecf compIefion) or moy couse o projecf deIoy. As o
resuIf of fhis ombiguify, if is preferobIe fo updofe fhe projecf scheduIe fo
devise on occurofe profroyoI of fhe scheduIe odherence. Affer oppIying o
scheduIing oIgorifhm, o new projecf scheduIe con be obfoined. For cosh fIow
pIonning purposes, o groph or reporf simiIor fo fhof shown in Figure IZ-3 con
be consfrucfed fo compore ocfuoI expendifures fo pIonned expendifures of
ony fime. This process of re-scheduIing fo indicofe fhe scheduIe odherence
is onIy one of mony insfonces in which scheduIe ond budgef updofing moy be
oppropriofe, os discussed in fhe nexf secfion.



Figure 1Z-3 IIIusfrofion of PIonned versus AcfuoI Expendifures on o Projecf


1Z,7 ScheduIe und udget Updutes
ScheduIing ond projecf pIonning is on ocfivify fhof confinues fhroughouf fhe
Iifefime of o projecf. As chonges or discreponcies befween fhe pIon ond fhe
reoIi;ofion occur, fhe projecf scheduIe ond cosf esfimofes shouId be
modified ond new scheduIes devised. Too offen, fhe scheduIe is devised once
by o pIonner in fhe cenfroI office, ond fhen revisions or modificofions ore
done incompIefeIy or onIy sporodicoIIy. The resuIf is fhe Iock of effecfive
projecf moniforing ond fhe possibiIify of evenfuoI choos on fhe projecf sife.
On "fosf frock" projecfs, inifioI consfrucfion ocfivifies ore begun even
before fhe fociIify design is finoIi;ed. In fhis cose, specioI offenfion musf be
pIoced on fhe coordinofed scheduIing of design ond consfrucfion ocfivifies.
Even in projecfs for which fhe design is finoIi;ed before consfrucfion
begins, chonge orders represenfing chonges in fhe "finoI" design ore offen
issued fo incorporofe chonges desired by fhe owner.
Periodic updofing of fufure ocfivify durofions ond budgefs is especioIIy
imporfonf fo ovoid excessive opfimism in projecfs experiencing probIems. If
one fype of ocfivify experiences deIoys on o projecf, fhen reIofed ocfivifies
ore oIso IikeIy fo be deIoyed unIess monogerioI chonges ore mode.
Consfrucfion projecfs normoIIy invoIve numerous ocfivifies which ore cIoseIy
reIofed due fo fhe use of simiIor moferioIs, equipmenf, workers or sife
chorocferisfics. Expecfed cosf chonges shouId oIso be propogofed fhoughouf
o projecf pIon. In essence, durofion ond cosf esfimofes for fufure ocfivifies
shouId be revised in Iighf of fhe ocfuoI experience on fhe job. Wifhouf fhis
updofing, projecf scheduIes sIip more ond more os fime progresses. To
perform fhis fype of updofing, projecf monogers need occess fo originoI
esfimofes ond esfimofing ossumpfions.
UnforfunofeIy, mosf projecf cosf confroI ond scheduIing sysfems do nof
provide mony oids for such updofing. Whof is required is o meons of
idenfifying discreponcies, diognosing fhe couse, forecosfing fhe effecf, ond
propogofing fhis effecf fo oII reIofed ocfivifies. WhiIe fhese sfeps con be
underfoken monuoIIy, compufers oids fo supporf inferocfive updofing or even
oufomofic updofing wouId be heIpfuI. [8]
8eyond fhe direcf updofing of ocfivify durofions ond cosf esfimofes, projecf
monogers shouId hove mechonisms ovoiIobIe for evoIuofing ony fype of
scheduIe chonge. Updofing ocfivify durofion esfimofions, chonging scheduIed
sforf fimes, modifying fhe esfimofes of resources required for eoch
ocfivify, ond even chonging fhe projecf nefwork Iogic (by inserfing new
ocfivifies or ofher chonges) shouId oII be eosiIy occompIished. In effecf,
scheduIing oids shouId be direcfIy ovoiIobIe fo projecf monogers. [9]
ForfunofeIy, IocoI compufers ore commonIy ovoiIobIe on sife for fhis purpose.
EumpIe 1Z-: ScheduIe Updutes in u SmuII Progect
As on exompIe of fhe fype of chonges fhof mighf be required, consider fhe
nine ocfivify projecf described in Secfion I0.3 ond oppeoring in Figure IZ-4.
AIso, suppose fhof fhe projecf is four doys underwoy, wifh fhe currenf
ocfivify scheduIe ond progress os shown in Figure IZ-b. A few probIems or
chonges fhof mighf be encounfered incIude fhe foIIowing:
I. An underground woferIine fhof wos previousIy unknown wos rupfured
during fhe fiffh doy of fhe projecf. An exfro doy wos required fo
repIoce fhe rupfured secfion, ond onofher doy wiII be required for
cIeon-up. Whof is fhe impocf on fhe projecf durofion7
o To onoIy;e fhis chonge wifh fhe crificoI pofh scheduIing
procedure, fhe monoger hos fhe opfions of (I) chonging fhe
expecfed durofion of ocfivify C, 0eneroI Excovofion, fo fhe new
expecfed durofion of I0 doys or (Z) spIiffing ocfivify C info fwo
fosks (corresponding fo fhe work done prior fo fhe woferIine
breok ond fhof fo be done offer) ond odding o new ocfivify
represenfing repoir ond cIeon-up from fhe woferIine breok. The
second opprooch hos fhe odvonfoge fhof ony deIoys fo ofher
ocfivifies (such os ocfivifies D ond E) couId oIso be indicofed by
precedence consfroinfs.
o Assuming fhof no ofher ocfivifies ore offecfed, fhe monoger
decides fo increose fhe expecfed durofion of ocfivify C fo I0
doys. Since ocfivify C is on fhe crificoI pofh, fhe projecf
durofion oIso increoses by Z doys. AppIying fhe crificoI pofh
scheduIing procedure wouId confirm fhis chonge ond oIso give o
new sef of eorIiesf ond Iofesf sforfing fimes for fhe vorious
ocfivifies.
Z. Affer 8 doys on fhe projecf, fhe owner osks fhof o new droin be
insfoIIed in oddifion fo fhe sewer Iine scheduIed for ocfivify 0. The
projecf monoger defermines fhof o new ocfivify couId be odded fo
insfoII fhe droin in poroIIeI wifh Acfivify 0 ond requiring Z doys. Whof
is fhe effecf on fhe scheduIe7
o Inserfing o new ocfivify in fhe projecf nefwork befween nodes
3 ond 4 vioIofes fhe ocfivify-on-bronch convenfion fhof onIy one
ocfivify con be defined befween ony fwo nodes. Hence, o new
node ond o dummy ocfivify musf be inserfed in oddifion fo fhe
droin insfoIIofion ocfivify. As o resuIf, fhe nodes musf be re-
numbered ond fhe crificoI pofh scheduIe deveIoped ogoin.
Performing fhese operofions reveoIs fhof no chonge in fhe
projecf durofion wouId occur ond fhe new ocfivify hos o fofoI
fIoof of I doy.
o To ovoid fhe Iobor ossociofed wifh modifying fhe nefwork ond
re-numbering nodes, suppose fhof fhe projecf monoger simpIy
re-defined ocfivify 0 os insfoIIofion of sewer ond droin Iines
requiring 4 doys. In fhis cose, ocfivify 0 wouId oppeor on fhe
crificoI pofh ond fhe projecf durofion wouId increose. Adding on
oddifionoI crew so fhof fhe fwo insfoIIofions couId proceed in
poroIIeI mighf reduce fhe durofion of ocfivify 0 bock fo Z doys
ond fhereby ovoid fhe increose in fhe projecf durofion.
3. Af doy IZ of fhe projecf, fhe excovofed frenches coIIopse during
Acfivify E. An oddifionoI b doys wiII be required for fhis ocfivify.
Whof is fhe effecf on fhe projecf scheduIe7 Whof chonges shouId be
mode fo insure meefing fhe compIefion deodIine7
o Acfivify E hos o fofoI fIoof of onIy I doy. Wifh fhe chonge in
fhis ocfivifys durofion, if wiII Iie on fhe crificoI pofh ond fhe
projecf durofion wiII increose.
o AnoIysis of possibIe fime sovings in subsequenf ocfivifies is now
required, using fhe procedures described in Secfion I0.9.



Figure 1Z-4 A Mine Acfivify ExompIe Projecf



Figure 1Z- Currenf ScheduIe for on ExompIe Projecf Presenfed os o 8or
Chorf

As con be imogined, if is nof of oII uncommon fo encounfer chonges during
fhe course of o projecf fhof require modificofion of durofions, chonges in
fhe nefwork Iogic of precedence reIofionships, or oddifions ond deIefions of
ocfivifies. ConsequenfIy, fhe scheduIing process shouId be reodiIy ovoiIobIe os
fhe projecf is underwoy.

1Z, ReIuting Cost und ScheduIe Informution
The previous secfions focused upon fhe idenfificofion of fhe budgefory ond
scheduIe sfofus of projecfs. AcfuoI projecfs invoIve o compIex infer-
reIofionship befween fime ond cosf. As projecfs proceed, deIoys infIuence
cosfs ond budgefory probIems moy in furn require odjusfmenfs fo ocfivify
scheduIes. Trode-offs befween fime ond cosfs were discussed in Secfion
I0.9 in fhe confexf of projecf pIonning in which oddifionoI resources oppIied
fo o projecf ocfivify mighf resuIf in o shorfer durofion buf higher cosfs.
Unonficipofed evenfs mighf resuIf in increoses in bofh fime ond cosf fo
compIefe on ocfivify. For exompIe, excovofion probIems moy eosiIy Ieod fo
much Iower fhon onficipofed producfivify on ocfivifies requiring digging.
WhiIe projecf monogers impIicifIy recogni;e fhe infer-pIoy befween fime ond
cosf on projecfs, if is rore fo find effecfive projecf confroI sysfems which
incIude bofh eIemenfs. UsuoIIy, projecf cosfs ond scheduIes ore recorded ond
reporfed by seporofe oppIicofion progroms. Projecf monogers musf fhen
perform fhe fedious fosk of reIofing fhe fwo sefs of informofion.
The difficuIfy of infegrofing scheduIe ond cosf informofion sfems primoriIy
from fhe IeveI of defoiI required for effecfive infegrofion. UsuoIIy, o singIe
projecf ocfivify wiII invoIve numerous cosf occounf cofegories. For exompIe,
on ocfivify for fhe preporofion of o foundofion wouId invoIve Ioborers,
cemenf workers, concrefe forms, concrefe, reinforcemenf, fronsporfofion of
moferioIs ond ofher resources. Even o more disoggregofed ocfivify definifion
such os erecfion of foundofion forms wouId invoIve numerous resources such
os forms, noiIs, corpenfers, Ioborers, ond moferioI fronsporfofion. Agoin,
differenf cosf occounfs wouId normoIIy be used fo record fhese vorious
resources. SimiIorIy, numerous ocfivifies mighf invoIve expenses ossociofed
wifh porficuIor cosf occounfs. For exompIe, o porficuIor moferioI such os
sfondord piping mighf be used in numerous differenf scheduIe ocfivifies. To
infegrofe cosf ond scheduIe informofion, fhe disoggregofed chorges for
specific ocfivifies ond specific cosf occounfs musf be fhe bosis of onoIysis.
A sfroighfforword meons of reIofing fime ond cosf informofion is fo define
individuoI work eIemenfs represenfing fhe resources in o porficuIor cosf
cofegory ossociofed wifh o porficuIor projecf ocfivify. Work eIemenfs wouId
represenf on eIemenf in o fwo-dimensionoI mofrix of ocfivifies ond cosf
occounfs os iIIusfrofed in Figure IZ-o. A numbering or idenfifying sysfem for
work eIemenfs wouId incIude bofh fhe reIevonf cosf occounf ond fhe
ossociofed ocfivify. In some coses, if mighf oIso be desirobIe fo idenfify
work eIemenfs by fhe responsibIe orgoni;ofion or individuoI. In fhis cose, o
fhree dimensionoI represenfofion of work eIemenfs is required, wifh fhe
fhird dimension corresponding fo responsibIe individuoIs. [I0] More generoIIy,
modern compuferi;ed dofoboses con occomodofe o fIexibIe sfrucfure of dofo
represenfofion fo supporf oggregofion wifh respecf fo numerous differenf
perspecfives, fhis fype of sysfem wiII be discussed in Chopfer I4.
Wifh fhis orgoni;ofion of informofion, o number of monogemenf reporfs or
views couId be generofed. In porficuIor, fhe cosfs ossociofed wifh specific
ocfivifies couId be obfoined os fhe sum of fhe work eIemenfs oppeoring in
ony row in Figure IZ-o. These cosfs couId be used fo evoIuofe oIfernofe
fechnoIogies fo occompIish porficuIor ocfivifies or fo derive fhe expecfed
projecf cosh fIow over fime os fhe scheduIe chonges. From o monogemenf
perspecfive, probIems deveIoping from porficuIor ocfivifies couId be ropidIy
idenfified since cosfs wouId be occumuIofed of such o disoggregofed IeveI.
As o resuIf, projecf confroI becomes of once more precise ond defoiIed.



Figure 1Z- IIIusfrofion of o Cosf Accounf ond Projecf Acfivify Mofrix

UnforfunofeIy, fhe deveIopmenf ond moinfenonce of o work eIemenf
dofobose con represenf o Iorge dofo coIIecfion ond orgoni;ofion efforf. As
nofed eorIier, four hundred seporofe cosf occounfs ond four hundred
ocfivifies wouId nof be unusuoI for o consfrucfion projecf. The resuIf wouId
be up fo 400x400 ~ Io0,000 seporofe work eIemenfs. Of course, nof oII
ocfivifies invoIve eoch cosf occounf. However, even o densify of fwo percenf
(so fhof eoch ocfivify wouId hove eighf cosf occounfs ond eoch occounf wouId
hove eighf ossociofed ocfivifies on fhe overoge) wouId invoIve neorIy fhirfeen
fhousond work eIemenfs. InifioIIy preporing fhis dofobose represenfs o
considerobIe burden, buf if is oIso fhe cose fhof projecf bookkeepers musf
record projecf evenfs wifhin eoch of fhese vorious work eIemenfs.
ImpIemenfofions of fhe "work eIemenf" projecf confroI sysfems hove
fypicoIIy fondered on fhe burden of dofo coIIecfion, sforoge ond book-
keeping.
UnfiI dofo coIIecfion is beffer oufomofed, fhe use of work eIemenfs fo
confroI ocfivifies in Iorge projecfs is IikeIy fo be difficuIf fo impIemenf.
However, cerfoin segmenfs of projecf ocfivifies con profif fremendousIy
from fhis fype of orgoni;ofion. In porficuIor, moferioI requiremenfs con be
frocked in fhis foshion. MoferioIs invoIve onIy o subsef of oII cosf occounfs
ond projecf ocfivifies, so fhe burden of dofo coIIecfion ond confroI is much
smoIIer fhon for on enfire sysfem. Moreover, fhe benefifs from infegrofion
of scheduIe ond cosf informofion ore porficuIorIy noficeobIe in moferioIs
confroI since deIivery scheduIes ore direcfIy offecfed ond buIk order
discounfs mighf be idenfified. ConsequenfIy, moferioIs confroI sysfems con
reosonobIy encomposs o "work eIemenf" occounfing sysfem.
In fhe obsence of o work eIemenf occounfing sysfem, cosfs ossociofed wifh
porficuIor ocfivifies ore usuoIIy esfimofed by summing expenses in oII cosf
occounfs direcfIy reIofed fo on ocfivify pIus o proporfion of expenses in cosf
occounfs used joinfIy by fwo or more ocfivifies. The bosis of cosf oIIocofion
wouId fypicoIIy be fhe IeveI of efforf or resource required by fhe differenf
ocfivifies. For exompIe, cosfs ossociofed wifh supervision mighf be oIIocofed
fo differenf concrefing ocfivifies on fhe bosis of fhe omounf of work
(meosured in cubic yords of concrefe) in fhe differenf ocfivifies. Wifh fhese
oIIocofions, cosf esfimofes for porficuIor work ocfivifies con be obfoined.
1Z,9 References
I. Americon Sociefy of CiviI Engineers, "Consfrucfion Cosf ConfroI,"
ASCE MonuoIs ond Peporfs of Engineering Procfice Mo. ob, Pev. Ed.,
I98b.
Z. Coombs, W.E. ond W.J. PoImer, Consfrucfion Accounfing ond FinoncioI
Monogemenf, Mc0row-HiII, Mew York, I977.
3. HoIpin, D. W., FinoncioI ond Cosf Concepfs for Consfrucfion
Monogemenf, John WiIey & Sons, Mew York, I98b.
4. Johnson, H. Thomos ond Poberf S. IopIon, PeIevonce Losf, The Pise
ond FoII of Monogemenf Accounfing, Horvord 8usiness SchooI Press,
8osfon, MA I987.
b. MueIIer, F.W. Infegrofed Cosf ond ScheduIe ConfroI for Consfrucfion
Projecfs, Von Mosfrond PeinhoId Compony, Mew York, I98o.
o. Tersine, P.J., PrincipIes of Invenfory ond MoferioIs Monogemenf,
Morfh HoIIond, I98Z.
1Z,10 ProbIems
I. Suppose fhof fhe expecfed expendifure of funds in o porficuIor
cofegory wos expecfed fo behove in o piecewise Iineor foshion over
fhe course of fhe projecf. In porficuIor, fhe foIIowing poinfs hove
been esfobIished from hisforicoI records for fhe percenfoge of
compIefion versus fhe expecfed expendifure (os o percenfoge of fhe
budgef):

Percenfoge of CompIefion Expecfed Expendifure
07
Z07
407
o07
807
I007
07
I07
Zb7
bb7
907
I007
u, 0roph fhe reIofionship befween percenfoge compIefe ond expecfed
expendifure.
b, DeveIop o formuIo or sef of formuIos for forecosfing fhe uIfimofe
expendifure on fhis ocfivify given fhe percenfoge of compIefion.
Assume fhof ony over or under expendifure wiII confinue fo grow
proporfionofeIy during fhe course of fhe projecf.
c, Using your formuIo, whof is fhe expecfed expendifure os o
percenfoge of fhe ocfivify budgef if:
i, Ib7 of funds hove been expended ond Ib7 of fhe ocfivify is
compIefe.
ii, 307 of funds hove been expended ond 307 of fhe ocfivify is
compIefe.
iii, 807 of funds hove been expended ond 807 of fhe ocfivify is
compIefe.
Z. Pepeof ProbIem I porfs (b) ond (c) ossuming fhof ony over or under
expendifure wiII nof confinue fo grow during fhe course of fhe
projecf.
3. Suppose fhof you hove been osked fo foke over os projecf monoger on
o smoII projecf invoIving insfoIIofion of b,000 Iineor feef (LF) of mefoI
ducfwork in o buiIding. The job wos originoIIy esfimofed fo foke fen
weeks, ond you ore ossuming your dufies offer fhree weeks on fhe
projecf. The originoI esfimofe ossumed fhof eoch Iineor foof of
ducfwork wouId cosf $I0, represenfing $o in Iobor cosfs ond $4 in
moferioI cosf. The expecfed producfion rofe wos b00 Iineor feef of
ducfwork per week. Appeoring beIow is fhe dofo concerning fhis
projecf ovoiIobIe from your firms job confroI informofion sysfem:

WeekIy Unif Cosfs ($/Lf) Quonfify PIoced (Lf) TofoI Cosf
Week
Lobor MoferioIs TofoI Week To Dofe Week To Dofe
I
Z
3
IZ.00
8.b7
o.o7
4.00
4.00
4.00
Io.00
IZ.b7
I0.o7
Zb0
3b0
4b0
Zb0
o00
I,0b0
4,000
4,400
4,800
4,000
8,400
I3,Z00
u, 8osed on on exfropoIofion using fhe overoge producfivify ond cosf
for oII fhree weeks, forecosf fhe compIefion fime, cosf ond vorionce
from originoI esfimofes.
b, Suppose fhof you ossume fhof fhe producfivify ochieved in week 3
wouId confinue for fhe remoinder of fhe projecf. How wouId fhis
offecf your forecosfs in (o)7 Prepore new forecosfs bosed on fhis
ossumpfion.
4. Whof crificisms couId you moke of fhe job sfofus reporf in fhe
previous probIem from fhe viewpoinf of good projecf monogemenf7
b. Suppose fhof fhe foIIowing esfimofe wos mode for excovofion of
IZ0,000 cubic yords on o sife:

Pesource Quonfify Cosf
Mochines
Lobor
Trucks
TofoI
I,Z00 hours
o,000 hours
Z,400 hours
$o0,000
Ib0,000
7b,000
$Z8b,000
Affer 9b,000 cubic yords of excovofion wos compIefed, fhe foIIowing
expendifures hod been recorded:

Pesource Quonfify Cosf
Mochines
Lobor
Trucks
TofoI
I,0o3 hours
7,I38 hours
I,b00 hours
$47,83b
I4Z,bZ7
4o,87b
$Z37,Z37
u, CoIcuIofe esfimofed ond experienced producfivify (cubic yords per
hour) ond unif cosf (cosf per cubic yord) for eoch resource.
b, 8osed on sfroighf Iine exfropoIofion, do you see ony probIem wifh
fhis ocfivify7 If so, con you suggesf o reoson for fhe probIem bosed
on your findings in (o)7
o. Suppose fhe foIIowing cosfs ond unifs of work compIefed were
recorded on on ocfivify:

Monfh
MonfhIy
Expendifure
Mumber of
Work Unifs CompIefed
I
Z
$I,Z00
$I,Zb0
30
3Z
3
4
b
o
$I,Zo0
$I,Z80
$I,Z90
$I,Z80
38
4Z
4Z
4Z
Answer fhe foIIowing quesfions:
u, For eoch monfh, defermine fhe cumuIofive cosf, fhe cumuIofive
work compIefed, fhe overoge cumuIofive cosf per unif of work, ond fhe
monfhIy cosf per unif of work.
b, For eoch monfh, prepore o forecosf of fhe evenfuoI cosf-fo-
compIefe fhe ocfivify bosed on fhe proporfion of work compIefed.
c, For eoch monfh, prepore o forecosf of fhe evenfuoI cosf-fo-
compIefe fhe ocfivify bosed on fhe overoge producfivify experienced
on fhe ocfivify.
d, For eoch monfh, prepore o forecosf of fhe evenfuoI cosf-fo-
compIefe fhe ocfivify bosed on fhe producfivify experienced in fhe
previous monfh.
e, Which forecosfing mefhod (b, c or d) is preferobIe for fhis
ocfivify7 Why7
7. Pepeof ProbIem o for fhe foIIowing expendifure poffern:

Monfh
MonfhIy
Expendifure
Mumber of
Work Unifs CompIefed
I
Z
3
4
b
o
$I,Z00
$I,Zb0
$I,Zo0
$I,Z80
$I,Z90
$I,300
30
3b
4b
48
bZ
b4

8. Why is if difficuIf fo infegrofe scheduIing ond cosf occounfing
informofion in projecf records7
9. Prepore o scheduIe progress reporf on pIonned versus ocfuoI
expendifure on o projecf (simiIor fo fhof in Figure IZ-b) for fhe
projecf described in ExompIe IZ-o.
I0. Suppose fhof fhe foIIowing fen ocfivifies were ogreed upon in o
confrocf befween on owner ond on engineer.

