ENGINUITY 2017 Tutorial Copyright Virtual Management Simulations.

ENGINUITY 2017 Tutorial Copyright Virtual Management Simulations

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Introduction All the examples in the Tutorial are FICTIONAL, and are not related to data being used in any Enginuity Competition, or for trialling. Navigate through the presentation using :- buttons for movement to specific points buttons for self-paced demonstrations of key topics Demo

Contents INTRODUCTION The Challenge Forming A Business Strategy
Overview Of The Decisions To Be Made MAKING DECISIONS Financial Decisions Overhead Decisions Procurement Decisions Job Progression Decisions Exporting Decisions Resetting Decisions Exporting Information ASSESSING PERFORMANCE Analysis Tools Performance Summary Key Performance Indicators Management Consultant Report INDUSTRY INFORMATION Timeframe Parameters Defining Environment Global Economic Outlook ENN World News World Events Client information Country information Exit

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Forming A Business Strategy
OBJECTIVE To increase market share. ASSESSING PERFORMANCE  Navigate to "Main menu/Assessing performance/Performance summary" By the end of period 8 the market share had increased from 12% to 28%. This was achieved by :- Increasing the size of the Marketing Department each period. Targeting the Building & Commercial in particular, which accounted for 38% of the new work identified. There was also a steady presence in the other sectors, as per the original strategy. GROWTH Increase the average turnover each period through a combination of :- Identifying a larger share of the new work in the market, as outlined above. Expanding the company’s infrastructure, known as the capital base, to support more work. Competitive bidding in our target sectors to secure more jobs. PROFITABILITY To increase the operating profit of the business by: Progressing jobs won as profitably as possible by completing them on or before schedule, allocating appropriate personnel, effective risk and cost management. Efficient management of the particular the Head Office, QHSE and Measurement departments, to ensure that the staff can cope the company’s turnover. There are many other areas that could be considered, and creating a long-term strategy is a complex task. Indeed, the strategy will have to be periodically reviewed, particularly as the economic environment is constantly changing, and our original objectives may not have been met. ONE YEAR LATER, how did we perform against the objectives that were set ? Navigate to "Main menu/Assessing performance/Performance summary" OBJECTIVE To increase the operating profit of the business. By the end of period 8 the net operating profit had increased from 1.4% to 1.7%. The operating profit improvement was achieved because :- The job profitability (gross profit) improved from 4.3% to 4.6% Overhead costs remained stable at 2.4% of job cost The job profitability improved for a number of reasons, including excellent project manager choice, effective risk management and completing 5 jobs early. ASSESSING PERFORMANCE  Navigate to "Main menu/Assessing performance/Performance summary" OBJECTIVE Efficient management of the Head Office, QHSE and Measurement Departments. ASSESSING PERFORMANCE  During periods 5 to 8 the Head Office, QHSE and Measurement Departments were well managed. Bearing in mind that the benchmark level was 100% of the required level to prevent any understaffing, all 3 departments were more than adequately staffed. It is almost impossible to achieve 100% of the required levels due to the required levels themselves not being whole numbers, and hence the slight overstaffing did result in a net loss over the 4 periods. However, this is negligible compared to the figure if the departments had been understaffed. Navigate to "Main menu/Assessing performance/Performance summary" OBJECTIVE To increase the average turnover each period. ASSESSING PERFORMANCE  During periods 5 to 8, 6 new contracts were secured. Market share improved from 12% to 28% The average capital base was increased from 4.07m to 4.16m By the end of period 8 the average turnover each period had increased from 9m to 11.7m. This was achieved by :- Identifying more new work in the market. Increasing the company’s infrastructure, or capital base, to enable more work to be undertaken. Successfully winning new work. Progressing the work won. After a thorough review, the following key objectives are set for the foreseeable future, all aimed at :- Increasing the value of the business Keeping shareholders happy Improving the company’s reputation MARKETING Increase market share, and the number of new jobs identified by : Increasing the size of the Marketing Department. Primarily targeting the Building & Commercial sector to guarantee a flow of new work as it is the largest, with plenty of new work for the foreseeable future in both the UK and Overseas. This would also help to build stronger relationships with clients in the Building & Commercial sector in the hope of securing repeat work in the future. However, it would be risky to put all the marketing effort in one sector, so a reduced presence would be maintained in the other four sectors. Having met the objectives, have we also achieved the strategic goal of increasing the value of the business, improving the company’s reputation, and increasing the company share price ? COMPANY VALUE  COMPANY REPUTATION  KEEPING SHAREHOLDERS HAPPY  By the end of period 8 company value had increased by 4%. The increase was small because although market share and turnover grew, there was only a slight increase in operating profit, and dividend payments to shareholders had to be paid as well. During periods 5 to 8 the company’s share price rose by 20% from 0.91 to 1.09. This was influenced by dividend payments, changes in company value, forward profitability and the debt burden of the company, and external world events. During periods 5 to 8 the company’s reputation with clients improved significantly (client satisfaction) as jobs were successfully undertaken. A smartly designed, well-executed business strategy is indispensable not only to an organization’s long-term success, but to its very survival. Simply having one does not give you a competitive advantage. It’s the depth, quality and flexibility of a business strategy that makes the difference. The new management team need to develop a clear strategy, or business plan to :- Grow the business and improve its value Keep shareholders happy Enhance the company’s reputation with clients The value of the company is measured by a number of assets, such as the company cash account, capital base (infrastructure) and investments. OBJECTIVES Developing an effective strategy will involve acquiring a good understanding of :- The economic environment in which the company is operating The strengths and weaknesses of the business as it currently stands The strategy will consist of number of objectives relating to :- Identifying new work in different sectors and locations (UK/Overseas) Expanding the infrastructure of the business to achieve growth Winning new work in a competitive bidding environment Improving profitability through effective job and overhead management Navigate to "Main menu/Assessing performance/Performance summary" We will now look at an example of setting and reviewing company strategy. A UK-based multinational construction has been in existence for just one year, during 2016 (periods 1 to 4), known as the History. A new management team have taken over at the beginning of period 5 (2017 Quarter 1). To be able to develop an effective strategy the new management team need to first look at the status of the company when they took control at the end of the History. To do this we refer to information shown in the Performance Summary. The company is valued at 4.8m The company share price is trading at 0.91 To date the company have identified 12% of the new work in the market (market share) 58% of the company’s infrastructure has been utilised in procuring and progressing jobs The average turnover per period to date has been 9m A gross profit of 4.3% (of cost) was made on the work progressed After taking overhead costs and tax into account the net operating profit was 1.4% (of cost) The company order book looks healthy, with a forward workload of around 15.8m Navigate to "Main menu/Industry information/The environment in which the company is operating" As well as the status of the company