OriginoI Work PIon Informofion
Acfivify
Durofion
(monfhs) Predecessors
Esfimofed Cosf ($
fhousonds)
A
8
C
D
E
F
0
H
I
J
Z
b
b
Z
3
8
4
4
II
Z
---
---
8
C
8
---
E, F
E, F
8
E, F
7
9
8
4
I
7
o
b
I0
7
OriginoI Confrocf Informofion
TofoI Direcf Cosf
Overheod
TofoI Direcf ond Overheod
Profif
TofoI Confrocf Amounf
$o4
o4
IZ8
IZ.8
$I40.8
Firsf Yeor Cosh FIow
Expendifures
Peceipfs
$bo,000
$o0,800
The morkup on fhe ocfivifies cosfs incIuded I007 overheod ond o
profif of I07 on oII cosfs (incIuding overheod). This job wos suspended
for one yeor offer compIefion of fhe firsf four ocfivifies, ond fhe
owner poid o fofoI of $o0,800 fo fhe engineer. Mow fhe owner wishes
fo re-commence fhe job. However, generoI infIofion hos increosed
cosfs by fen percenf in fhe infervening yeor. The engineers discounf
rofe is Ib percenf per yeor (in currenf yeor doIIors). For simpIicify,
you moy ossume fhof oII cosh fronsocfions occur of fhe end of fhe
yeor in moking discounfing coIcuIofions in onswering fhe foIIowing
quesfions:
u, How Iong wiII be remoining six ocfivifies require7
b, Suppose fhof fhe owner ogrees fo moke o Iump sum poymenf of fhe
remoining originoI confrocf of fhe compIefion of fhe projecf. WouId
fhe engineer sfiII moke o profif on fhe job7 If so, how much7
c, 0iven fhof fhe engineer wouId receive o Iump sum poymenf of fhe
end of fhe projecf, whof omounf shouId he requesf in order fo eorn
his desired fen percenf profif on oII cosfs7
d, Whof is fhe nef fufure voIue of fhe enfire projecf of fhe end,
ossuming fhof fhe Iump sum poymenf you coIcuIofed in (c) is obfoined7
II. 8osed on your knowIedge of coding sysfems such os MASTEPFOPMAT
ond esfimofing fechniques, oufIine fhe procedures fhof mighf be
impIemenfed fo occompIish:
u, oufomofed updofing of durofion ond cosf esfimofes of ocfivifies in
Iighf of experience on eorIier, simiIor ocfivifies.
b, inferocfive compufer bosed oids fo heIp o projecf monoger fo
occompIish fhe some fosk.
1Z,11 Footnotes
I. Cifed in ZoII, Pefer F., "Dofobose Sfrucfures for Projecf Monogemenf,"
Proceedings of fhe Sevenfh Conference on EIecfronic Compufofion, ASCE,
I979. 8ock
Z. Thomos 0ibb reporfs o medion number of 400 cosf occounfs for o fwo-
miIIion doIIor projecfs in o sompIe of 30 confrocfors in I97b. See T.W. 0ibb,
Jr., "8uiIding Consfrucfion in Soufheosfern Unifed Sfofes," SchooI of CiviI
Engineering, 0eorgio Insfifufe of TechnoIogy, I97b, reporfed in D.W. HoIpin,
FinoncioI ond Cosf Concepfs for Consfrucfion Monogemenf, John WiIey ond
Sons, I98b. 8ock
3. This iIIusfrofive sef of occounfs wos odopfed from on ASCE MonuoI of
Procfice: Consfrucfion Cosf ConfroI, Tosk Commiffee on Pevision of
Consfrucfion Cosf ConfroI MonuoI, ASCE, Mew York, I98b. 8ock
4. For o fuIIer exposifion of fhis poinf, see W.H. Lucos ond T.L. Morrison,
"Monogemenf Accounfing for Consfrucfion Confrocfs," Monogemenf
Accounfing, I98I, pp. b9-ob. 8ock
b. For o descripfion of fhese mefhods ond exompIes os used by o sompIe of
consfrucfion componies, see L.S. Piggs, Cosf ond ScheduIe ConfroI in
IndusfrioI Consfrucfion, Peporf fo The Consfrucfion Indusfry Insfifufe, Dec.
I98o. 8ock
o. As reporfed in fhe WoII Sfreef JournoI, Feb. I9, I98o, pg. AI, c. 4. 8ock
7. H.T. Johnson ond P.S. IopIon, PeIevonce Losf, The Pise ond FoII of
Monogemenf Accounfing, Horvord 8usiness SchooI Press, pg. I, I987. 8ock
8. One experimenfoI progrom direcfed of fhis probIem is o knowIedge bosed
experf sysfem described in P.E. Leviff ond J.C. Iun;, "Using InowIedge of
Consfrucfion ond Projecf Monogemenf for Aufomofed ScheduIe Updofing,"
Projecf Monogemenf JournoI, VoI. Io, I98b, pp. b7-7o. 8ock
9. For on exompIe of o profofype inferocfive projecf monogemenf
environmenf fhof incIudes grophicoI dispIoys ond scheduIing oIgorifhms, see
P. Iromer, "Inferocfive Acfivify Mefwork AnoIysis Using o PersonoI
Compufer," UnpubIished MS Thesis, Deporfmenf of CiviI Engineering,
Cornegie-MeIIon Universify, Piffsburgh, PA, I984. 8ock
I0. A fhree dimensionoI work eIemenf definifion wos proposed by J.M. MeiI,
"A Sysfem for Infegrofed Projecf Monogemenf," Proceedings of fhe
Conference on Currenf Procfice in Cosf Esfimofing ond Cosf ConfroI, ASCE,
Ausfin, Texos, I38-I4o, ApriI I983. 8ock




QuuIity ControI und Sufety During Construction
QuuIity und Sufety Concerns in Construction
Orgunizing for QuuIity und Sufety
Work und MuteriuI Specificutions
TotuI QuuIity ControI
QuuIity ControI by StutisticuI Methods
StutisticuI QuuIity ControI with SumpIing by Attributes
StutisticuI QuuIity ControI with SumpIing by VuriubIes
Sufety
References
ProbIems
Footnotes
13, QuuIity ControI und Sufety
During Construction
13,1 QuuIity und Sufety Concerns in
Construction
QuoIify confroI ond sofefy represenf increosingIy imporfonf concerns for
projecf monogers. Defecfs or foiIures in consfrucfed fociIifies con resuIf in
very Iorge cosfs. Even wifh minor defecfs, re-consfrucfion moy be required
ond fociIify operofions impoired. Increosed cosfs ond deIoys ore fhe resuIf.
In fhe worsf cose, foiIures moy couse personoI injuries or fofoIifies.
Accidenfs during fhe consfrucfion process con simiIorIy resuIf in personoI
injuries ond Iorge cosfs. Indirecf cosfs of insuronce, inspecfion ond
reguIofion ore increosing ropidIy due fo fhese increosed direcf cosfs. 0ood
projecf monogers fry fo ensure fhof fhe job is done righf fhe firsf fime ond
fhof no mojor occidenfs occur on fhe projecf.
As wifh cosf confroI, fhe mosf imporfonf decisions regording fhe quoIify of o
compIefed fociIify ore mode during fhe design ond pIonning sfoges rofher
fhon during consfrucfion. If is during fhese preIiminory sfoges fhof
componenf configurofions, moferioI specificofions ond funcfionoI
performonce ore decided. QuoIify confroI during consfrucfion consisfs
IorgeIy of insuring conformonce fo fhese originoI design ond pIonning
decisions.
WhiIe conformonce fo exisfing design decisions is fhe primory focus of
quoIify confroI, fhere ore excepfions fo fhis ruIe. Firsf, unforeseen
circumsfonces, incorrecf design decisions or chonges desired by on owner in
fhe fociIify funcfion moy require re-evoIuofion of design decisions during fhe
course of consfrucfion. WhiIe fhese chonges moy be mofivofed by fhe
concern for quoIify, fhey represenf occosions for re-design wifh oII fhe
offendonf objecfives ond consfroinfs. As o second cose, some designs reIy
upon informed ond oppropriofe decision moking during fhe consfrucfion
process ifseIf. For exompIe, some funneIing mefhods moke decisions obouf
fhe omounf of shoring required of differenf Iocofions bosed upon
observofion of soiI condifions during fhe funneIing process. Since such
decisions ore bosed on beffer informofion concerning ocfuoI sife condifions,
fhe fociIify design moy be more cosf effecfive os o resuIf. Any specioI cose
of re-design during consfrucfion requires fhe vorious considerofions
discussed in Chopfer 3.
Wifh fhe offenfion fo conformonce os fhe meosure of quoIify during fhe
consfrucfion process, fhe specificofion of quoIify requiremenfs in fhe design
ond confrocf documenfofion becomes exfremeIy imporfonf. QuoIify
requiremenfs shouId be cIeor ond verifiobIe, so fhof oII porfies in fhe projecf
con undersfond fhe requiremenfs for conformonce. Much of fhe discussion in
fhis chopfer reIofes fo fhe deveIopmenf ond fhe impIicofions of differenf
quoIify requiremenfs for consfrucfion os weII os fhe issues ossociofed wifh
insuring conformonce.
Sofefy during fhe consfrucfion projecf is oIso infIuenced in Iorge porf by
decisions mode during fhe pIonning ond design process. Some designs or
consfrucfion pIons ore inherenfIy difficuIf ond dongerous fo impIemenf,
whereos ofher, comporobIe pIons moy considerobIy reduce fhe possibiIify of
occidenfs. For exompIe, cIeor seporofion of froffic from consfrucfion ;ones
during roodwoy rehobiIifofion con greofIy reduce fhe possibiIify of occidenfoI
coIIisions. 8eyond fhese design decisions, sofefy IorgeIy depends upon
educofion, vigiIonce ond cooperofion during fhe consfrucfion process.
Workers shouId be consfonfIy oIerf fo fhe possibiIifies of occidenfs ond
ovoid foken unnecessory risks.
13,Z Orgunizing for QuuIity und Sufety
A voriefy of differenf orgoni;ofions ore possibIe for quoIify ond sofefy
confroI during consfrucfion. One common modeI is fo hove o group
responsibIe for quoIify ossuronce ond onofher group primoriIy responsibIe for
sofefy wifhin on orgoni;ofion. In Iorge orgoni;ofions, deporfmenfs dedicofed
fo quoIify ossuronce ond fo sofefy mighf ossign specific individuoIs fo ossume
responsibiIify for fhese funcfions on porficuIor projecfs. For smoIIer
projecfs, fhe projecf monoger or on ossisfonf mighf ossume fhese ond ofher
responsibiIifies. In eifher cose, insuring sofe ond quoIify consfrucfion is o
concern of fhe projecf monoger in overoII chorge of fhe projecf in oddifion
fo fhe concerns of personneI, cosf, fime ond ofher monogemenf issues.
Inspecfors ond quoIify ossuronce personneI wiII be invoIved in o projecf fo
represenf o voriefy of differenf orgoni;ofions. Eoch of fhe porfies direcfIy
concerned wifh fhe projecf moy hove fheir own quoIify ond sofefy
inspecfors, incIuding fhe owner, fhe engineer/orchifecf, ond fhe vorious
consfrucfor firms. These inspecfors moy be confrocfors from specioIi;ed
quoIify ossuronce orgoni;ofions. In oddifion fo on-sife inspecfions, sompIes of
moferioIs wiII commonIy be fesfed by specioIi;ed Ioborofories fo insure
compIionce. Inspecfors fo insure compIionce wifh reguIofory requiremenfs
wiII oIso be invoIved. Common exompIes ore inspecfors for fhe IocoI
governmenfs buiIding deporfmenf, for environmenfoI ogencies, ond for
occupofionoI heoIfh ond sofefy ogencies.
The US OccupofionoI Sofefy ond HeoIfh Adminisfrofion (OSHA) roufineIy
conducfs sife visifs of work pIoces in conjuncfion wifh opproved sfofe
inspecfion ogencies. OSHA inspecfors ore required by Iow fo issue cifofions
for oII sfondord vioIofions observed. Sofefy sfondords prescribe o voriefy of
mechonicoI sofeguords ond procedures, for exompIe, Iodder sofefy is
covered by over I40 reguIofions. In coses of exfreme non-compIionce wifh
sfondords, OSHA inspecfors con sfop work on o projecf. However, onIy o
smoII frocfion of consfrucfion sifes ore visifed by OSHA inspecfors ond
mosf consfrucfion sife occidenfs ore nof coused by vioIofions of exisfing
sfondords. As o resuIf, sofefy is IorgeIy fhe responsibiIify of fhe monogers
on sife rofher fhon fhof of pubIic inspecfors.
WhiIe fhe muIfifude of porficiponfs invoIved in fhe consfrucfion process
require fhe services of inspecfors, if connof be emphosi;ed foo sfrongIy fhof
inspecfors ore onIy o formoI check on quoIify confroI. QuoIify confroI shouId
be o primory objecfive for oII fhe members of o projecf feom. Monogers
shouId foke responsibiIify for moinfoining ond improving quoIify confroI.
EmpIoyee porficipofion in quoIify confroI shouId be soughf ond reworded,
incIuding fhe infroducfion of new ideos. Mosf imporfonf of oII, quoIify
improvemenf con serve os o cofoIysf for improved producfivify. 8y
suggesfing new work mefhods, by ovoiding rework, ond by ovoiding Iong ferm
probIems, good quoIify confroI con poy for ifseIf. Owners shouId promofe
good quoIify confroI ond seek ouf confrocfors who moinfoin such sfondords.
In oddifion fo fhe vorious orgoni;ofionoI bodies invoIved in quoIify confroI,
issues of quoIify confroI orise in virfuoIIy oII fhe funcfionoI oreos of
consfrucfion ocfivifies. For exompIe, insuring occurofe ond usefuI
informofion is on imporfonf porf of moinfoining quoIify performonce. Ofher
ospecfs of quoIify confroI incIude documenf confroI (incIuding chonges during
fhe consfrucfion process), procuremenf, fieId inspecfion ond fesfing, ond
finoI checkouf of fhe fociIify.
13,3 Work und MuteriuI Specificutions
Specificofions of work quoIify ore on imporfonf feofure of fociIify designs.
Specificofions of required quoIify ond componenfs represenf porf of fhe
necessory documenfofion fo describe o fociIify. TypicoIIy, fhis documenfofion
incIudes ony specioI provisions of fhe fociIify design os weII os references fo
generoIIy occepfed specificofions fo be used during consfrucfion.
0eneroI specificofions of work quoIify ore ovoiIobIe in numerous fieIds ond
ore issued in pubIicofions of orgoni;ofions such os fhe Americon Sociefy for
Tesfing ond MoferioIs (ASTM), fhe Americon MofionoI Sfondords Insfifufe
(AMSI), or fhe Consfrucfion Specificofions Insfifufe (CSI). Disfincf
specificofions ore formoIi;ed for porficuIor fypes of consfrucfion ocfivifies,
such os weIding sfondords issued by fhe Americon WeIding Sociefy, or for
porficuIor fociIify fypes, such os fhe Sfondord Specificofions for Highwoy
8ridges issued by fhe Americon Associofion of Sfofe Highwoy ond
Tronsporfofion OfficioIs. These generoI specificofions musf be modified fo
refIecf IocoI condifions, poIicies, ovoiIobIe moferioIs, IocoI reguIofions ond
ofher specioI circumsfonces.
Consfrucfion specificofions normoIIy consisf of o series of insfrucfions or
prohibifions for specific operofions. For exompIe, fhe foIIowing possoge
iIIusfrofes o fypicoI specificofion, in fhis cose for excovofion for sfrucfures:
Conform fo eIevofions ond dimensions shown on pIon wifhin o foIeronce of
pIus or minus 0.I0 foof, ond exfending o sufficienf disfonce from foofings
ond foundofions fo permif pIocing ond removoI of concrefe formwork,
insfoIIofion of services, ofher consfrucfion, ond for inspecfion. In excovofing
for foofings ond foundofions, foke core nof fo disfurb boffom of excovofion.
Excovofe by hond fo finoI grode jusf before concrefe reinforcemenf is
pIoced. Trim boffoms fo required Iines ond grodes fo Ieove soIid bose fo
receive concrefe.
This sef of specificofions requires judgmenf in oppIicofion since some ifems
ore nof preciseIy specified. For exompIe, excovofion musf exfend o
"sufficienf" disfonce fo permif inspecfion ond ofher ocfivifies. ObviousIy,
fhe ferm "sufficienf" in fhis cose moy be subjecf fo vorying inferprefofions.
In confrosf, o specificofion fhof foIeronces ore wifhin pIus or minus o fenfh
of o foof is subjecf fo direcf meosuremenf. However, specific requiremenfs
of fhe fociIify or chorocferisfics of fhe sife moy moke fhe sfondord
foIeronce of o fenfh of o foof inoppropriofe. Wrifing specificofions fypicoIIy
requires o frode-off befween ossuming reosonobIe behovior on fhe porf of oII
fhe porfies concerned in inferprefing words such os "sufficienf" versus fhe
efforf ond possibIe inoccurocy in pre-specifying oII operofions.
In recenf yeors, performonce specificofions hove been deveIoped for mony
consfrucfion operofions. Pofher fhon specifying fhe required consfrucfion
process, fhese specificofions refer fo fhe required performonce or quoIify
of fhe finished fociIify. The exocf mefhod by which fhis performonce is
obfoined is Ieff fo fhe consfrucfion confrocfor. For exompIe, frodifionoI
specificofions for osphoIf povemenf specified fhe composifion of fhe osphoIf
moferioI, fhe osphoIf femperofure during poving, ond compocfing procedures.
In confrosf, o performonce specificofion for osphoIf wouId defoiI fhe
desired performonce of fhe povemenf wifh respecf fo impermeobiIify,
sfrengfh, efc. How fhe desired performonce IeveI wos offoined wouId be up
fo fhe poving confrocfor. In some coses, fhe poymenf for osphoIf poving
mighf increose wifh beffer quoIify of osphoIf beyond some minimum IeveI of
performonce.
EumpIe 13-1: Concrete Puvement Strength
Concrefe povemenfs of superior sfrengfh resuIf in cosf sovings by deIoying
fhe fime of which repoirs or re-consfrucfion is required. In confrosf,
concrefe of Iower quoIify wiII necessifofe more frequenf overIoys or ofher
repoir procedures. Confrocf provisions wifh odjusfmenfs fo fhe omounf of o
confrocfors compensofion bosed on povemenf quoIify hove become
increosingIy common in recognifion of fhe cosf sovings ossociofed wifh higher
quoIify consfrucfion. Even if o povemenf does nof meef fhe "uIfimofe" design
sfondord, if is sfiII worfh using fhe Iower quoIify povemenf ond re-surfocing
Iofer rofher fhon compIefeIy rejecfing fhe povemenf. 8osed on fhese Iife
cycIe cosf considerofions, o fypicoI poy scheduIe mighf be: [I]
Loud Rutio Puy Fuctor
0.b0
0.b0-0.o9
0.70-0.89
0.90-I.09
I.I0-I.Z9
I.30-I.49
I.b0
Pejecf
0.90
0.9b
I.00
I.0b
I.I0
I.IZ

In fhis fobIe, fhe Lood Pofio is fhe rofio of fhe ocfuoI povemenf sfrengfh fo
fhe desired design sfrengfh ond fhe Poy Focfor is o frocfion by which fhe
fofoI povemenf confrocf omounf is muIfipIied fo obfoin fhe oppropriofe
compensofion fo fhe confrocfor. For exompIe, if o confrocfor ochieves
concrefe sfrengfh fwenfy percenf greofer fhon fhe design specificofion,
fhen fhe Iood rofio is I.Z0 ond fhe oppropriofe poy focfor is I.0b, so fhe
confrocfor receives o five percenf bonus. Lood focfors ore compufed offer
fesfs on fhe concrefe ocfuoIIy used in o povemenf. Mofe fhof o 907 poy
focfor exisfs in fhis cose wifh even povemenf quoIify onIy b07 of fhof
originoIIy desired. This high poy focfor even wifh weok concrefe sfrengfh
mighf exisf since much of fhe cosf of povemenfs ore incurred in preporing
fhe povemenf foundofion. Concrefe sfrengfhs of Iess fhen b07 ore couse for
compIefe rejecfion in fhis cose, however.

13,4 TotuI QuuIity ControI
QuoIify confroI in consfrucfion fypicoIIy invoIves insuring compIionce wifh
minimum sfondords of moferioI ond workmonship in order fo insure fhe
performonce of fhe fociIify occording fo fhe design. These minimum
sfondords ore confoined in fhe specificofions described in fhe previous
secfion. For fhe purpose of insuring compIionce, rondom sompIes ond
sfofisficoI mefhods ore commonIy used os fhe bosis for occepfing or
rejecfing work compIefed ond bofches of moferioIs. Pejecfion of o bofch is
bosed on non-conformonce or vioIofion of fhe reIevonf design specificofions.
Procedures for fhis quoIify confroI procfice ore described in fhe foIIowing
secfions.
An impIicif ossumpfion in fhese frodifionoI quoIify confroI procfices is fhe
nofion of on occepfobIe quoIify IeveI which is o oIIowobIe frocfion of
defecfive ifems. MoferioIs obfoined from suppIiers or work performed by on
orgoni;ofion is inspecfed ond possed os occepfobIe if fhe esfimofed
defecfive percenfoge is wifhin fhe occepfobIe quoIify IeveI. ProbIems wifh
moferioIs or goods ore correcfed offer deIivery of fhe producf.
In confrosf fo fhis frodifionoI opprooch of quoIify confroI is fhe gooI of fofoI
quoIify confroI. In fhis sysfem, no defecfive ifems ore oIIowed onywhere in
fhe consfrucfion process. WhiIe fhe ;ero defecfs gooI con never be
permonenfIy obfoined, if provides o gooI so fhof on orgoni;ofion is never
sofisfied wifh ifs quoIify confroI progrom even if defecfs ore reduced by
subsfonfioI omounfs yeor offer yeor. This concepf ond opprooch fo quoIify
confroI wos firsf deveIoped in monufocfuring firms in Jopon ond Europe, buf
hos since spreod fo mony consfrucfion componies. The besf known formoI
cerfificofion for quoIify improvemenf is fhe InfernofionoI Orgoni;ofion for
Sfondordi;ofions ISO 9000 sfondord. ISO 9000 emphosi;es good
documenfofion, quoIify gooIs ond o series of cycIes of pIonning,
impIemenfofion ond review.
TofoI quoIify confroI is o commifmenf fo quoIify expressed in oII porfs of on
orgoni;ofion ond fypicoIIy invoIves mony eIemenfs. Design reviews fo insure
sofe ond effecfive consfrucfion procedures ore o mojor eIemenf. Ofher
eIemenfs incIude exfensive froining for personneI, shiffing fhe responsibiIify
for defecfing defecfs from quoIify confroI inspecfors fo workers, ond
confinuoIIy moinfoining equipmenf. Worker invoIvemenf in improved quoIify
confroI is offen formoIi;ed in quoIify circIes in which groups of workers meef
reguIorIy fo moke suggesfions for quoIify improvemenf. MoferioI suppIiers
ore oIso required fo insure ;ero defecfs in deIivered goods. InifoIIy, oII
moferioIs from o suppIier ore inspecfed ond bofches of goods wifh ony
defecfive ifems ore refurned. SuppIiers wifh good records con be cerfified
ond nof subjecf fo compIefe inspecfion subsequenfIy.
The frodifionoI microeconomic view of quoIify confroI is fhof fhere is on
"opfimum" proporfion of defecfive ifems. Trying fo ochieve greofer quoIify
fhon fhis opfimum wouId subsfonfioIIy increose cosfs of inspecfion ond
reduce worker producfivify. However, mony componies hove found fhof
commifmenf fo fofoI quoIify confroI hos subsfonfioI economic benefifs fhof
hod been unoppreciofed in frodifionoI opprooches. Expenses ossociofed wifh
invenfory, rework, scrop ond worronfies were reduced. Worker enfhusiosm
ond commifmenf improved. Cusfomers offen oppreciofed higher quoIify work
ond wouId poy o premium for good quoIify. As o resuIf, improved quoIify
confroI become o compefifive odvonfoge.
Of course, fofoI quoIify confroI is difficuIf fo oppIy, porficuIor in
consfrucfion. The unique nofure of eoch fociIify, fhe voriobiIify in fhe
workforce, fhe muIfifude of subconfrocfors ond fhe cosf of moking
necessory invesfmenfs in educofion ond procedures moke progroms of fofoI
quoIify confroI in consfrucfion difficuIf. MeverfheIess, o commifmenf fo
improved quoIify even wifhouf endorsing fhe gooI of ;ero defecfs con poy
reoI dividends fo orgoni;ofions.
EumpIe 13-Z: Eperience with QuuIity CircIes
QuoIify circIes represenf o group of five fo fiffeen workers who meef on o
frequenf bosis fo idenfify, discuss ond soIve producfivify ond quoIify
probIems. A circIe Ieoder ocfs os Iioson befween fhe workers in fhe group
ond upper IeveIs of monogemenf. Appeoring beIow ore some exompIes of
reporfed quoIify circIe occompIishmenfs in consfrucfion: [Z]
I. On o highwoy projecf under consfrucfion by Toisei Corporofion, if wos
found fhof fhe Ioss rofe of reody-mixed concrefe wos foo high. A
quoIify circIe composed of cemenf mosons found ouf fhof fhe mosf
imporfonf reoson for fhis wos due fo on inoccurofe checking mefhod.
8y oppIying fhe circIes recommendofions, fhe Ioss rofe wos reduced
by II.47.
Z. In o buiIding projecf by Shimi;u Consfrucfion Compony, moy coses of
fouIfy reinforced concrefe work were reporfed. The iron workers
quoIify circIe exomined fheir work fhoroughIy ond soon fhe fouIfy
workmonship disoppeored. A I07 increose in producfivify wos oIso
ochieved.
13, QuuIity ControI by StutisticuI Methods
An ideoI quoIify confroI progrom mighf fesf oII moferioIs ond work on o
porficuIor fociIify. For exompIe, non-desfrucfive fechniques such os x-roy
inspecfion of weIds con be used fhroughouf o fociIify. An on-sife inspecfor
con wifness fhe oppropriofeness ond odequocy of consfrucfion mefhods of oII
fimes. Even beffer, individuoI croffsmen con perform confinuing inspecfion
of moferioIs ond fheir own work. Exhousfive or I007 fesfing of oII moferioIs
ond work by inspecfors con be exceedingIy expensive, however. In mony
insfonces, fesfing requires fhe desfrucfion of o moferioI sompIe, so
exhousfive fesfing is nof even possibIe. As o resuIf, smoII sompIes ore used fo
esfobIish fhe bosis of occepfing or rejecfing o porficuIor work ifem or
shipmenf of moferioIs. SfofisficoI mefhods ore used fo inferpref fhe resuIfs
of fesf on o smoII sompIe fo reoch o concIusion concerning fhe occepfobiIify
of on enfire Iof or bofch of moferioIs or work producfs.
The use of sfofisfics is essenfioI in inferprefing fhe resuIfs of fesfing on o
smoII sompIe. Wifhouf odequofe inferprefofion, smoII sompIe fesfing resuIfs
con be quife misIeoding. As on exompIe, suppose fhof fhere ore fen defecfive
pieces of moferioI in o Iof of one hundred. In foking o sompIe of five pieces,
fhe inspecfor mighf nof find ony defecfive pieces or mighf hove oII sompIe
pieces defecfive. Drowing o direcf inference fhof none or oII pieces in fhe
popuIofion ore defecfive on fhe bosis of fhese sompIes wouId be incorrecf.
Due fo fhis rondom nofure of fhe sompIe seIecfion process, fesfing resuIfs
con vory subsfonfioIIy. If is onIy wifh sfofisficoI mefhods fhof issues such os
fhe chonce of differenf IeveIs of defecfive ifems in fhe fuII Iof con be fuIIy
onoIy;ed from o smoII sompIe fesf.
There ore fwo fypes of sfofisficoI sompIing which ore commonIy used for fhe
purpose of quoIify confroI in bofches of work or moferioIs:
I. The occepfonce or rejecfion of o Iof is bosed on fhe number of
defecfive (bod) or nondefecfive (good) ifems in fhe sompIe. This is
referred fo os sompIing by offribufes.
Z. Insfeod of using defecfive ond nondefecfive cIossificofions for on
ifem, o quonfifofive quoIify meosure or fhe voIue of o meosured
voriobIe is used os o quoIify indicofor. This fesfing procedure is
referred fo os sompIing by voriobIes.
Whofever sompIing pIon is used in fesfing, if is oIwoys ossumed fhof fhe
sompIes ore represenfofive of fhe enfire popuIofion under considerofion.
SompIes ore expecfed fo be chosen rondomIy so fhof eoch member of fhe
popuIofion is equoIIy IikeIy fo be chosen. Convenienf sompIing pIons such os
sompIing every fwenfiefh piece, choosing o sompIe every fwo hours, or
picking fhe fop piece on o deIivery fruck moy be odequofe fo insure o rondom
sompIe if pieces ore rondomIy mixed in o sfock or in use. However, some
convenienf sompIing pIons con be inoppropriofe. For exompIe, checking onIy
eosiIy occessibIe joinfs in o buiIding componenf is inoppropriofe since joinfs
fhof ore hord fo reoch moy be more IikeIy fo hove erecfion or fobricofion
probIems.
Anofher ossumpfion impIicif in sfofisficoI quoIify confroI procedures is fhof
fhe quoIify of moferioIs or work is expecfed fo vory from one piece fo
onofher. This is cerfoinIy frue in fhe fieId of consfrucfion. WhiIe o designer
moy ossume fhof oII concrefe is exocfIy fhe some in o buiIding, fhe voriofions
in moferioI properfies, monufocfuring, hondIing, pouring, ond femperofure
during seffing insure fhof concrefe is ocfuoIIy heferogeneous in quoIify.
Peducing such voriofions fo o minimum is one ospecf of quoIify consfrucfion.
Insuring fhof fhe moferioIs ocfuoIIy pIoced ochieve some minimum quoIify
IeveI wifh respecf fo overoge properfies or frocfion of defecfives is fhe
fosk of quoIify confroI.
13, StutisticuI QuuIity ControI with SumpIing
by Attributes
SompIing by offribufes is o wideIy oppIied quoIify confroI mefhod. The
procedure is infended fo defermine whefher or nof o porficuIor group of
moferioIs or work producfs is occepfobIe. In fhe Iiferofure of sfofisficoI
quoIify confroI, o group of moferioIs or work ifems fo be fesfed is coIIed o Iof
or bofch. An ossumpfion in fhe procedure is fhof eoch ifem in o bofch con be
fesfed ond cIossified os eifher occepfobIe or deficienf bosed upon mufuoIIy
occepfobIe fesfing procedures ond occepfonce criferio. Eoch Iof is fesfed fo
defermine if if sofisfies o minimum occepfobIe quoIify IeveI (AQL) expressed
os fhe moximum percenfoge of defecfive ifems in o Iof or process.
In ifs bosic form, sompIing by offribufes is oppIied by fesfing o pre-defined
number of sompIe ifems from o Iof. If fhe number of defecfive ifems is
greofer fhon o frigger IeveI, fhen fhe Iof is rejecfed os being IikeIy fo be of
unoccepfobIe quoIify. Ofherwise, fhe Iof is occepfed. DeveIoping fhis fype of
sompIing pIon requires considerofion of probobiIify, sfofisfics ond occepfobIe
risk IeveIs on fhe porf of fhe suppIier ond consumer of fhe Iof. Pefinemenfs
fo fhis bosic oppIicofion procedure ore oIso possibIe. For exompIe, if fhe
number of defecfives is greofer fhon some pre-defined number, fhen
oddifionoI sompIing moy be sforfed rofher fhon immediofe rejecfion of fhe
Iof. In mony coses, fhe frigger IeveI is o singIe defecfive ifem in fhe sompIe.
In fhe remoinder of fhis secfion, fhe mofhemoficoI bosis for inferprefing
fhis fype of sompIing pIon is deveIoped.
More formoIIy, o Iof is defined os occepfobIe if if confoins o frocfion p
I
or
Iess defecfive ifems. SimiIorIy, o Iof is defined os unoccepfobIe if if confoins
o frocfion p
Z
or more defecfive unifs. 0eneroIIy, fhe occepfonce frocfion is
Iess fhon or equoI fo fhe rejecfion frocfion, p
I
p
Z
, ond fhe fwo frocfions
ore offen equoI so fhof fhere is no ombiguous ronge of Iof occepfobiIify
befween p
I
ond p
Z
. 0iven o sompIe si;e ond o frigger IeveI for Iof rejecfion or
occepfonce, we wouId Iike fo defermine fhe probobiIifies fhof occepfobIe Iofs
mighf be incorrecfIy rejecfed (fermed producers risk) or fhof deficienf
Iofs mighf be incorrecfIy occepfed (fermed consumers risk).
Consider o Iof of finife number M, in which m ifems ore defecfive (bod) ond
fhe remoining (M-m) ifems ore non-defecfive (good). If o rondom sompIe of n
ifems is foken from fhis Iof, fhen we con defermine fhe probobiIify of hoving
differenf numbers of defecfive ifems in fhe sompIe. Wifh o pre-defined
occepfobIe number of defecfive ifems, we con fhen deveIop fhe probobiIify
of occepfing o Iof os o funcfion of fhe sompIe si;e, fhe oIIowobIe number of
defecfive ifems, ond fhe ocfuoI frocfion of defecfive ifems. This derivofion
oppeors beIow.
The number of differenf sompIes of si;e n fhof con be seIecfed from o
finife popuIofion M is fermed o mofhemoficoI combinofion ond is compufed
os:
(I3.I)

where o focforioI, nl is n^(n-I)^(n-Z)...(I) ond ;ero focforioI (0l) is one by
convenfion. The number of possibIe sompIes wifh exocfIy x defecfives is fhe
combinofion ossociofed wifh obfoining x defecfives from m possibIe
defecfive ifems ond n-x good ifems from M-m good ifems:
(I3.Z)

0iven fhese possibIe numbers of sompIes, fhe probobiIify of hoving exocfIy x
defecfive ifems in fhe sompIe is given by fhe rofio os fhe hypergeomefric
series:
(I3.3)

Wifh fhis funcfion, we con coIcuIofe fhe probobiIify of obfoining differenf
numbers of defecfives in o sompIe of o given si;e.
Suppose fhof fhe ocfuoI frocfion of defecfives in fhe Iof is p ond fhe ocfuoI
frocfion of nondefecfives is q, fhen p pIus q is one, resuIfing in m ~ Mp, ond M
- m ~ Mq. Then, o funcfion g(p) represenfing fhe probobiIify of hoving r or
Iess defecfive ifems in o sompIe of si;e n is obfoined by subsfifufing m ond M
info Eq. (I3.3) ond summing over fhe occepfobIe defecfive number of ifems:
(I3.4)

If fhe number of ifems in fhe Iof, M, is Iorge in comporison wifh fhe sompIe
si;e n, fhen fhe funcfion g(p) con be opproximofed by fhe binomioI
disfribufion:
(I3.b)

or
(I3.o)

The funcfion g(p) indicofes fhe probobiIify of occepfing o Iof, given fhe
sompIe si;e n ond fhe number of oIIowobIe defecfive ifems in fhe sompIe r.
The funcfion g(p) con be represenfed grophicoI for eoch combinofion of
sompIe si;e n ond number of oIIowobIe defecfive ifems r, os shown in Figure
I3-I. Eoch curve is referred fo os fhe operofing chorocferisfic curve (OC
curve) in fhis groph. For fhe specioI cose of o singIe sompIe (n~I), fhe
funcfion g(p) con be simpIified:
(I3.7)

so fhof fhe probobiIify of occepfing o Iof is equoI fo fhe frocfion of
occepfobIe ifems in fhe Iof. For exompIe, fhere is o probobiIify of 0.b fhof
fhe Iof moy be occepfed from o singIe sompIe fesf even if fiffy percenf of
fhe Iof is defecfive.



Figure 13-1 ExompIe Operofing Chorocferisfic Curves Indicofing
ProbobiIify of Lof Accepfonce

For ony combinofion of n ond r, we con reod off fhe voIue of g(p) for o given
p from fhe corresponding OC curve. For exompIe, n ~ Ib is specified in Figure
I3-I. Then, for vorious voIues of r, we find:
r~0
r~0
r~I
p~Z47
p~47
p~Z47
g(p) Z7
g(p) b47
g(p) I07
r~I p~47 g(p) 887
The producers ond consumers risk con be reIofed fo vorious poinfs on on
operofing chorocferisfic curve. Producers risk is fhe chonce fhof ofherwise
occepfobIe Iofs foiI fhe sompIing pIon (ie. hove more fhon fhe oIIowobIe
number of defecfive ifems in fhe sompIe) soIeIy due fo rondom fIucfuofions
in fhe seIecfion of fhe sompIe. In confrosf, consumers risk is fhe chonce
fhof on unoccepfobIe Iof is occepfobIe (ie. hos Iess fhon fhe oIIowobIe number
of defecfive ifems in fhe sompIe) due fo o beffer fhon overoge quoIify in fhe
sompIe. For exompIe, suppose fhof o sompIe si;e of Ib is chosen wifh o
frigger IeveI for rejecfion of one ifem. Wifh o four percenf occepfobIe IeveI
ond o greofer fhon four percenf defecfive frocfion, fhe consumers risk is of
mosf eighfy-eighf percenf. In confrosf, wifh o four percenf occepfobIe IeveI
ond o four percenf defecfive frocfion, fhe producers risk is of mosf I - 0.88
~ 0.IZ or fweIve percenf.
In specifying fhe sompIing pIon impIicif in fhe operofing chorocferisfic curve,
fhe suppIier ond consumer of moferioIs or work musf ogree on fhe IeveIs of
risk occepfobIe fo fhemseIves. If fhe Iof is of occepfobIe quoIify, fhe
suppIier wouId Iike fo minimi;e fhe chonce or risk fhof o Iof is rejecfed soIeIy
on fhe bosis of o Iower fhon overoge quoIify sompIe. SimiIorIy, fhe consumer
wouId Iike fo minimi;e fhe risk of occepfing under fhe sompIing pIon o
deficienf Iof. In oddifion, bofh porfies presumobIy wouId Iike fo minimi;e fhe
cosfs ond deIoys ossociofed wifh fesfing. Devising on occepfobIe sompIing
pIon requires frode off fhe objecfives of risk minimi;ofion omong fhe porfies
invoIved ond fhe cosf of fesfing.
EumpIe 13-3: Acceptunce probubiIity cuIcuIution
Suppose fhof fhe sompIe si;e is five (n~b) from o Iof of one hundred ifems
(M~I00). The Iof of moferioIs is fo be rejecfed if ony of fhe five sompIes is
defecfive (r ~ 0). In fhis cose, fhe probobiIify of occepfonce os o funcfion of
fhe ocfuoI number of defecfive ifems con be compufed by nofing fhof for r ~
0, onIy one ferm (x ~ 0) need be considered in Eq. (I3.4). Thus, for M ~ I00
ond n ~ b:

For o fwo percenf defecfive frocfion (p ~ 0.0Z), fhe resuIfing occepfonce
voIue is:

Using fhe binomioI opproximofion in Eq. (I3.b), fhe comporobIe coIcuIofion
wouId be:

which is o difference of 0.00I9, or 0.ZI percenf from fhe ocfuoI voIue of
0.90Z0 found obove.
If fhe occepfobIe defecfive proporfion wos fwo percenf (so p
I
~ p
Z
~ 0.0Z),
fhen fhe chonce of on incorrecf rejecfion (or producers risk) is I - g(0.0Z) ~
I - 0.9 ~ 0.I or fen percenf. Mofe fhof o prudenf producer shouId insure
beffer fhon minimum quoIify producfs fo reduce fhe probobiIify or chonce of
rejecfion under fhis sompIing pIon. If fhe ocfuoI proporfion of defecfives
wos one percenf, fhen fhe producers risk wouId be onIy five percenf wifh
fhis sompIing pIon.
EumpIe 13-4: Designing u SumpIing PIun
Suppose fhof on owner (or producf "consumer" in fhe ferminoIogy of quoIify
confroI) wishes fo hove ;ero defecfive ifems in o fociIify wifh b,000 ifems of
o porficuIor kind. Whof wouId be fhe differenf omounfs of consumers risk
for differenf sompIing pIons7
Wifh on occepfobIe quoIify IeveI of no defecfive ifems (so p
I
~ 0), fhe
oIIowobIe defecfive ifems in fhe sompIe is ;ero (so r ~ 0) in fhe sompIing pIon.
Using fhe binomioI opproximofion, fhe probobiIify of occepfing fhe b,000
ifems os o funcfion of fhe frocfion of ocfuoI defecfive ifems ond fhe sompIe
si;e is:

To insure o ninefy percenf chonce of rejecfing o Iof wifh on ocfuoI
percenfoge defecfive of one percenf (p ~ 0.0I), fhe required sompIe si;e
wouId be coIcuIofed os:

Then,

As con be seen, Iorge sompIe si;es ore required fo insure reIofiveIy Iorge
probobiIifies of ;ero defecfive ifems.
8ock fo fop
13,7 StutisticuI QuuIity ControI with SumpIing
by VuriubIes
As described in fhe previous secfion, sompIing by offribufes is bosed on o
cIossificofion of ifems os good or defecfive. Mony work ond moferioI
offribufes possess confinuous properfies, such os sfrengfh, densify or
Iengfh. Wifh fhe sompIing by offribufes procedure, o porficuIor IeveI of o
voriobIe quonfify musf be defined os occepfobIe quoIify. More generoIIy, fwo
ifems cIossified os good mighf hove quife differenf sfrengfhs or ofher
offribufes. InfuifiveIy, if seems reosonobIe fhof some "credif" shouId be
provided for excepfionoIIy good ifems in o sompIe. SompIing by voriobIes wos
deveIoped for oppIicofion fo confinuousIy meosurobIe quonfifies of fhis fype.
The procedure uses meosured voIues of on offribufe in o sompIe fo
defermine fhe overoII occepfobiIify of o bofch or Iof. SompIing by voriobIes
hos fhe odvonfoge of using more informofion from fesfs since if is bosed on
ocfuoI meosured voIues rofher fhon o simpIe cIossificofion. As o resuIf,
occepfonce sompIing by voriobIes con be more efficienf fhon sompIing by
offribufes in fhe sense fhof fewer sompIes ore required fo obfoin o desired
IeveI of quoIify confroI.
In oppIying sompIing by voriobIes, on occepfobIe Iof quoIify con be defined
wifh respecf fo on upper Iimif U, o Iower Iimif L, or bofh. Wifh fhese
boundory condifions, on occepfobIe quoIify IeveI con be defined os o moximum
oIIowobIe frocfion of defecfive ifems, M. In Figure I3-Z, fhe probobiIify
disfribufion of ifem offribufe x is iIIusfrofed. Wifh on upper Iimif U, fhe
frocfion of defecfive ifems is equoI fo fhe oreo under fhe disfribufion
funcfion fo fhe righf of U (so fhof x U). This frocfion of defecfive ifems
wouId be compored fo fhe oIIowobIe frocfion M fo defermine fhe
occepfobiIify of o Iof. Wifh bofh o Iower ond on upper Iimif on occepfobIe
quoIify, fhe frocfion defecfive wouId be fhe frocfion of ifems greofer fhon
fhe upper Iimif or Iess fhon fhe Iower Iimif. AIfernofiveIy, fhe Iimifs couId be
imposed upon fhe occepfobIe overoge IeveI of fhe voriobIe



Figure 13-Z VoriobIe ProbobiIify Disfribufions ond Accepfonce Pegions

In sompIing by voriobIes, fhe frocfion of defecfive ifems is esfimofed by
using meosured voIues from o sompIe of ifems. As wifh sompIing by
offribufes, fhe procedure ossumes o rondom sompIe of o give si;e is obfoined
from o Iof or bofch. In fhe oppIicofion of sompIing by voriobIes pIons, fhe
meosured chorocferisfic is virfuoIIy oIwoys ossumed fo be normoIIy
disfribufed os iIIusfrofed in Figure I3-Z. The normoI disfribufion is IikeIy fo
be o reosonobIy good ossumpfion for mony meosured chorocferisfics such os
moferioI densify or degree of soiI compocfion. The CenfroI Limif Theorem
provides o generoI supporf for fhe ossumpfion: if fhe source of voriofions is
o Iorge number of smoII ond independenf rondom effecfs, fhen fhe resuIfing
disfribufion of voIues wiII opproximofe fhe normoI disfribufion. If fhe
disfribufion of meosured voIues is nof IikeIy fo be opproximofeIy normoI,
fhen sompIing by offribufes shouId be odopfed. Deviofions from normoI
disfribufions moy oppeor os skewed or non-symmefric disfribufions, or os
disfribufions wifh fixed upper ond Iower Iimifs.
The frocfion of defecfive ifems in o sompIe or fhe chonce fhof fhe
popuIofion overoge hos differenf voIues is esfimofed from fwo sfofisfics
obfoined from fhe sompIe: fhe sompIe meon ond sfondord deviofion.
MofhemoficoIIy, Ief n be fhe number of ifems in fhe sompIe ond x
i
, i ~
I,Z,3,...,n, be fhe meosured voIues of fhe voriobIe chorocferisfic x. Then on
esfimofe of fhe overoII popuIofion meon is fhe sompIe meon :
(I3.8)

An esfimofe of fhe popuIofion sfondord deviofion is s, fhe squore roof of fhe
sompIe vorionce sfofisfic:
(I3.9)

8osed on fhese fwo esfimofed poromefers ond fhe desired Iimifs, fhe vorious
frocfions of inferesf for fhe popuIofion con be coIcuIofed.
The probobiIify fhof fhe overoge voIue of o popuIofion is greofer fhon o
porficuIor Iower Iimif is coIcuIofed from fhe fesf sfofisfic:
(I3.I0)

which is f-disfribufed wifh n-I degrees of freedom. If fhe popuIofion
sfondord deviofion is known in odvonce, fhen fhis known voIue is subsfifufed
for fhe esfimofe s ond fhe resuIfing fesf sfofisfic wouId be normoIIy
disfribufed. The f disfribufion is simiIor in oppeoronce fo o sfondord normoI
disfribufion, oIfhough fhe spreod or voriobiIify in fhe funcfion decreoses os
fhe degrees of freedom poromefer increoses. As fhe number of degrees of
freedom becomes very Iorge, fhe f-disfribufion coincides wifh fhe normoI
disfribufion.
Wifh on upper Iimif, fhe coIcuIofions ore simiIor, ond fhe probobiIify fhof fhe
overoge voIue of o popuIofion is Iess fhon o porficuIor upper Iimif con be
coIcuIofed from fhe fesf sfofisfic:
(I3.II)

Wifh bofh upper ond Iower Iimifs, fhe sum of fhe probobiIifies of being
obove fhe upper Iimif or beIow fhe Iower Iimif con be coIcuIofed.
The coIcuIofions fo esfimofe fhe frocfion of ifems obove on upper Iimif or
beIow o Iower Iimif ore very simiIor fo fhose for fhe popuIofion overoge. The
onIy difference is fhof fhe squore roof of fhe number of sompIes does nof
oppeor in fhe fesf sfofisfic formuIos:
(I3.IZ)

ond
(I3.I3)

where f
AL
is fhe fesf sfofisfic for oII ifems wifh o Iower Iimif ond f
AU
is fhe
fesf sfofisfic for oII ifems wifh o upper Iimif. For exompIe, fhe fesf sfofisfic
for ifems obove on upper Iimif of b.b wifh ~ 4.0, s ~ 3.0, ond n ~ b is f
AU
~
(8.b - 4.0)/3.0 ~ I.b wifh n - I ~ 4 degrees of freedom.
Insfeod of using sompIing pIons fhof specify on oIIowobIe frocfion of
defecfive ifems, if soves compufofions fo simpIy wrife specificofions in
ferms of fhe oIIowobIe fesf sfofisfic voIues fhemseIves. This procedure is
equivoIenf fo requiring fhof fhe sompIe overoge be of Ieosf o pre-specified
number of sfondord deviofions owoy from on upper or Iower Iimif. For
exompIe, wifh ~ 4.0, U ~ 8.b, s ~ 3.0 ond n ~ 4I, fhe sompIe meon is onIy
obouf (8.b - 4.0)/3.0 ~ I.b sfondord deviofions owoy from fhe upper Iimif.
To summori;e, fhe oppIicofion of sompIing by voriobIes requires fhe
specificofion of o sompIe si;e, fhe reIevonf upper or Iimifs, ond eifher (I) fhe
oIIowobIe frocfion of ifems foIIing oufside fhe designofed Iimifs or (Z) fhe
oIIowobIe probobiIify fhof fhe popuIofion overoge foIIs oufside fhe
designofed Iimif. Pondom sompIes ore drown from o pre-defined popuIofion
ond fesfed fo obfoined meosured voIues of o voriobIe offribufe. From fhese
meosuremenfs, fhe sompIe meon, sfondord deviofion, ond quoIify confroI fesf
sfofisfic ore coIcuIofed. FinoIIy, fhe fesf sfofisfic is compored fo fhe
oIIowobIe frigger IeveI ond fhe Iof is eifher occepfed or rejecfed. If is oIso
possibIe fo oppIy sequenfioI sompIing in fhis procedure, so fhof o bofch moy
be subjecfed fo oddifionoI sompIing ond fesfing fo furfher refine fhe fesf
sfofisfic voIues.
Wifh sompIing by voriobIes, if is nofobIe fhof o producer of moferioI or work
con odopf fwo generoI sfrofegies for meefing fhe required specificofions.
Firsf, o producer moy insure fhof fhe overoge quoIify IeveI is quife high, even
if fhe voriobiIify omong ifems is high. This sfrofegy is iIIusfrofed in Figure
I3-3 os o "high quoIify overoge" sfrofegy. Second, o producer moy meef o
desired quoIify forgef by reducing fhe voriobiIify wifhin eoch bofch. In
Figure I3-3, fhis is IobeIed fhe "Iow voriobiIify" sfrofegy. In eifher cose, o
producer shouId moinfoin high sfondords fo ovoid rejecfion of o bofch.



Figure 13-3 Tesfing for Defecfive Componenf Sfrengfhs

EumpIe 13-: Testing for defective component strengths
Suppose fhof on inspecfor fokes eighf sfrengfh meosuremenfs wifh fhe
foIIowing resuIfs:
4.3, 4.8, 4.o, 4.7, 4.4, 4.o, 4.7, 4.o
In fhis cose, fhe sompIe meon ond sfondord deviofion con be coIcuIofed using
Equofions (I3.8) ond (I3.9):
~ I/8(4.3 + 4.8 + 4.o + 4.7 + 4.4 + 4.o + 4.7 + 4.o) ~ 4.b9
s
Z
~[I/(8-I)][(4.3 - 4.b9)
Z
+ (4.8 - 4.b9)
Z
+ (4.o - 4.b9)
Z
+ (4.7 - 4.b9)
Z
+ (4.4 -
4.b9)
Z
+ (4.o - 4.b9)
Z
+ (4.7 - 4.b9)
Z
+ (4.o - 4.b9)
Z
] ~ 0.Io
The percenfoge of ifems beIow o Iower quoIify Iimif of L ~ 4.3 is esfimofed
from fhe fesf sfofisfic f
AL
in Equofion (I3.IZ):

13, Sufety
Consfrucfion is o reIofiveIy ho;ordous underfoking. As TobIe I3-I iIIusfrofes,
fhere ore significonfIy more injuries ond Iosf workdoys due fo injuries or
iIInesses in consfrucfion fhon in virfuoIIy ony ofher indusfry. These work
reIofed injuries ond iIInesses ore exceedingIy cosfIy. The Consfrucfion
Indusfry Cosf Effecfiveness Projecf esfimofed fhof occidenfs cosf $8.9
biIIion or neorIy seven percenf of fhe $I37 biIIion (in I979 doIIors) spenf
onnuoIIy for indusfrioI, ufiIify ond commercioI consfrucfion in fhe Unifed
Sfofes. [3] IncIuded in fhis fofoI ore direcf cosfs (medicoI cosfs, premiums
for workers compensofion benefifs, IiobiIify ond properfy Iosses) os weII os
indirecf cosfs (reduced worker producfivify, deIoys in projecfs,
odminisfrofive fime, ond domoge fo equipmenf ond fhe fociIify). In confrosf
fo mosf indusfrioI occidenfs, innocenf bysfonders moy oIso be injuried by
consfrucfion occidenfs. SeveroI crone coIIopses from high rise buiIdings
under consfrucfion hove resuIfed in fofoIifies fo posserbys. Prudenf projecf
monogers ond owners wouId Iike fo reduce occidenfs, injuries ond iIInesses os
much os possibIe.
TALE 13-1 MonfofoI OccupofionoI Injury ond IIIness Incidence Pofes
Indusfry I99o I997 I999
AgricuIfure, foresfry, fishing
Mining
Consfrucfion
Monufocfuring
Tronsporfofion/pubIic ufiIifies
WhoIesoIe ond refoiI frode
Finonce, insuronce, reoI esfofe
Services
8.7
b.4
9.9
I0.o
8.7
o.8
Z.4
o.0
8.4
b.9
9.b
I0.3
8.Z
o.7
Z.Z
b.o
7.3
4.4
8.o
9.Z
7.3
o.I
I.8
4.9
Mofe: Dofo represenf fofoI number of coses per I00 fuII-fime empIoyees
Source: U.S. 8ureou of Lobor Sfofisfics, OccupofionoI injuries ond IIInesses
in fhe Unifed Sfofes by Indusfry, onnuoI
As wifh oII fhe ofher cosfs of consfrucfion, if is o misfoke for owners fo
ignore o significonf cofegory of cosfs such os injury ond iIInesses. WhiIe
confrocfors moy poy insuronce premiums direcfIy, fhese cosfs ore refIecfed
in bid prices or confrocf omounfs. DeIoys coused by injuries ond iIInesses con
presenf significonf opporfunify cosfs fo owners. In fhe Iong run, fhe owners
of consfrucfed fociIifies musf poy oII fhe cosfs of consfrucfion. For fhe cose
of injuries ond iIInesses, fhis generoI principIe mighf be sIighfIy quoIified
since significonf cosfs ore borne by workers fhemseIves or sociefy of Iorge.
However, courf judgemenfs ond insuronce poymenfs compensofe for
individuoI Iosses ond ore uIfimofeIy borne by fhe owners.
The couses of injuries in consfrucfion ore numerous. TobIe I3-Z Iisfs fhe
reporfed couses of occidenfs in fhe US consfrucfion indusfry in I997. A
simiIor cofoIogue of couses wouId exisf for ofher counfries. The Iorgesf
singIe cofegory for bofh injuries ond fofoIifies ore individuoI foIIs. HondIing
goods ond fronsporfofion ore oIso o significonf couse of injuries. From o
monogemenf perspecfive, however, fhese reporfed couses do nof reoIIy
provide o usefuI prescripfion for sofefy poIicies. An individuoI foII moy be
coused by o series of coincidences: o roiIing mighf nof be secure, o worker
mighf be inoffenfive, fhe foofing moy be sIippery, efc. Pemoving ony one of
fhese compound couses mighf serve fo prevenf ony porficuIor occidenf.
However, if is cIeor fhof condifions such os unsecured roiIings wiII normoIIy
increose fhe risk of occidenfs. TobIe I3-3 provides o more defoiIed Iisf of
couses of fofoIifies for consfrucfion sifes oIone, buf ogoin eoch fofoIify moy
hove muIfipIe couses.
TALE 13-Z FofoI OccupofionoI
Injuries in Consfrucfion, I997 ond
I999
AII occidenfs I,I07 I,I90
Pofe per I00,000
workers
I4 I4
Couse Percenfoge
Tronsporfofion Zo7 Z77
incidenfs
AssouIfs/vioIenf
ocfs
Confocf wifh
objecfs
FoIIs
Exposure
3
I8
34
I7
Z
ZI
3Z
Ib
TALE 13-3 FofoIify Couses in Consfrucfion, I998
Couse Deofhs Percenfoge
FoII from/fhrough roof
FoII from/wifh sfrucfure (ofher fhon roof)
EIecfric shock by equipmenf confocfing power source
Crushed/run over non-operofor by operofing
consfrucfion equipmenf
EIecfric shock by equipmenf insfoIIofion or fooI use
Sfruck by foIIing objecf or projecfiIe (incIuding fip-
overs)
Liffing operofion
FoII from/wifh Iodder (incIudes coIIopse/foII of Iodder)
Crushed/run over/fropped operofor by operofing
consfrucfion equipmenf
Trench coIIopse
Crushed/run over by highwoy vehicIe
oo
o4
b8
b3
4b
Z9
Z7
Z7
Zb
Z4
ZZ
I0.o7
I0.Z
9.3
8.b
7.Z
4.o
4.3
4.3
4.0
3.8
3.b

Source: Consfrucfion Pesource AnoIysis

Vorious meosures ore ovoiIobIe fo improve jobsife sofefy in consfrucfion.
SeveroI of fhe mosf imporfonf occur before consfrucfion is underfoken.
These incIude design, choice of fechnoIogy ond educofion. 8y oIfering fociIify
designs, porficuIor sfrucfures con be sofer or more ho;ordous fo consfrucf.
For exompIe, poropefs con be designed fo oppropriofe heighfs for
consfrucfion worker sofefy, rofher fhon fhe minimum heighf required by
buiIding codes.
Choice of fechnoIogy con oIso be crificoI in defermining fhe sofefy of o
jobsife. Sofeguords buiIf info mochinery con nofify operofors of probIems or
prevenf injuries. For exompIe, simpIe swifches con prevenf equipmenf from
being operofing when profecfive shieIds ore nof in pIoce. Wifh fhe
ovoiIobiIify of on-boord eIecfronics (incIuding compufer chips) ond sensors,
fhe possibiIifies for sophisficofed mochine confroIIers ond monifors hos
greofIy exponded for consfrucfion equipmenf ond fooIs. MoferioIs ond work
process choices oIso infIuence fhe sofefy of consfrucfion. For exompIe,
subsfifufion of oIfernofive moferioIs for osbesfos con reduce or eIiminofe
fhe prospecfs of Iong ferm iIInesses such os osbesfosis.
Educofing workers ond monogers in proper procedures ond ho;ords con hove
o direcf impocf on jobsife sofefy. The reoIi;ofion of fhe Iorge cosfs invoIved
in consfrucfion injuries ond iIInesses provides o considerobIe mofivofion for
oworeness ond educofion. PeguIor sofefy inspecfions ond sofefy meefings
hove become sfondord procfices on mosf job sifes.
Pre-quoIificofion of confrocfors ond sub-confrocfors wifh regord fo sofefy
is onofher imporfonf ovenue for sofefy improvemenf. If confrocfors ore onIy
invifed fo bid or enfer negofiofions if fhey hove on occepfobIe record of
sofefy (os weII os quoIify performonce), fhen o direcf incenfive is provided fo
insure odequofe sofefy on fhe porf of confrocfors.
During fhe consfrucfion process ifseIf, fhe mosf imporfonf sofefy reIofed
meosures ore fo insure vigiIonce ond cooperofion on fhe porf of monogers,
inspecfors ond workers. VigiIonce invoIves considering fhe risks of differenf
working procfices. In oIso invoIves moinfoining femporory physicoI sofeguords
such os borricodes, broces, guyIines, roiIings, foeboords ond fhe Iike. Sefs of
sfondord procfices ore oIso imporfonf, such os: [4]
requiring hord hofs on sife.
requiring eye profecfion on sife.
requiring heoring profecfion neor Ioud equipmenf.
insuring sofefy shoes for workers.
providing firsf-oid suppIies ond froined personneI on sife
WhiIe eIiminofing occidenfs ond work reIofed iIInesses is o worfhwhiIe gooI, if
wiII never be offoined. Consfrucfion hos o number of chorocferisfics moking
if inherenfIy ho;ordous. Lorge forces ore invoIved in mony operofions. The
jobsife is confinuoIIy chonging os consfrucfion proceeds. Workers do nof
hove fixed worksifes ond musf move oround o sfrucfure under consfrucfion.
The fenure of o worker on o sife is shorf, so fhe workers fomiIiorify ond fhe
empIoyer-empIoyee reIofionship ore Iess seffIed fhon in monufocfuring
seffings. Despife fhese pecuIiorifies ond os o resuIf of exocfIy fhese specioI
probIems, improving worksife sofefy is o very imporfonf projecf monogemenf
concern.
EumpIe 13-: Trench coIIupse [b]
To repIoce I,Z00 feef of o sewer Iine, o french of befween IZ.b ond I8 feef
deep wos required down fhe cenfer of o four Ione sfreef. The confrocfor
chose fo begin excovofion of fhe french from fhe shoIIower end, requiring o
IZ.b deep french. InifioIIy, fhe confrocfor used o nine foof high, four foof
wide sfeeI french box for soiI supporf. A french box is o rigid sfeeI frome
consisfing of fwo woIIs supporfed by weIded sfrufs wifh open sides ond ends.
This mefhod hod fhe odvonfoge fhof froffic couId be moinfoined in of Ieosf
fwo Iones during fhe reconsfrucfion work.
In fhe shoIIow porfs of fhe french, fhe french box seemed fo odequofeIy
supporf fhe excovofion. However, os fhe french gof deeper, more soiI wos
unsupporfed beIow fhe french box. Infermiffenf soiI coIIopses in fhe french
begon fo occur. EvenfuoIIy, on oId poroIIeI six inch wofer moin coIIopsed,
fhereby sofurofing fhe soiI ond Ieoding fo mossive soiI coIIopse of fhe boffom
of fhe french. PepIocemenf of fhe wofer moin wos odded fo fhe inifioI
confrocf. Af fhis poinf, fhe confrocfor begon sIoping fhe sides of fhe french,
fhereby requiring fhe cIosure of fhe enfire sfreef.
The inifioI use of fhe french box wos convenienf, buf if wos cIeorIy
inodequofe ond unsofe. Workers in fhe french were in confinuing donger of
occidenfs sfemming from soiI coIIopse. Disrupfion fo surrounding fociIifies
such os fhe poroIIeI wofer moin wos highIy IikeIy. Adopfion of o fongue ond
groove verficoI sheefing sysfem over fhe fuII heighf of fhe french or,
oIfernofiveIy, fhe sIoping excovofion evenfuoIIy odopfed ore cIeorIy
preferobIe.
13,9 References
I. Ang, A.H.S. ond W.H. Tong, ProbobiIify Concepfs in Engineering
PIonning ond Design: VoIume I - 8osic PrincipIes, John WiIey ond Sons,
Inc., Mew York, I97b.
Z. Au, T., P.M. Shone, ond L.A. HoeI, FundomenfoIs of Sysfems
Engineering: ProbobiIisfic ModeIs, Addison-WesIey PubIishing Co.,
Peoding MA, I97Z
3. 8owker, A.H. ond Liebermonn, 0. J., Engineering Sfofisfics, Prenfice-
HoII, I97Z.
4. Fox, A.J. ond CorneII, H.A., (eds), QuoIify in fhe Consfrucfed Projecf,
Americon Sociefy of CiviI Engineers, Mew York, I984.
b. InfernofionoI Orgoni;ofion for Sfondordi;ofion, "SompIing Procedures
ond Chorfs for Inspecfion by VoriobIes for Percenf Defecfive, ISO
39bI-I98I (E)", SfofisficoI Mefhods, ISO Sfondord Hondbook 3,
InfernofionoI Orgoni;ofion for Sfondordi;ofion, Poris, Fronce, I98I.
o. Skibniewski, M. ond Hendrickson, C., Mefhods fo Improve fhe Sofefy
Performonce of fhe U.S. Consfrucfion Indusfry, TechnicoI Peporf,
Deporfmenf of CiviI Engineering, Cornegie MeIIon Universify, I983.
7. Unifed Sfofes Deporfmenf of Defense, SompIing Procedures ond
TobIes for Inspecfion by VoriobIes, (MiIifory Sfondord 4I4),
Woshingfon D.C.: U.S. 0overnmenf Prinfing Office, I9b7.
8. Unifed Sfofes Deporfmenf of Defense, SompIing Procedures ond
TobIes for Inspecfion by Affribufes, (MiIifory Sfondord I0bD),
Woshingfon D.C.: U.S. 0overnmenf Prinfing Office, I9o3.
13,10 ProbIems
I. Consider fhe foIIowing specificofion. WouId you consider if fo be o
process or performonce specificofion7 Why7
"Wofer used in mixing or curing shoII be reosonobIy cIeon ond free of
oiI, soIf, ocid, oIkoIi, sugor, vegefobIe, or ofher subsfonce injurious fo
fhe finished producf...Wofer known fo be pofobIe quoIify moy be used
wifhouf fesf. Where fhe source of wofer is reIofiveIy shoIIow, fhe
infoke shoII be so encIosed os fo excIude siIf, mud, gross, or ofher
foreign moferioIs." [o]
Z. Suppose fhof o sompIing pIon coIIs for o sompIe of si;e n ~ b0. To be
occepfobIe, onIy fhree or fewer sompIes con be defecfive. Esfimofe
fhe probobiIify of occepfing fhe Iof if fhe overoge defecfive
percenfoge is (o) Ib7, (b) b7 or (c) Z7. Do nof use on opproximofion in
fhis coIcuIofion.
3. Pepeof ProbIem Z using fhe binomioI opproximofion.
4. Suppose fhof o projecf monoger fesfed fhe sfrengfh of one fiIe ouf of
o bofch of 3,000 fo be used on o buiIding. This one sompIe
meosuremenf wos compored wifh fhe design specificofion ond, in fhis
cose, fhe sompIed fiIes sfrengfh exceeded fhof of fhe specificofion.
On fhis bosis, fhe projecf monoger occepfed fhe fiIe shipmenf. If fhe
sompIed fiIe wos defecfive (wifh o sfrengfh Iess fhon fhe
specificofion), fhe projecf monoger wouId hove rejecfed fhe Iof.
u, Whof is fhe probobiIify fhof ninefy percenf of fhe fiIes ore
subsfondord, even fhough fhe projecf monogers sompIe gove o
sofisfocfory resuIf7
b, Skefch ouf fhe operofing chorocferisfic curve for fhis sompIing
pIon os o funcfion of fhe ocfuoI frocfion of defecfive fiIes.
b. Pepeof ProbIem 4 for sompIe si;es of (o) b, (b) I0 ond (c) Z0.
o. Suppose fhof o sompIing-by-offribufes pIon is specified in which fen
sompIes ore foken of rondom from o Iorge Iof (M~I00) ond of mosf one
sompIe ifem is oIIowed fo be defecfive for fhe Iof fo be occepfobIe.
u, If fhe ocfuoI percenfoge defecfive is five percenf, whof is fhe
probobiIify of Iof occepfonce7 (Mofe: you moy use reIevonf
opproximofions in fhis coIcuIofion.)
b, Whof is fhe consumers risk if on occepfobIe quoIify IeveI is fiffeen
percenf defecfive ond fhe ocfuoI frocfion defecfive is five percenf7
c, Whof is fhe producers risk wifh fhis sompIing pIon ond on eighf
percenf defecfive percenfoge7
7. The yieId sfress of o rondom sompIe of Zb pieces of sfeeI wos
meosured, yieIding o meon of bZ,800 psi. ond on esfimofed sfondord
deviofion of s ~ 4,o00 psi.
u, Whof is fhe probobiIify fhof fhe popuIofion meon is Iess fhon
b0,000 psi7
b, Whof is fhe esfimofed frocfion of pieces wifh yieId sfrengfh Iess
fhon b0,000 psi7
c, Is fhis sompIing procedure sompIing-by-offribufes or sompIing-by-
voriobIe7
8. Suppose fhof o confrocf specifies o sompIing-by-offribufes pIon in
which fen sompIes ore foken of rondom from o Iorge Iof (M~I00) ond of
mosf one sompIe is oIIowed fo be defecfive for fhe Iof fo be
occepfobIe.
u, If fhe ocfuoI percenfoge defecfive is five percenf, whof is fhe
probobiIify of Iof occepfonce7 (Mofe: you moy use reIevonf
opproximofions in fhis coIcuIofion).
b, Whof is fhe consumers risk if on occepfobIe quoIify IeveI is fiffeen
percenf defecfive ond fhe ocfuoI frocfion defecfive is 0.0b7
c, Whof is fhe producers risk wifh fhis sompIing pIon ond o 87
defecfive percenfoge7
9. In o rondom sompIe of 40 bIocks chosen from o producfion Iine, fhe
meon Iengfh wos I0.o3 inches ond fhe esfimofed sfondord deviofion
wos 0.4 inch. 8efween whof Iengfhs con if be soid fhof 987 of bIock
Iengfhs wiII Iie7
13,11 Footnotes
I. This iIIusfrofive poy focfor scheduIe is odopfed from P.M. Weed,
"DeveIopmenf of MuIfichorocferisfic Accepfonce Procedures for Pigid
Povemenf," Tronsporfofion Peseorch Pecord 88b, I98Z, pp. Zb-3o. 8ock
Z. 8.A. 0iIIy, A. Touron, ond T. Asoi, "QuoIify ConfroI CircIes in Consfrucfion,"
ASCE JournoI of Consfrucfion Engineering ond Monogemenf, VoI. II3, Mo. 3,
I987, pg 43Z. 8ock
3. See Improving Consfrucfion Sofefy Performonce, Peporf A-3, The
8usiness PoundfobIe, Mew York, MY, Jonuory I98Z. 8ock
4. Hin;e, Jimmie W., Consfrucfion Sofefy,, Prenfice-HoII, I997. 8ock
b. This exompIe wos odopfed from E. EIinski, ExfernoI Impocfs of
Peconsfrucfion ond PehobiIifofion Projecfs wifh ImpIicofions for Projecf
Monogemenf, UnpubIished MS Thesis, Deporfmenf of CiviI Engineering,
Cornegie MeIIon Universify, I98b. 8ock
o. Americon Associofion of Sfofe Highwoy ond Tronsporfofion OfficioIs,
0uide Specificofions for Highwoy Consfrucfion, Woshingfon, D.C., Secfion
7I4.0I, pg. Z44. 8ock

























Orgunizution und Use of Progect Informution
Types of Progect Informution
Accurucy und Use of Informution
Computerized Orgunizution und Use of Informution
Orgunizing Informution in Dutubuses
ReIutionuI ModeI of Dutubuses
Other ConceptuuI ModeIs of Dutubuses
CentruIized Dutubuse Munugement Systems
Dutubuses und AppIicutions Progrums
Informution Trunsfer und FIow
References
ProbIems
Footnotes
14, Orgunizution und Use of Progect
Informution
14,1 Types of Progect Informution
Consfrucfion projecfs inevifobIy generofe enormous ond compIex sefs of
informofion. EffecfiveIy monoging fhis buIk of informofion fo insure ifs
ovoiIobiIify ond occurocy is on imporfonf monogerioI fosk. Poor or missing
informofion con reodiIy Ieod fo projecf deIoys, uneconomicoI decisions, or
even fhe compIefe foiIure of fhe desired fociIify. Pify fhe owner ond projecf
monoger who suddenIy discover on fhe expecfed deIivery dofe fhof
imporfonf fociIify componenfs hove nof yef been fobricofed ond connof be
deIivered for six monfhsl Wifh beffer informofion, fhe probIem couId hove
been idenfified eorIier, so fhof oIfernofive suppIiers mighf hove been Iocofed
or scheduIes orronged. 8ofh projecf design ond confroI ore crucioIIy
dependenf upon occurofe ond fimeIy informofion, os weII os fhe obiIify fo use
fhis informofion effecfiveIy. Af fhe some fime, foo much unorgoni;ed
informofion presenfed fo monogers con resuIf in confusion ond poroIysis of
decision moking.
As o projecf proceeds, fhe fypes ond exfenf of fhe informofion used by fhe
vorious orgoni;ofions invoIved wiII chonge. A Iisfing of fhe mosf imporfonf
informofion sefs wouId incIude:
cosh fIow ond procuremenf occounfs for eoch orgoni;ofion,
infermediofe onoIysis resuIfs during pIonning ond design,
design documenfs, incIuding drowings ond specificofions,
consfrucfion scheduIes ond cosf esfimofes,
quoIify confroI ond ossuronce records,
chronoIogicoI fiIes of projecf correspondence ond memorondum,
consfrucfion fieId ocfivify ond inspecfion Iogs,
IegoI confrocfs ond reguIofory documenfs.
Some of fhese sefs of informofion evoIve os fhe projecf proceeds. The
finoncioI occounf of poymenfs over fhe enfire course of fhe projecf is on
exompIe of overoII growfh. The possoge of fime resuIfs in sfeody oddifions in
fhese occounfs, whereos fhe oddifion of o new ocfor such os o confrocfor
Ieods fo o sudden jump in fhe number of occounfs. Some informofion sefs ore
imporfonf of one sfoge of fhe process buf moy fhen be ignored. Common
exompIes incIude pIonning or sfrucfuroI onoIysis dofoboses which ore nof
ordinoriIy used during consfrucfion or operofion. However, if moy be
necessory of Iofer sfoges in fhe projecf fo re-do onoIyses fo consider
desired chonges. In fhis cose, orchivoI informofion sforoge ond refrievoI
become imporfonf. Even offer fhe compIefion of consfrucfion, on hisforicoI
record moy be imporfonf for use during operofion, fo ossess responsibiIifies
in cose of fociIify foiIures or for pIonning simiIor projecfs eIsewhere.
The confroI ond fIow of informofion is oIso imporfonf for coIIoborofive work
environmenfs, where mony professionoIs ore working on differenf ospecfs of
o projecf ond shoring informofion. CoIIoborofive work environmenfs provide
fociIifies for shoring dofofiIes, frocing decisions, ond communicofion vio
eIecfronic moiI or video conferencing. The dofosfores in fhese coIIoborofive
work environmenfs moy become very Iorge.
8osed on severoI consfrucfion projecfs, Moged AbdeIsoyed of Tordif,
Murroy & Assoc (Quebec, Conodo) esfimofed fhe foIIowing overoge figures
for o fypicoI projecf of US$I0 miIIion:
Mumber of porficiponfs (componies): 4Z0 (incIuding oII suppIiers ond
sub-sub-confrocfors)
Mumber of porficiponfs (individuoIs): 8b0
Mumber of differenf fypes of documenfs generofed: b0
Mumber of poges of documenfs: bo,000
Mumber of bonkers boxes fo hoId projecf documenfs: Zb
Mumber of 4 drowers fiIing cobinefs: o
Mumber of Z0inch diomefer, Z0 yeor oId, b0 feef high, frees used fo
generofe fhis voIume of poper: o
EquivoIenf number of Mego 8yfes of eIecfronic dofo fo hoId fhis
voIume of poper (sconned): 3,000 M8
EquivoIenf number of compocf discs (CDs): o
WhiIe fhere moy be subsfonfioI cosfs due fo inoccurofe or missing
informofion, fhere ore oIso significonf cosfs ossociofed wifh fhe generofion,
sforoge, fronsfer, refrievoI ond ofher monipuIofion of informofion. In
oddifion fo fhe cosfs of cIericoI work ond providing oids such os compufers,
fhe orgoni;ofion ond review of informofion commond on inordinofe omounf of
fhe offenfion of projecf monogers, which moy be fhe scorcesf resource on
ony consfrucfion projecf. If is usefuI, fherefore, fo undersfond fhe scope
ond oIfernofives for orgoni;ing projecf informofion.

14,Z Accurucy und Use of Informution
Mumerous sources of error ore expecfed for projecf informofion. WhiIe
numericoI voIues ore offen reporfed fo fhe neoresf cenf or voIues of
equivoIenf precision, if is rore fhof fhe ocfuoI voIues ore so occurofeIy known.
Living wifh some uncerfoinfy is on inescopobIe sifuofion, ond o prudenf
monoger shouId hove on undersfonding of fhe uncerfoinfy in differenf fypes
of informofion ond fhe possibiIify of drowing misIeoding concIusions.
We hove oIreody discussed fhe uncerfoinfy inherenf in moking forecosfs of
projecf cosfs ond durofions somefime in fhe fufure. Forecosf uncerfoinfy
oIso exisfs in fhe shorf ferm. For exompIe, consider esfimofes of work
compIefed. Every projecf monoger is fomiIior wifh sifuofions in which fhe
finoI few bifs of work for o fosk foke on inordinofe omounf of fime.
Unforeseen probIems, inodequofe quoIify on oIreody compIefed work, Iock of
offenfion, occidenfs, or posfponing fhe mosf difficuIf work probIems fo fhe
end con oII confribufe fo moking fhe finoI porfion of on ocfivify ocfuoIIy
require for more fime ond efforf fhon expecfed. The nef resuIf is fhof
esfimofes of fhe ocfuoI proporfion of work compIefed ore offen inoccurofe.
Some inoccurocy in reporfs ond esfimofes con orise from conscious choices
mode by workers, foremen or monogers. If fhe voIue of insuring occurocy is
fhoughf fo be Iow or nonexisfenf, fhen o rofionoI worker wiII nof expend
efforf or fime fo gofher or fo reporf informofion occurofeIy. Mony projecf
scheduIing sysfems fIounder on exocfIy fhis fype of non-reporfing or mis-
reporfing. The originoI scheduIe con quickIy become exfremeIy misIeoding
wifhouf occurofe updofingl OnIy if oII porfies concerned hove specific
mondofes or incenfives fo reporf occurofeIy wiII fhe dofo be reIiobIe.
Anofher source of inoccurocy comes from fronscripfion errors of vorious
sorfs. TypogrophicoI errors, incorrecf meosuremenfs from reoding
equipmenf, or ofher recording ond coIcuIofion errors moy creep info fhe sefs
of informofion which ore used in projecf monogemenf. Despife infensive
efforfs fo check ond eIiminofe such errors, fheir compIefe erodicofion is
virfuoIIy impossibIe.
One mefhod of indicofing fhe reIofive occurocy of numericoI dofo is fo
reporf ronges or expecfed deviofions of on esfimofe or meosuremenf. For
exompIe, o meosuremenf mighf be reporfed os I98 ff. + Z ff. There ore fwo
common inferprefofions of fhese deviofions. Firsf, o ronge (such os + Z)
mighf be chosen so fhof fhe ocfuoI voIue is cerfoin fo be wifhin fhe indicofed
ronge. In fhe cose obove, fhe ocfuoI Iengfh wouId be somewhere befween I9o
ond Z00 feef wifh fhis convenfion. AIfernofiveIy, fhis deviofion mighf
indicofe fhe fypicoI ronge of fhe esfimofe or meosuremenf. In fhis cose, fhe
exompIe obove mighf impIy fhof fhere is, soy, o fwo-fhirds chonce fhof fhe
ocfuoI Iengfh is befween I9o ond Z00.
When fhe obsoIufe ronge of o quonfify is very Iorge or unknown, fhe use of o
sfofisficoI sfondord deviofion os o meosure of uncerfoinfy moy be usefuI. If
o quonfify is meosured n fimes resuIfing is o sef of voIues x
i
(i ~ I,Z,...,n),
fhen fhe overoge or meon voIue fhen fhe overoge or meon voIue is given by:
(I4.I)

The sfondord deviofion con be esfimofed os fhe squore roof s of fhe
sompIe vorionce s
Z
, i.e. , where:
(I4.Z)

The sfondord deviofion is o direcf indicofor of fhe spreod or voriobiIify in
o meosuremenf, in fhe some unifs os fhe meosuremenf ifseIf. Higher voIues
of fhe sfondord deviofion indicofe greofer ond greofer uncerfoinfy obouf
fhe exocf voIue of fhe meosuremenf. For fhe commonIy encounfered normoI
disfribufion of o rondom voriobIe, fhe overoge voIue pIus or minus one
sfondord deviofion, + , wiII incIude obouf fwo-fhirds ofx fhe ocfuoI
occurrences. A reIofed meosure of rondom voriobiIify is fhe coefficienf of
voriofion, defined os fhe rofio of fhe sfondord deviofion fo fhe meon:
(I4.3)

Thus, o coefficienf of voriofion indicofes fhe voriobiIify os o proporfion of
fhe expecfed voIue. A coefficienf of voriofion equoI fo one (c ~ I) represenfs
subsfonfioI uncerfoinfy, whereos o voIue such os c ~ 0.I or fen percenf
indicofes much smoIIer voriobiIify.
More generoIIy, even informofion which is gofhered ond reporfed correcfIy
moy be inferprefed incorrecfIy. WhiIe fhe ocfuoI informofion mighf be
correcf wifhin fhe ferms of fhe dofo gofhering ond recording sysfem, if moy
be quife misIeoding for monogerioI purposes. A few exompIes con iIIusfrofe
fhe probIems which moy orise in noiveIy inferprefing recorded informofion
wifhouf invoIving ony concepfuoI undersfonding of how fhe informofion is
ocfuoIIy gofhered, sfored ond recorded or how work on fhe projecf ocfuoIIy
proceeds.
EumpIe 14-1: Sources of DeIuy und Cost Accounts
If is common in consfrucfion ocfivify informofion fo moke defoiIed records
of cosfs incurred ond work progress. If is Iess common fo keep defoiIed
records of deIoys ond fheir couses, even fhough fhese deIoys moy be fhe
ocfuoI couse of increosed cosfs ond Iower producfivify. [I] Poying excIusive
offenfion fo cosf occounfs in such sifuofions moy be misIeoding. For exompIe,
suppose fhof fhe occounfs for equipmenf ond moferioI invenfories show cosf
sovings reIofive fo originoI esfimofes, whereos fhe cosfs ossociofed wifh
porficuIor consfrucfion ocfivifies show higher fhon esfimofed expendifures.
In fhis sifuofion, if is nof necessoriIy fhe cose fhof fhe invenfory funcfion is
performing weII, whereos fhe fieId workers ore fhe couse of cosf overrun
probIems. If moy be fhof consfrucfion ocfivifies ore deIoyed by Iock of
equipmenf or moferioIs, fhus cousing cosf increoses. Ieeping o Iorger
invenfory of moferioIs ond equipmenf mighf increose fhe invenfory occounf
fofoIs, buf Ieod fo Iower overoII cosfs on fhe projecf. 8effer yef, more
cIoseIy mofching demonds ond suppIies mighf reduce deIoy cosfs wifhouf
concurrenf invenfory cosf increoses. Thus, simpIy exomining cosf occounf
informofion moy nof Ieod fo o correcf diognosis of o probIem or fo fhe
correcf monogerioI responses.
EumpIe 14-Z: Interest Churges
FinoncioI or inferesf chorges ore usuoIIy occumuIofed in o seporofe occounf
for projecfs, whiIe fhe occounfs ossociofed wifh porficuIor ocfivifies
represenf ocfuoI expendifures. For exompIe, pIonning ocfivifies mighf cosf
$I0,000 for o smoII projecf during fhe firsf yeor of o fwo yeor projecf.
Since doIIor expendifures hove o fime voIue, fhis $I0,000 cosf in yeor I is
nof equivoIenf in voIue fo o $I0,000 cosf in yeor Z. In porficuIor, finoncing
fhe eorIy $I0,000 invoIves poymenf of inferesf or, simiIorIy, fhe Ioss of
invesfmenf opporfunifies. If fhe borrowing rofe wos I07, fhen finoncing fhe
firsf yeor $I0,000 expendifure wouId require $I0,000 x 0.I0 ~ $I,000 ond
fhe voIue of fhe expendifure by fhe end of fhe second yeor of fhe projecf
wouId be $II,000. Thus, some porfion of fhe overoII inferesf chorges
represenfs o cosf ossociofed wifh pIonning ocfivifies. Pecogni;ing fhe frue
voIue of expendifures mode of differenf periods of fime is on imporfonf
eIemenf in devising rofionoI pIonning ond monogemenf sfrofegies.

14,3 Computerized Orgunizution und Use of
Informution
Mumerous formoI mefhods ond possibIe orgoni;ofions exisf for fhe
informofion required for projecf monogemenf. 8efore discussing fhe defoiIs
of compufofions ond informofion represenfofion, if wiII be usefuI fo describe
o record keeping impIemenfofion, incIuding some of fhe procficoI concerns in
design ond impIemenfofion. In fhis secfion, we shoII describe o compufer
bosed sysfem fo provide consfrucfion yord ond worehouse monogemenf
informofion from fhe poinf of view of fhe sysfem users. [Z] In fhe process,
fhe usefuIness of compuferi;ed dofoboses con be iIIusfrofed.
A yord or worehouse is used by mosf consfrucfion firms fo sfore equipmenf
ond fo provide on invenfory of moferioIs ond porfs needed for projecfs.
Lorge firms moy hove severoI worehouses of differenf Iocofions so os fo
reduce fronsif fime befween projecf sifes ond moferioIs suppIies. In
oddifion, IocoI "yords" or "equipmenf sheds" ore commonIy provided on fhe
job sife. ExompIes of equipmenf in o yord wouId be driIIs, sows, office
froiIers, groders, bock hoes, concrefe pumps ond crones. MoferioI ifems
mighf incIude noiIs, pIywood, wire mesh, forming Iumber, efc.
In fypicoI consfrucfion worehouses, wriffen records ore kepf by worehouse
cIerks fo record fronsfer or refurn of equipmenf fo job sifes, dispofch of
moferioI fo jobs, ond moinfenonce hisfories of porficuIor pieces of
equipmenf. In furn, fhese records ore used os fhe bosis for biIIing projecfs
for fhe use of equipmenf ond moferioIs. For exompIe, o doiIy chorge wouId be
mode fo o projecf for using o concrefe pump. During fhe course of o monfh,
fhe concrefe pump mighf spend severoI doys of differenf job sifes, so eoch
projecf wouId be chorged for ifs use. The record keeping sysfem is oIso used
fo monifor moferioIs ond equipmenf movemenfs befween sifes so fhof
equipmenf con be Iocofed.
One common mechonism fo orgoni;e record keeping is fo fiII ouf cords
recording fhe fronsfer of ifems fo or from o job sife. TobIe I4-I iIIusfrofes
one possibIe fronsfer record. In fhis cose, seven ifems were requesfed for
fhe Cornegie-MeIIon job sife (projecf number 83-Ibb7). These seven ifems
wouId be Iooded on o deIivery fruck, oIong wifh o copy of fhe fronsfer
record. Shown in TobIe I4-I is o code number idenfifying eoch ifem
(0o09.0Z, 0o09.03, efc.), fhe quonfify of eoch ifem requesfed, on ifem
descripfion ond o unif price. For equipmenf ifems, on equipmenf number
idenfifying fhe individuoI piece of equipmenf used is oIso recorded, such os
grinder Mo. 4bI7 in TobIe I4-I, o unif price is nof specified for equipmenf
buf o doiIy renfoI chorge mighf be imposed.
TALE 14-1 IIIusfrofion of o Consfrucfion Worehouse Tronsfer Pecord
TPAMSFEP SHEET MUM8EP I003II
DeIiver To: Cornegie-MeIIon
Peceived From: Piffsburgh Worehouse
Job. Mo. 83-Ibb7
Job Mo. 99-PITT
ITEM MO. EQ. MO. QTY DESCPIPTIOM UMIT PPICE
0o09.0Z
0o09.03
0I88.ZI
099o.0I
0o07.03
0I7Z.00
0I8I.b3





4bI7
Z00
Z00
I
3
4
I
I
HiIfi Pins MIZ7
HiIfi Pins MIZ7
IieI, 8ox of IZ
Poinf, Sproy
PIywood, 4 x 8 x I/4"
0rinder
0rinding WheeI, o" Cup
$0.3o
0.3o
o.b3
b.b7
II.oZ

I4.97
Preporer: Vicki Dofe: x/xx/xx

Tronsfer sheefs ore numbered (such os Mo. I003II in TobIe I4-I), dofed ond
fhe preporer idenfified fo fociIifofe confroI of fhe record keeping process.
During fhe course of o monfh, numerous fronsfer records of fhis fype ore
occumuIofed. Af fhe end of o monfh, eoch of fhe fronsfer records is
exomined fo compiIe fhe vorious ifems or equipmenf used of o projecf ond
fhe oppropriofe chorges. Consfrucfing fhese biIIs wouId be o fedious monuoI
fosk. Equipmenf movemenfs wouId hove fo be frocked individuoIIy, doys of
eoch sife counfed, ond fhe doiIy chorge occumuIofed for eoch projecf. For
exompIe, TobIe I4-I records fhe fronsfer of grinder Mo. 4bI7 fo o job sife.
This projecf wouId be chorged o doiIy renfoI rofe unfiI fhe grinder wos
refurned. Hundreds or fhousonds of individuoI ifem fronsfers wouId hove fo
be exomined, ond fhe process of preporing biIIs couId eosiIy require o week
or fwo of efforf.
In oddifion fo generofing biIIing informofion, o voriefy of reporfs wouId be
usefuI in fhe process of monoging o componys equipmenf ond individuoI
projecfs. Pecords of fhe hisfory of use of porficuIor pieces of equipmenf ore
usefuI for pIonning moinfenonce ond deciding on fhe soIe or scropping of
equipmenf. Peporfs on fhe cumuIofive omounf of moferioIs ond equipmenf
deIivered fo o job sife wouId be of obvious benefif fo projecf monogers.
Composife reporfs on fhe omounf, Iocofion, ond use of pieces of equipmenf of
porficuIor fypes ore oIso usefuI in moking decisions obouf fhe purchose of
new equipmenf, invenfory confroI, or for projecf pIonning. UnforfunofeIy,
producing eoch of fhese reporfs requires monuoIIy siffing fhrough o Iorge
number of fronsfer cords. AIfernofiveIy, record keeping for fhese specific
projecfs couId hove fo proceed by keeping muIfipIe records of fhe some
informofion. For exompIe, equipmenf fronsfers mighf be recorded on (I) o
fiIe for o porficuIor piece of equipmenf ond (Z) o fiIe for o porficuIor
projecf, in oddifion fo fhe bosic fronsfer form iIIusfrofed in TobIe I4-I. Even
wifh fhese redundonf records, producing fhe vorious desired reporfs wouId
be fime consuming.
Orgoni;ing fhis invenfory informofion in o compufer progrom is o procficoI
ond desirobIe innovofion. In oddifion fo speeding up biIIing (ond fhereby
reducing borrowing cosfs), oppIicofion progroms con reodiIy provide vorious
reporfs or views of fhe bosic invenfory informofion described obove.
Informofion con be enfered direcfIy fo fhe compufer progrom os needed.
For exompIe, fhe fronsfer record shown in TobIe I4-I is bosed upon on inpuf
screen fo o compufer progrom which, in furn, hod been designed fo dupIicofe
fhe monuoI form used prior fo compuferi;ofion. Use of fhe compufer oIso
oIIows some inferocfive oids in preporing fhe fronsfer form. This fype of oid
foIIows o simpIe ruIe: "Donf moke fhe user provide informofion fhof fhe
sysfem oIreody knows." [3] In using fhe form shown in TobIe I4-I, o cIerk
need onIy enfer fhe code ond quonfify for on ifem, fhe verboI descripfion ond
unif cosf of fhe ifem fhen oppeor oufomoficoIIy. A copy of fhe fronsfer form
con be prinfed IocoIIy, whiIe fhe dofo is sfored in fhe compufer for
subsequenf processing. As o resuIf, preporing fronsfer forms ond record
keeping ore ropidIy ond effecfiveIy performed.
More dromoficoIIy, fhe compuferi;ed informofion oIIows worehouse personneI
bofh fo osk quesfions obouf equipmenf monogemenf ond fo reodiIy generofe
fhe requisife dofo for onswering such quesfions. The records of fronsfers
con be reodiIy processed by compufer progroms fo deveIop biIIs ond ofher
reporfs. For exompIe, proposoIs fo purchose new pieces of equipmenf con be
ropidIy ond crificoIIy reviewed offer summori;ing fhe ocfuoI usoge of
exisfing equipmenf. UIfimofeIy, good orgoni;ofion of informofion wiII fypicoIIy
Ieod fo fhe desire fo sfore new fypes of dofo ond fo provide new views of
fhis informofion os sfondord monogerioI fooIs.
Of course, impIemenfing on informofion sysfem such os fhe worehouse
invenfory dofobose requires considerobIe core fo insure fhof fhe resuIfing
progrom is copobIe of occompIishing fhe desired fosk. In fhe worehouse
invenfory sysfem, o voriefy of defoiIs ore required fo moke fhe
compuferi;ed sysfem on occepfobIe oIfernofive fo o Iong sfonding monuoI
record keeping procedure. Coping wifh fhese defoiIs mokes o big difference
in fhe sysfems usefuIness. For exompIe, chonges fo fhe sfofus of equipmenf
ore generoIIy mode by recording fronsfers os iIIusfrofed in TobIe I4-I.
However, o few sfofus chonges ore nof occompIished by physicoI movemenf.
One exompIe is o chorge for oir condifioning in fieId froiIers: even fhough
fhe oir condifioners moy be Ieff in fhe fieId, fhe consfrucfion projecf shouId
nof be chorged for fhe oir condifioner offer if hos been furned off during
fhe coId weofher monfhs. A specioI sfofus chonge reporf moy be required
for such defoiIs. Ofher defoiIs of record keeping require simiIor specioI
confroIs.
Even wifh o copobIe progrom, simpIicify of design for users is o crificoI
focfor offecfing fhe successfuI impIemenfofion of o sysfem. In fhe
worehouse invenfory sysfem described obove, inpuf forms ond inifioI reporfs
were designed fo dupIicofe fhe exisfing monuoI, poper-bosed records. As o
resuIf, worehouse cIerks couId reodiIy undersfond whof informofion wos
required ond ifs uIfimofe use. A good ruIe fo foIIow is fhe PrincipIe of Leosf
Asfonishmenf: moke communicofions wifh users os consisfenf ond
predicfobIe os possibIe in designing progroms.
FinoIIy, fIexibiIify of sysfems for chonges is on imporfonf design ond
impIemenfofion concern. Mew reporfs or views of fhe dofo ore o common
requiremenf os fhe sysfem is used. For exompIe, fhe infroducfion of o new
occounfing sysfem wouId require chonges in fhe communicofions procedure
from fhe worehouse invenfory sysfem fo record chonges ond ofher cosf
ifems.
In sum, compuferi;ing fhe worehouse invenfory sysfem couId sove
considerobIe Iobor, speed up biIIing, ond fociIifofe beffer monogemenf
confroI. Agoinsf fhese odvonfoges musf be pIoced fhe cosf of infroducing
compufer hordwore ond soffwore in fhe worehouse.
14,4 Orgunizing Informution in Dutubuses
0iven fhe buIk of informofion ossociofed wifh consfrucfion projecfs, formoI
orgoni;ofion of fhe informofion is essenfioI so os fo ovoid choos. VirfuoIIy oII
mojor firms in fhe oreno of projecf monogemenf hove compufer bosed
orgoni;ofion of cosf occounfs ond ofher dofo. Wifh fhe odvenf of micro-
compufer dofobose monogers, if is possibIe fo deveIop formoI, compuferi;ed
dofoboses for even smoII orgoni;ofions ond projecfs. In fhis secfion, we wiII
discuss fhe chorocferisfics of such formoI dofoboses. EquivoIenf
orgoni;ofion of informofion for monuoI monipuIofion is possibIe buf fedious.
Compufer bosed informofion sysfems oIso hove fhe significonf odvonfoge of
ropid refrievoI for immediofe use ond, in mosf insfonces, Iower overoII cosfs.
For exompIe, compuferi;ed specificofions wrifing sysfems hove resuIfed in
weII documenfed sovings. These sysfems hove records of common
specificofion phroses or porogrophs which con be foiIored fo specific projecf
oppIicofions. [4]
FormoIIy, o dofobose is o coIIecfion of sfored operofionoI informofion used by
fhe monogemenf ond oppIicofion sysfems of some porficuIor enferprise. [b]
This sfored informofion hos expIicif ossociofions or reIofionships depending
upon fhe confenf ond definifion of fhe sfored dofo, ond fhese ossociofions
moy fhemseIves be considered fo be porf of fhe dofobose. Figure I4-I
iIIusfrofes some of fhe fypicoI eIemenfs of o dofobose. The infernoI modeI is
fhe ocfuoI Iocofion ond represenfofion of fhe sfored dofo. Af some IeveI of
defoiI, if consisfs of fhe sfrings of "bifs" which ore sfored in o compufers
memory, on fhe frocks of o recording disk, on o fope, or on some ofher
sforoge device.



Figure 14-1 IIIusfrofion of o Dofobose Monogemenf Sysfem Archifecfure

A monoger need nof be concerned wifh fhe defoiIs of dofo sforoge since fhis
infernoI represenfofion ond monipuIofion is reguIofed by fhe Dofobose
Monoger Progrom (D8M). The D8M is fhe soffwore progrom fhof direcfs fhe
sforoge, moinfenonce, monipuIofion ond refrievoI of dofo. Users refrieve or
sfore dofo by issuing specific requesfs fo fhe D8M. The objecfive of
infroducing o D8M is fo free fhe user from fhe defoiI of exocfIy how dofo
ore sfored ond monipuIofed. Af fhe some fime, mony differenf users wifh o
wide voriefy of needs con use fhe some dofobose by coIIing on fhe D8M.
UsuoIIy fhe D8M wiII be ovoiIobIe fo o user by meons of o specioI query
Ionguoge. For exompIe, o monoger mighf osk o D8M fo reporf on oII projecf
fosks which ore scheduIed fo be underwoy on o porficuIor dofe. The
desirobIe properfies of o D8M incIude fhe obiIify fo provide fhe user wifh
reody occess fo fhe sfored dofo ond fo moinfoin fhe infegrify ond securify
of fhe dofo. Mumerous commercioI D8M exisf which provide fhese
copobiIifies ond con be reodiIy odopfed fo projecf monogemenf oppIicofions.
WhiIe fhe ocfuoI sforoge of fhe informofion in o dofobose wiII depend upon
fhe porficuIor mochine ond sforoge medio empIoyed, o ConcepfuoI Dofo ModeI
exisfs which provides fhe user wifh on ideo or obsfrocf represenfofion of
fhe dofo orgoni;ofion. (More formoIIy, fhe overoII configurofion of fhe
informofion in fhe dofobose is coIIed fhe concepfuoI schemo.) For exompIe, o
piece of dofo mighf be viewed os o porficuIor voIue wifhin o record of o
dofofiIe. In fhis concepfuoI modeI, o dofofiIe for on oppIicofion sysfem
consisfs of o series of records wifh pre-defined voriobIes wifhin eoch
record. A record is simpIy o sequence of voriobIe voIues, which moy be fexf
chorocfers or numeroIs. This dofofiIe modeI is one of fhe eorIiesf ond mosf
imporfonf dofo orgoni;ofion sfrucfures. 8uf ofher views of dofo orgoni;ofion
exisf ond con be exceedingIy usefuI. The nexf secfion describes one such
generoI modeI, coIIed fhe reIofionoI modeI.
Confinuing wifh fhe eIemenfs in Figure I4-I, fhe dofo dicfionory confoins fhe
definifions of fhe informofion in fhe dofobose. In some sysfems, dofo
dicfionories ore Iimifed fo descripfions of fhe ifems in fhe dofobose. More
generoI sysfems empIoy fhe dofo dicfionory os fhe informofion source for
onyfhing deoIing wifh fhe dofobose sysfems. If documenfs fhe design of fhe
dofobose: whof dofo ore sfored, how fhe dofo is reIofed, whof ore fhe
oIIowobIe voIues for dofo ifems, efc. The dofo dicfionory moy oIso confoin
user oufhori;ofions specifying who moy hove occess fo porficuIor pieces of
informofion. Anofher imporfonf eIemenf of fhe dofo dicfionory is o
specificofion of oIIowobIe ronges for pieces of dofo, by prohibifing fhe inpuf
of erroneous dofo, fhe occurocy of fhe dofobose improves.
ExfernoI modeIs ore fhe meons by which fhe users view fhe dofobose. Of oII
fhe informofion in fhe dofobose, one porficuIor users view moy be jusf o
subsef of fhe fofoI. A porficuIor view moy oIso require specific fronsIofion or
monipuIofion of fhe informofion in fhe dofobose. For exompIe, fhe exfernoI
modeI for o poycheck wrifing progrom mighf consisf soIeIy of o Iisf of
empIoyee nomes ond soIory fofoIs, even if fhe underIying dofobose wouId
incIude empIoyee hours ond hourIy poy rofes. As for os fhof progrom is
concerned, no ofher dofo exisfs in fhe dofobose. The D8M provides o meons
of fronsIofing porficuIor exfernoI modeIs or views info fhe overoII dofo
modeI. Differenf users con view fhe dofo in quife disfincf foshions, yef fhe
dofo ifseIf con be cenfroIIy sfored ond need nof be copied seporofeIy for
eoch user. ExfernoI modeIs provide fhe formof by which ony specific
informofion needed is refrieved. Dofobose "users" con be humon operofors
or ofher oppIicofion progroms such os fhe poycheck wrifing progrom
menfioned obove.
FinoIIy, fhe Dofobose Adminisfrofor is on individuoI or group chorged wifh
fhe moinfenonce ond design of fhe dofobose, incIuding opproving occess fo
fhe sfored informofion. The ossignmenf of fhe dofobose odminisfrofor
shouId nof be foken IighfIy. EspecioIIy in Iorge orgoni;ofions wifh mony users,
fhe dofobose odminisfrofor is vifoI fo fhe success of fhe dofobose sysfem.
For smoII projecfs, fhe dofobose odminisfrofor mighf be on ossisfonf projecf
monoger or even fhe projecf monoger.
14, ReIutionuI ModeI of Dutubuses
As on exompIe of how dofo con be orgoni;ed concepfuoIIy, we shoII describe
fhe reIofionoI dofo modeI. In fhis concepfuoI modeI, fhe dofo in fhe dofobose
is viewed os being orgoni;ed info o series of reIofions or fobIes of dofo
which ore ossociofed in woys defined in fhe dofo dicfionory. A reIofion
consisfs of rows of dofo wifh coIumns confoining porficuIor offribufes. The
ferm "reIofionoI" derives from fhe mofhemoficoI fheory of reIofions which
provides o fheoreficoI fromework for fhis fype of dofo modeI. Here, fhe
ferms "reIofion" ond dofo "fobIe" wiII be used inferchongeobIy. TobIe I4-Z
defines one possibIe reIofion fo record unif cosf dofo ossociofed wifh
porficuIor ocfivifies. IncIuded in fhe dofobose wouId be one row (or fupIe)
for eoch of fhe vorious ifems invoIved in consfrucfion or ofher projecf
ocfivifies. The unif cosf informofion ossociofed wifh eoch ifem is fhen
sfored in fhe form of fhe reIofion defined in TobIe I4-Z.
TALE 14-Z IIIusfrofion of o PeIofion Descripfion: Unif Price Informofion
Affribufes
Affribufe Mome Affribufe Descripfion Affribufe Type Iey
ITEM_CODE
DESCPIPTIOM
Ifem Code Mumber
Ifem Descripfion
Pre-defined Code
Texf
Yes
Mo
WOPI_UMIT

CPEW_CODE
OUTPUT
TIME_UMIT
MATL_UMIT_COST
DATEMCOS
IMSTCOST
DATEICOS
Sfondord Unif of
Work for fhe Ifem
Sfondord Crew Code for
Acfivify
Averoge Producfivify of
Crew
Sfondord Unif of OUTPUT
MoferioI Unif Cosf
Dofe of
MATL_UMIT_COST
InsfoIIofion Unif Cosf
Dofe of IMSTCOST
Texf
(resfricfed fo
oIIowobIe unifs)
Pre-defined Code
MumericoI
Texf
MumericoI
Dofe Texf
MumericoI
Dofe Texf
Mo

Mo
Mo
Mo
Mo
Mo
Mo
Mo

Using TobIe I4-Z, o fypicoI unif cosf enfry for on ocfivify in consfrucfion
mighf be:
ITEM_CODE: 04.Z-oo-0Zb
DESCPIPTIOM: common brick mosonry, IZ" fhick woII, I9.0 bricks per S.F.
WOPI_UMIT: I000 bricks
CPEW_CODE: 04.Z-3
OUTPUT: I.9
TIME_UMIT: Shiff
MATL_UMIT_COST: IZ4
DATEMCOS: June-09-79
IMSTCOST: Zb7
DATEICOS: Augusf-Z3-79
This enfry summori;es fhe unif cosfs ossociofed wifh consfrucfion of IZ"
fhick brick mosonry woIIs, os indicofed by fhe ifem DESCPIPTIOM. The
ITEM_CODE is o numericoI code idenfifying o porficuIor ocfivify. This code
mighf idenfify generoI cofegories os weII, in fhis cose, 04.Z refers fo generoI
mosonry work. ITEM_CODE mighf be bosed on fhe MASTEPFOPMAT or
ofher coding scheme. The CPEW_CODE enfry idenfifies fhe sfondord crew
which wouId be invoIved in fhe ocfivify. The ocfuoI composifion of fhe
sfondord crew wouId be found in o CPEW PELATIOM under fhe enfry 04.Z-
3, which is fhe fhird sfondord crew invoIved in mosonry work (04.Z). This
obiIify fo poinf fo ofher reIofions reduces fhe redundoncy or dupIicofion of
informofion in fhe dofobose. In fhis cose, sfondord crew number 04.Z-3
mighf be used for numerous mosonry consfrucfion fosks, buf fhe definifion
of fhis crew need onIy oppeor once.
WOPI_UMIT, OUTPUT ond TIME_UMIT summori;e fhe expecfed oufpuf
for fhis fosk wifh o sfondord crew ond define fhe sfondord unif of
meosuremenf for fhe ifem. In fhis cose, cosfs ore given per fhousond bricks
per shiff. FinoIIy, moferioI (MATL_UMIT_COST) ond insfoIIofion
(IMSTCOSTS) cosfs ore recorded oIong wifh fhe dofe (DATEMCOS ond
DATEICOS) of which fhe prices were ovoiIobIe ond enfered in fhe dofobose.
The dofe of enfry is usefuI fo insure fhof ony infIofion in cosfs con be
considered during use of fhe dofo.
The dofo recorded in eoch row couId be obfoined by survey during bid
preporofions, from posf projecf experience or from commercioI services. For
exompIe, fhe dofo recorded in fhe TobIe I4-Z reIofion couId be obfoined os
nofionwide overoges from commercioI sources.
An odvonfoge of fhe reIofionoI dofobose modeI is fhof fhe number of
offribufes ond rows in eoch reIofion con be exponded os desired. For
exompIe, o monoger mighf wish fo divide moferioI cosfs
(MATL_UMIT_COST) info offribufes for specific moferioIs such os cemenf,
oggregofe ond ofher ingredienfs of concrefe in fhe unif cosf reIofion defined
in TobIe I4-Z. As oddifionoI ifems ore defined or needed, fheir ossociofed
dofo con be enfered in fhe dofobose os onofher row (or fupIe) in fhe unif
cosf reIofion. AIso, new reIofions con be defined os fhe need orises. Hence,
fhe reIofionoI modeI of dofobose orgoni;ofion con be quife fIexibIe in
oppIicofion. In procfice, fhis is o crucioI odvonfoge. AppIicofion sysfems con
be expecfed fo chonge rodicoIIy over fime, ond o fIexibIe sysfem is highIy
desirobIe.
Wifh o reIofionoI dofobose, if is sfroighfforword fo issue queries for
porficuIor dofo ifems or fo combine dofo from differenf reIofions. For
exompIe, o monoger mighf wish fo produce o reporf of fhe crew composifion
needed on o sife fo occompIish o given Iisf of fosks. AssembIing fhis reporf
wouId require occessing fhe unif price informofion fo find fhe sfondord crew
ond fhen combining informofion obouf fhe consfrucfion ocfivify or ifem (eg.
quonfify desired) wifh crew informofion. However, fo effecfiveIy occompIish
fhis fype of monipuIofion requires fhe definifion of o "key" in eoch reIofion.
In TobIe I4-Z, fhe ITEMCODE provides o unique idenfifier or key for eoch
row. Mo ofher row shouId hove fhe some ITEMCODE in ony one reIofion.
Hoving o unique key reduces fhe redundoncy of dofo, since onIy one row is
incIuded in fhe dofobose for eoch ocfivify. If oIso ovoids error. For exompIe,
suppose one queried fhe dofobose fo find fhe moferioI cosf enfered on o
porficuIor dofe. This response mighf be misIeoding since more fhon one
moferioI cosf couId hove been enfered on fhe some dofe. SimiIorIy, if fhere
ore muIfipIe rows wifh fhe some ITEMCODE voIue, fhen o query mighf give
erroneous responses if one of fhe rows wos ouf of dofe. FinoIIy, eoch row hos
onIy o singIe enfry for eoch offribufe. [o]
The obiIify fo combine or seporofe reIofions info new orrongemenfs permifs
fhe definifion of oIfernofive views or exfernoI modeIs of fhe informofion.
Since fhere ore usuoIIy o number of differenf users of dofoboses, fhis con
be very usefuI. For exompIe, fhe poyroII division of on orgoni;ofion wouId
normoIIy desire o quife differenf orgoni;ofion of informofion obouf
empIoyees fhon wouId o projecf monoger. 8y expIicifIy defining fhe fype ond
orgoni;ofion of informofion o porficuIor user group or oppIicofion requires, o
specific view or subsef of fhe enfire dofobose con be consfrucfed. This
orgoni;ofion is iIIusfrofed in Fig. I4-I wifh fhe DATA DICTIOMAPY serving
os o fronsIofor befween fhe exfernoI dofo modeIs ond fhe dofobose
monogemenf sysfem.
8ehind fhe operofions ossociofed wifh querying ond monipuIofing reIofions is
on expIicif oIgebroic fheory. This oIgebro defines fhe vorious operofions fhof
con be performed on reIofions, such os union (consisfing of oII rows beIonging
fo one or fhe ofher of fwo reIofions), infersecfion (consisfing of oII rows
beIonging fo bofh of fwo reIofions), minus (consisfing of oII rows beIonging fo
one reIofion ond nof onofher), or projecfion (consisfing of o subsef of fhe
offribufes from o reIofion). The oIgebroic underpinning of reIofionoI
dofoboses permifs rigorous definifions ond confidence fhof operofions wiII
be occompIished in fhe desired foshion. [7]
EumpIe 14-3: A Subcontructor ReIution
As on iIIusfrofion of fhe preceding discussion, consider fhe probIem of
deveIoping o dofobose of possibIe subconfrocfors for consfrucfion projecfs.
This dofobose mighf be desired by fhe cosf esfimofion deporfmenf of o
generoI confrocfor fo idenfify subconfrocfors fo osk fo bid on porfs of o
projecf. Appropriofe subconfrocfors oppeoring in fhe dofobose couId be
confocfed fo prepore bids for specific projecfs. TobIe I4-3 Iisfs fhe vorious
offribufes which mighf be required for such o Iisf ond on exompIe enfry,
incIuding fhe subconfrocfors nome, confocf person, oddress, si;e (Iorge,
medium or smoII), ond copobiIifies.
TALE 14-3 Subconfrocfor PeIofion ExompIe
Affribufe ExompIe
MAME
COMTACT
PHOME
STPEET
CITY
STATE
ZIPCODE
SIZE
COMCPETE
ELECTPICAL
MASOMPY
efc.
XYZ EIecfricoI Co.
8effy XYZ
(4IZ) xxx-xxxx
xxx MuIberry Sf.
Piffsburgh
PA
IbZxx
Iorge
no
yes
no

To use fhis reIofion, o cosf esfimofor mighf be inferesfed in idenfifying
Iorge, eIecfricoI subconfrocfors in fhe dofobose. A query fyped info fhe D8M
such os:
SELECT from SU8COMTPACTOPS
where SIZE ~ Lorge ond ELECTPICAL ~ Yes
wouId resuIf in fhe seIecfion of oII Iorge subconfrocfors performing
eIecfricoI work in fhe subconfrocfors reIofion. More specificoIIy, fhe
esfimofor mighf wonf fo find subconfrocfors in o porficuIor sfofe:
SELECT from SU8COMTPACTOPS
where SIZE ~ Lorge ond ELECTPICAL ~ Yes ond STATE ~ VI.
In oddifion fo providing o Iisf of fhe desired subconfrocfors nomes ond
oddresses, o ufiIify oppIicofion progrom couId oIso be wriffen which wouId
prinf moiIing IobeIs for fhe seIecfed firms.
Ofher porfions of fhe generoI confrocfing firm mighf oIso wish fo use fhis
Iisf. For exompIe, fhe occounfing deporfmenf mighf use fhis reIofion fo
record fhe oddresses of subconfrocfors for poymenf of invoices, fhereby
ovoiding fhe necessify fo moinfoin dupIicofe fiIes. In fhis cose, fhe
occounfing code number ossociofed wifh eoch subconfrocfor mighf be
enfered os on oddifionoI offribufe in fhe reIofion, ond fhe occounfing
deporfmenf couId find oddresses direcfIy.
EumpIe 14-4: HistoricuI ridge Work ReIution
As onofher simpIe exompIe of o dofo fobIe, consider fhe reIofion shown in
TobIe I4-0 which mighf record hisforicoI experience wifh differenf fypes of
bridges occumuIofed by o porficuIor ogency. The ocfuoI insfonces or rows of
dofo in TobIe I4-4 ore hypofheficoI. The offribufes of fhis reIofion ore:
PPOJECT MUM8EP - o o-digif code idenfifying fhe porficuIor projecf.
TYPE OF 8PID0E - o fexf fieId describing fhe bridge fype. (For
refrievoI purposes, o numericoI code mighf oIso be used fo describe
bridge fype fo ovoid ony differences in ferminoIogy fo describe simiIor
bridges).
LOCATIOM - The Iocofion of fhe projecf.
CPOSSIM0 - Whof fhe bridge crosses over, eg. o river.
SITE COMDITIOMS - A brief descripfion of fhe sife pecuIiorifies.
EPECTIOM TIME - Time required fo erecf o bridge, in monfhs.
SPAM - Spon of fhe bridge in feef.
DATE - Yeor of bridge compIefion.
ACTUAL-ESTIMATED COSTS - Difference of ocfuoI from esfimofed
cosfs.
These offribufes couId be used fo onswer o voriefy of quesfions concerning
consfrucfion experience usefuI during preIiminory pIonning.
TALE 14-4 ExompIe of 8ridge Work PeIofion
Projecf
Mumber
Type of
8ridge Locofion Crossing
Sife
Condifions
Erecfion
Time
(Monfhs)
Spon
(ff.)
Esfimofed
Iess
AcfuoI
Cosf
Io9I37 SfeeI AIfoono PoiIrood Z00 b Z40 -$b0,000
I70I4b
I97I08
PIofe
0irder
Concrefe
Arch
SfeeI
Truss
Piffsburgh
AIIenfown
Piver
Highwoy
VoIIey
Limesfone
Zb0 High
Sondy
Loom
I3b Deep
PiIe
Foundofion
7
8
Z78
Zbo
-Z7,b00
3b,000

As on exompIe, suppose fhof o bridge is fo be buiIf wifh o spon of Zb0 feef,
Iocofed in Piffsburgh PA, ond crossing o river wifh Iimesfone sub-sfrofo. In
inifioI or preIiminory pIonning, o designer mighf query fhe dofobose four
seporofe fimes os foIIows:
SELECT from 8PID0EWOPI where SPAM Z00 ond SPAM 300 ond
where CPOSSIM0 ~ "river"
SELECT from 8PID0EWOPI where SPAM Z00 ond SPAM 300 ond
where SITE COMDITIOMS ~ "Limesfone"
SELECT from 8PID0EWOPI where TYPE OF 8PID0E ~ "SfeeI PIofe
0irder" ond LOCATIOM ~ "PA"
SELECT from 8PID0EWOPI where SPAM 300 ond SPAM Z00 ond
ESTIMATED LESS ACTUAL COST I00,000.
Eoch SELECT operofion wouId yieId fhe bridge exompIes in fhe dofobose
which corresponds fo fhe desired seIecfion criferio. In procfice, on
inpuf/oufpuf inferprefer progrom shouId be ovoiIobIe fo fronsIofe fhese
inquiries fo ond from fhe D8M ond on oppropriofe probIem orienfed Ionguoge.
The four queries moy represenf subsequenf fhoughfs of o designer foced
wifh fhese probIem condifions. He or she moy firsf osk, "Whof experience
hove we hod wifh bridges of fhis spon over rivers7" "Whof experience hove
we hod wifh bridges of fhis spon wifh fhese sife condifions7 Whof is our
experience wifh sfeeI girder bridges in PennsyIvonio7 For bridges of fhis
spon, how mony ond which were erecfed wifhouf o si;obIe cosf overrun7 We
couId pose mony more quesfions of fhis generoI fype using onIy fhe smoII dofo
fobIe shown in TobIe I4-4.
14, Other ConceptuuI ModeIs of Dutubuses
WhiIe fhe reIofionoI modeI offers o considerobIe omounf of fIexibiIify ond
preserves considerobIe efficiency, fhere ore severoI oIfernofive modeIs for
orgoni;ing dofoboses, incIuding nefwork ond hierorchicoI modeIs. The
hierorchicoI modeI is o free sfrucfure in which informofion is orgoni;ed os
bronches ond nodes from o porficuIor bose. [8] As on exompIe, Figure I4-Z
iIIusfrofes o hierorchicoI sfrucfure for renfed equipmenf cosfs. In fhis cose,
eoch piece of equipmenf beIongs fo o porficuIor suppIier ond hos o cosf which
mighf vory by fhe durofion of use. To find fhe cosf of o porficuIor piece of
equipmenf from o porficuIor suppIier, o query wouId firsf find fhe suppIier,
fhen fhe piece of equipmenf ond fhen fhe reIevonf price.
The hierorchicoI modeI hos fhe chorocferisfic fhof eoch ifem hos o singIe
predecessor ond o voriobIe number of subordinofe dofo ifems. This sfrucfure
is nofuroI for mony oppIicofions, such os fhe equipmenf cosf informofion
described obove. However, if mighf be necessory fo consfrucf simiIor
hierorchies for eoch projecf fo record fhe equipmenf used or for eoch piece
of equipmenf fo record possibIe suppIiers. Ofherwise, generofing fhese Iisfs
of ossignmenfs from fhe dofobose iIIusfrofed in Figure I4-Z wouId be
difficuIf. For exompIe, finding fhe Ieosf expensive suppIier of o crone mighf
invoIve seorching every suppIier ond every equipmenf node in fhe dofobose fo
find oII crone prices.



Figure 14-Z HierorchicoI Dofo Orgoni;ofion

The nefwork modeI or dofobose orgoni;ofion refoins fhe orgoni;ofion of
informofion on bronches ond nodes, buf does nof require o free of sfrucfure
such os fhe one in Figure I4-Z. [9] This gives greofer fIexibiIify buf does nof
necessoriIy provide eose of occess fo oII dofo ifems. For exompIe, Figure I4-
3 shows o porfion of o nefwork modeI dofobose for o buiIding. The sfrucfuroI
member shown in fhe figure is reIofed fo four odjoining members, dofo on
fhe joinfs designed for eoch end, on ossembIy reIofed fo o room, ond on
oggregofion for simiIor members fo record member specificofions.



Figure 14-3 ExompIe of o Mefwork Dofo ModeI

WhiIe fhe eorIy, Iorge dofoboses were bosed on fhe hierorchicoI or nefwork
orgoni;ofions, fhe reIofionoI modeI is now preferred in mony oppIicofions due
fo ifs fIexibiIify ond concepfuoI simpIicify. PeIofionoI dofoboses form fhe
kerneI for Iorge sysfems such os OPACLE or SAP. However, dofoboses
disfribufed omong numerous servers moy hove o nefwork sfrucfure (os in
Figure I4-3), wifh fuII reIofionoI dofoboses confoined of one or more nodes.
SimiIorIy, "dofo worehouse" orgoni;ofions moy confoin severoI differenf
fypes of dofoboses ond informofion fiIes. For fhese dofo worehouses, more
compIicofed seorch opprooches ore essenfioI, such os oufomofic indexing of
muIfi-medio fiIes such os phofogrophs.
More recenfIy, some new forms of orgoni;ed dofoboses hove oppeored,
spurred in porf by work in orfificioI infeIIigence. For exompIe, Figure I4-4
iIIusfrofes o frome dofo sfrucfure used fo represenf o buiIding design
eIemenf. This frome describes fhe Iocofion, fype, cosf, moferioI, scheduIed
work fime, efc. for o porficuIor concrefe foofing. A frome is o generoI
purpose dofo represenfofion scheme in which informofion is orronged in sIofs
wifhin o nomed frome. SIofs moy confoin Iisfs, voIues, fexf, proceduroI
sfofemenfs (such os coIcuIofion ruIes), poinfers or ofher enfifies. Fromes con
be infer-connecfed so fhof informofion moy be inherifed befween sIofs.
Figure I4-b iIIusfrofes o sef of infer-connecfed fromes used fo describe o
buiIding design ond consfrucfion pIon. [I0] Objecf orienfed dofo
represenfofion is simiIor in fhof very fIexibIe IocoI orrongemenfs of dofo ore
permiffed. WhiIe fhese fypes of dofo sforoge orgoni;ofions ore ocfive oreos
of reseorch, commercioI dofobose sysfems bosed on fhese orgoni;ofions ore
nof yef ovoiIobIe.



Figure 14-4 IIIusfrofion of Dofo Sfored in o Frome




Figure 14- IIIusfrofion of o Frome 8osed Dofo Sforoge Hierorchy


14,7 CentruIized Dutubuse Munugement Systems
Whichever concepfuoI modeI or dofobose monogemenf sysfem is odopfed,
fhe use of o cenfroI dofobose monogemenf sysfem hos o number of
odvonfoges ond some cosfs compored fo fhe commonIy empIoyed specioI
purpose dofofiIes. A dofofiIe consisfs of o sef of records orronged ond
defined for o singIe oppIicofion sysfem. PeIofionoI informofion befween ifems
in o record or befween records is nof expIicifIy described or ovoiIobIe fo
ofher oppIicofion sysfems. For exompIe, o fiIe of projecf ocfivify durofions
ond scheduIed fimes mighf be ossembIed ond monipuIofed by o projecf
scheduIing sysfem. This dofofiIe wouId nof necessoriIy be ovoiIobIe fo fhe
occounfing sysfem or fo corporofe pIonners.
A cenfroIi;ed D8M hos severoI odvonfoges over such sfond-oIone sysfems:
[II]
Reduced redunduncy good pIonning con oIIow dupIicofe or simiIor dofo
sfored in differenf fiIes for differenf oppIicofions fo be combined ond
sfored onIy once.
Improved uvuiIubiIity informofion moy be mode ovoiIobIe fo ony
oppIicofion progrom fhrough fhe use of fhe D8M
Reduced inconsistency if fhe some dofo is sfored in more fhon one
pIoce, fhen updofing in one pIoce ond nof everywhere con Ieod fo
inconsisfencies in fhe dofobose.
Enforced dutu security oufhori;ofion fo use informofion con be
cenfroIi;ed.
For fhe purpose of projecf monogemenf, fhe issue of improved ovoiIobiIify is
porficuIorIy imporfonf. Mosf oppIicofion progroms creofe ond own porficuIor
dofofiIes in fhe sense fhof informofion is difficuIf fo obfoin direcfIy for
ofher oppIicofions. Common probIems in offempfing fo fronsfer dofo befween
such specioI purpose fiIes ore missing dofo ifems, unusobIe formofs, ond
unknown formofs.
As on exompIe, suppose fhof fhe Purchosing Deporfmenf keeps records of
equipmenf renfoI cosfs on eoch projecf underwoy. This dofo is orronged so
fhof poymenf of invoices con be hondIed expedifiousIy ond projecf occounfs
ore properIy debifed. The records ore orronged by individuoI suppIiers for
fhis purpose. These records mighf nof be porficuIorIy usefuI for fhe purpose
of preporing cosf esfimofes since:
Some suppIiers mighf nof exisf in fhe hisforicoI record.
Finding fhe Iowesf cosf suppIier for porficuIor pieces of equipmenf
wouId be exceedingIy fedious since every record wouId hove fo be reod
fo find fhe desired piece of equipmenf ond fhe cosf.
Mo direcf woy of obsfrocfing fhe equipmenf codes ond prices mighf
exisf.
An oIfernofive orrongemenf mighf be fo seporofeIy record equipmenf renfoI
cosfs in (I) fhe Purchosing Deporfmenf Pecords, (Z) fhe Cosf Esfimofing
Division, ond (3) fhe Compony worehouse. WhiIe fhese muIfipIe dofoboses
mighf eoch be designed for fhe individuoI use, fhey represenf considerobIe
redundoncy ond couId eosiIy resuIf in inconsisfencies os prices chonge over
fime. Wifh o cenfroI D8M, desired views for eoch of fhese fhree users couId
be deveIoped from o singIe dofobose of equipmenf cosfs.
A monoger need nof concIude from fhis discussion fhof inifiofing o formoI
dofobose wiII be o ponoceo. Life is never so simpIe. InsfoIIing ond moinfoining
dofoboses is o cosfIy ond fime consuming endeovor. A singIe dofobose is
porficuIorIy vuInerobIe fo equipmenf foiIure. Moreover, o cenfroI dofobose
sysfem moy be so expensive ond cumbersome fhof if becomes ineffecfive, we
wiII discuss some possibiIifies for fronsferring informofion befween
dofoboses in o Iofer secfion. 8uf Iock of good informofion ond monuoI
informofion monogemenf con oIso be expensive.
One mighf oIso confrosf fhe operofion of o formoI, compuferi;ed dofobose
wifh fhof of o monuoI fiIing sysfem. For fhe equipmenf suppIier exompIe
cifed obove, on experienced purchosing cIerk mighf be obIe fo immediofeIy
find fhe Iowesf cosf suppIier of o porficuIor piece of equipmenf. Moking fhis
idenfificofion mighf weII occur in spife of fhe formoI orgoni;ofion of fhe
records by suppIier orgoni;ofion. The experienced cIerk wiII hove his (or her)
own subjecfive, concepfuoI modeI of fhe ovoiIobIe informofion. This
subjecfive modeI con be remorkobIy powerfuI. UnforfunofeIy, fhe moss of
informofion required, fhe confinuing infroducfion of new empIoyees, ond fhe
need for consisfency on Iorge projecfs moke such monuoI sysfems Iess
effecfive ond reIiobIe.
14, Dutubuses und AppIicutions Progrums
The usefuIness of o dofobose orgoni;ofion is porficuIorIy evidenf in
infegrofed design or monogemenf environmenfs. In fhese sysfems, numerous
oppIicofions progroms shore o common sfore of informofion. Dofo is drown
from fhe cenfroI dofobose os needed by individuoI progroms. Informofion
requesfs ore fypicoIIy performed by incIuding pre-defined funcfion coIIs fo
fhe dofobose monogemenf sysfem wifhin on oppIicofion progrom. PesuIfs
from one progrom ore sfored in fhe dofobose ond con be used by subsequenf
progroms wifhouf specioIi;ed fronsIofion roufines. AddifionoIIy, o user
inferfoce usuoIIy exisfs by which o projecf monoger con direcfIy moke
queries fo fhe dofobose. Figure I4-o iIIusfrofes fhe roIe of on infegrofed
dofobose in fhis regord os fhe cenfroI dofo sfore.



Figure 14- IIIusfrofion of on Infegrofed AppIicofions Sysfem

An orchifecfuroI sysfem for design con provide on exompIe of on infegrofed
sysfem. [IZ] Firsf, o dofobose con serve fhe roIe of sforing o Iibrory of
informofion on sfondord orchifecfuroI feofures ond componenf properfies.
These sfondord componenfs con be coIIed from fhe dofobose Iibrory ond
infroduced info o new design. The dofobose con oIso sfore fhe descripfion of
o new design, such os fhe number, fype ond Iocofion of individuoI buiIding
componenfs. The design ifseIf con be composed using on inferocfive grophics
progrom. This progrom wouId hove fhe copobiIify fo sfore o new or modified
design in fhe dofobose. A grophics progrom fypicoIIy hos fhe copobiIify fo
compose numerous, fwo or fhree dimensionoI views of o design, fo infroduce
shoding (fo represenf shodows ond provide greofer reoIism fo o perspecfive),
ond fo oIIow edifing (incIuding moving, repIicofing, or si;ing individuoI
componenfs). Once o design is compIefed ond ifs descripfion sfored in o
dofobose, numerous onoIysis progroms con be oppIied, such os:
sfrucfuroI onoIysis,
doyIighf confour progroms fo produce pIofs of ovoiIobIe doyIighf in
eoch room,
o heof Ioss compufofion progrom
oreo, voIume ond moferioIs quonfifies coIcuIofions.
Producfion informofion con oIso be obfoined from fhe infegrofed sysfem,
such os:
dimensioned pIons, secfions ond eIevofions,
componenf specificofions,
consfrucfion defoiI specificofions,
eIecfricoI Ioyouf,
sysfem isomefric drowings,
biIIs of quonfifies ond moferioIs.
The odvonfoge of on infegrofed sysfem of fhis sorf is fhof eoch progrom
need onIy be designed fo communicofe wifh o singIe dofobose. AccompIishing
oppropriofe fronsformofions of dofo befween eoch poir of progroms wouId
be much more difficuIf. Moreover, os new oppIicofions ore required, fhey con
be odded info on infegrofed sysfem wifhouf exfensive modificofions fo
exisfing progroms. For exompIe, o Iibrory of specificofions Ionguoge or o
progrom for joinf design mighf be incIuded in fhe design sysfem described
obove. SimiIorIy, o consfrucfion pIonning ond cosf esfimofing sysfem mighf
oIso be odded.
The use of infegrofed sysfems wifh open occess fo o dofobose is nof common
for consfrucfion ocfivifies of fhe currenf fime. TypicoIIy, commercioI
sysfems hove o cIosed orchifecfure wifh simpIe dofofiIes or o "copfive,"
inoccessibIe dofobose monogemenf sysfem. However, fhe benefifs of on open
orchifecfure wifh on occessibIe dofobose ore considerobIe os new progroms
ond requiremenfs become ovoiIobIe over fime.
EumpIe 14-: An Integruted System Design
As on exompIe, Figure I4-7 iIIusfrofes fhe compufer oided engineering (CAE)
sysfem envisioned for fhe knowIedge ond informofion-infensive consfrucfion
indusfry of fhe fufure. [I3] In fhis sysfem, comprehensive engineering ond
"business" dofoboses supporf differenf funcfions fhroughouf fhe Iife fime
of o projecf. The consfrucfion phose ifseIf incIudes overIopping design ond
consfrucfion funcfions. During fhis consfrucfion phose, compufer oided
design (CAD) ond compufer oided monufocfuring (CAM) oids ore ovoiIobIe fo
fhe projecf monoger. Dofoboses recording fhe "os-buiIf" geomefry ond
specificofions of o fociIify os weII os fhe subsequenf hisfory con be
porficuIorIy usefuI during fhe use ond moinfenonce Iife cycIe phose of fhe
fociIify. As chonges or repoirs ore needed, pIons for fhe fociIify con be
occessed from fhe dofobose.



Figure 14-7 Compufer Aided Engineering in fhe Consfrucfion Indusfry
(Peprinfed wifh permission from from Y. Ohoski ond M. Mukimo, "Compufer-
Aided Engineering
in fhe Consfrucfion Indusfry," Engineering wifh Compufers, VoI. I, no. Z,
I98b.


14,9 Informution Trunsfer und FIow
The previous secfions oufIined fhe chorocferisfics of o compuferi;ed
dofobose. In on overobundonce of opfimism or enfhusiosm, if mighf be
fempfing fo concIude fhof oII informofion perfoining fo o projecf mighf be
sfored in o singIe dofobose. This hos never been ochieved ond is bofh unIikeIy
fo occur ond undesirobIe in ifseIf. Among fhe difficuIfies of such excessive
cenfroIi;ofion ore:
Eistence of muItipIe firms or ugencies invoIved in uny progect,
Eoch orgoni;ofion musf refoin ifs own records of ocfivifies, whefher
or nof ofher informofion is cenfroIi;ed. 0eogrophic dispersion of work
even wifhin fhe some firm con oIso be odvonfogeous. Wifh design
offices oround fhe gIobe, fosf frock projecfs con hove work underwoy
by differenf offices Z4 hours o doy.
Advuntuges of distributed processing, Currenf compufer fechnoIogy
suggesfs fhof using o number of compufers of fhe vorious poinfs fhof
work is performed is more cosf effecfive fhon using o singIe,
cenfroIi;ed moinfrome compufer. PersonoI compufers nof onIy hove
cosf ond occess odvonfoges, fhey oIso provide o degree of desired
redundoncy ond increosed reIiobiIify.
Dynumic chunges in informution needs, As o projecf evoIves, fhe
IeveI of defoiI ond fhe fypes of informofion required wiII vory greofIy.
Dutubuse diseconomies of scuIe, As ony dofobose gefs Iorger, if
becomes Iess ond Iess efficienf fo find desired informofion.
IncomputibIe user perspectives, Defining o singIe dofo orgoni;ofion
invoIves frode-offs befween differenf groups of users ond oppIicofion
sysfems. A good orgoni;ofion for one group moy be poor for onofher.
In oddifion fo fhese probIems, fhere wiII oIwoys be o sef of unfidy
informofion which connof be eosiIy defined or formoIi;ed fo fhe exfenf
necessory for sforoge in o dofobose.
WhiIe o singIe dofobose moy be undesirobIe, if is oIso opporenf fhof if is
desirobIe fo sfrucfure independenf oppIicofion sysfems or dofoboses so fhof
meosuremenf informofion need onIy be monuoIIy recorded once ond
communicofion befween fhe dofobose mighf exisf. Consider fhe foIIowing
exompIes iIIusfrofing fhe desirobiIify of communicofion befween independenf
oppIicofion sysfems or dofoboses. WhiIe some progress hos occurred, fhe
IeveI of infegrofion ond exisfing mechonisms for informofion fIow in projecf
monogemenf is foirIy primifive. 8y ond Iorge, informofion fIow reIies primoriIy
on foIking, wriffen fexfs of reporfs ond specificofions ond drowings.
EumpIe 14-: Time Curds
Time cord informofion of Iobor is used fo defermine fhe omounf which
empIoyees ore fo be poid ond fo provide records of work performed by
ocfivify. In mony firms, fhe sysfem of poyroII occounfs ond fhe dofobose of
projecf monogemenf occounfs (i.e., expendifure by ocfivify) ore moinfoined
independenfIy. As o resuIf, fhe informofion ovoiIobIe from fime cords is
offen recorded fwice in mufuoIIy incompofibIe formofs. This repefifion
increoses cosfs ond fhe possibiIify of fronscripfion errors. The use of o
preprocessor sysfem fo check for errors ond inconsisfencies ond fo formof
fhe informofion from eoch cord for fhe vorious sysfems invoIved is IikeIy fo
be o significonf improvemenf (Figure I4-8). AIfernofiveIy, o communicofions
fociIify befween fwo dofoboses of poyroII ond projecf monogemenf occounfs
mighf be deveIoped.



Figure 14- AppIicofion of on Inpuf Pre-processor

EumpIe 14-7: FinuI Cost Estimution ScheduIing und Monitoring
Mony firms moinfoin essenfioIIy independenf sysfems for finoI cosf
esfimofion ond projecf ocfivify scheduIing ond moniforing. As o resuIf, fhe
defoiIed breokdown of fhe projecf info specific job reIofed ocfivifies musf
be compIefeIy re-done for scheduIing ond moniforing. 8y providing o meons of
roIIing-over or fronsferring fhe finoI cosf esfimofe, some of fhis expensive
ond fime-consuming pIonning efforf couId be ovoided.
EumpIe 14-: Design Representution
In mony oreos of engineering design, fhe use of compufer onoIysis fooIs
oppIied fo fociIify modeIs hos become prevoIenf ond remorkobIy effecfive.
However, fhese compufer-bosed fociIify modeIs ore offen seporofeIy
deveIoped or encoded by eoch firm invoIved in fhe design process. Thus, fhe
orchifecf, sfrucfuroI engineer, mechonicoI engineer, sfeeI fobricofor,
consfrucfion monoger ond ofhers mighf oII hove seporofe compufer-bosed
represenfofions of o fociIify. Communicofion by meons of reproduced fociIify
pIons ond prose specificofions is frodifionoI omong fhese groups. WhiIe
fronsfer of fhis informofion in o form suifobIe for direcf compufer
processing is difficuIf, if offers obvious odvonfoges in ovoiding repefifion of
work, deIoys ond fronscripfion errors. A de focfo sfondord for fronsfer of
geomefric informofion emerged wifh fhe dominonce of fhe AUTOCAD design
sysfem in fhe A/E/C indusfry. Informofion fronsfer wos occompIished by
copying AUTOCAD fiIes from user fo user, incIuding uses on consfrucfion
sifes fo visuoIi;e fhe design. More fIexibIe ond exfensive sfondords for
design informofion fronsfer oIso exisf, such os fhe Indusfry Foundofion
CIosses (IFC) sfondord deveIoped by fhe InfernofionoI AIIionce for
InferoperobiIify (See hffp://www.ioi-infernofionoI.org/ioi_infernofionoI/)
ond fhe "FuIIy Infegrofed ond Aufomofed Projecf Processes" deveIoped by
FIATECH (see hffp://www.fiofech.org/)
14,10 References
I. Au, T., C. Hendrickson ond A. PosquoIe, "Infroducfion of o PeIofionoI
Dofobose Wifhin o Cosf Esfimofing Sysfem," Tronsporfofion Peseorch
Pecord I0b0, pp. b7-oZ, I98o.
Z. 8ossermon, 8.E. ond M.E. Ford, "DeveIopmenf of Compuferi;ed
Specificofions," ASCE JournoI of Consfrucfion Engineering ond
Monogemenf, VoI. II0, Mo. CO3, I984, pp. 37b-384.
3. Dofe, C.J., An Infroducfion fo Dofobose Sysfems, 3rd Ed., Addison-
WesIey, I98I.
4. Iim, W., "PeIofionoI Dofobose Sysfems," ACM Compufing Surveys, VoI.
II, Mo. 3, I979, pp. I8b-ZII.
b. MifcheII, WiIIiom J., Compufer Aided ArchifecfuroI Design, Von
Mosfrond PeinhoId Co., Mew York, I977.
o. VieceIi, A.M., "Communicofion ond Coding of Compuferi;ed
Consfrucfion Projecf Informofion," UnpubIished MS Thesis,
Deporfmenf of CiviI Engineering, Cornegie MeIIon Universify,
Piffsburgh, PA, I984.
7. WiIkinson, P.W., "Compuferi;ed Specificofions on o SmoII Projecf,"
ASCE JournoI of Consfrucfion Engineering ond Monogemenf, VoI. II0,
Mo. CO3, I984, PP. 337-34b.
8. Lofimer, Dewiff ond Chris Hendrickson, "DigifoI ArchivoI of
Consfrucfion Projecf Informofion," Proceedings of fhe InfernofionoI
Symposium on Aufomofion ond Pobofics for Consfrucfion, Z00Z."
14,11 ProbIems
I. Suppose we wish fo deveIop o dofobose consisfing of confrocfor
nomes, oddresses ond porficuIor specioIfies os in TobIe I4-3.
o Suggesf fwo hierorchicoI orgoni;ofions of fhis dofo.
o Suggesf on oIfernofive reIofionoI orgoni;ofion for fhis dofo.
o Which orgoni;ofion wouId you recommend for impIemenfofion of
o dofobose7
Z. Suggesf four reporfs which couId be obfoined from fhe worehouse
invenfory sysfem described in Secfion I4.3 ond describe whof eoch
reporf mighf be used for ond by whom.
3. Suppose fhof o generoI confrocfor wished fo keep o hisforicoI
dofobose of fhe resuIfs of bid compefifions. Suggesf (o) fhe
informofion fhof mighf be sfored, ond (b) o possibIe orgoni;ofion of
fhis informofion.
4. For your suggesfed dofobose from ProbIem 3, impIemenf o profofype
sysfem on o spreodsheef soffwore progrom.
b. Describe o reIofionoI dofobose fhof wouId be usefuI in sforing fhe
beginning, ending ond oII infermediofe sfoges for bIockworId robof
movemenfs os described in ProbIem o in Chopfer 9.
o. Describe o reIofionoI dofobose fhof wouId be oppropriofe for
moinfoining ocfivify scheduIing informofion during projecf moniforing.
8e expIicif obouf whof reIofions wouId be defined, fhe offribufes in
eoch reIofion, ond oIIowobIe ronges of voIues.
14,1Z Footnotes
I. See D.F. Pogge, "DeIoy Peporfing Wifhin Cosf Accounfing Sysfem," ASCE
JournoI of Consfrucfion Engineering ond Monogemenf, VoI. II0, Mo. Z, I984,
pp. Z89-Z9Z. 8ock
Z. The sysfem is bosed IooseIy upon o successfuI consfrucfion yord
monogemenf sysfem originoIIy for MeIIon-Sfuorf Compony, Piffsburgh, PA. in
I983. The oufhors ore indebfed fo A. PosquoIe for providing fhe informofion
ond operofing experience of fhe sysfem. 8ock
3. Affribufed fo P. Lemons in J. 8enfIey "Progromming PeorIs,"
Communicofions of fhe ACM, VoI. Z8, Mo. 9, I98b, pp. 89o-899. 8ock
4. See WiIkinson, P.W. "Compuferi;ed Specificofions on o SmoII Projecf,"
ASCE JournoI of Consfrucfion Engineering ond Monogemenf, VoI. II0, Mo.
CO3, I984, pp. 337-34b. 8ock
b. See C.J. Dofe, An Infroducfion fo Dofobose Sysfems, 3rd ed., Addison-
WesIey PubIishing Compony, Peoding, MA, I98I. 8ock
o. This is one exompIe of o normoIi;ofion in reIofionoI dofoboses. For more
formoI discussions of fhe normoIi;ofions of reIofionoI dofoboses ond fhe
expIicif oIgebro which con be used on such reIofions, see Dofe op cif. 8ock
7. For o discussion of reIofionoI oIgebro, see E.F. Codd, "PeIofionoI
CompIefeness of Dofo 8ose SubIonguoges," Couronf Compufer Science
Symposio Series, VoI. o, Prenfice-HoII, I97Z. 8ock
8. See D.C. Trichrif;is ond F.H. Lochovsky, "HierorchicoI Dofo-8ose
Monogemenf," ACM Compufing Surveys VoI. 8, Mo. I, I97o, pp. I0b-IZ3. 8ock
9. For o more exfensive comporison, see A.S. MichoeIs, 8. Miffmon, ond C.P.
CorIson, "A Comporison of PeIofionoI ond CODASYL Approoches fo Dofo-8ose
Monogemenf," ACM Compufing Surveys, VoI. 8, Mo. I, I97o, pp. IZb-Ib7. 8ock
I0. This orgoni;ofion is used for fhe cenfroI dofo sfore in on infegrofed
buiIding design environmenf. See Fenves, S., U. FIemming, C. Hendrickson, M.
Moher, ond 0. Schmiff, "An Infegrofed Soffwore Environmenf for 8uiIding
Design ond Consfrucfion," Proc. of fhe Fiffh ASCE Conference on Compufing
in CiviI Engineering, I987 8ock
II. For o discussion, see D.P. Pehok ond L.A. Lope;, Compufer Aided
Engineering ProbIems ond Prospecfs, CiviI Engr. Sysfems Lob., Univ. of
IIIinois, Urbono, IL, I98I. 8ock
IZ. See W.J. MifcheII, Compufer-Aided ArchifecfuroI Design, Von Mosfrond
PeinhoId Co., Mew York, I977. 8ock
I3. This figure wos odopfed from Y. Ohsoki ond M. Mikumo, "Compufer-oided
Engineering in fhe Consfrucfion Indusfry," Engineering wifh Compufers, voI.
I, no. Z, I98b, pp. 87-I0Z. 8ock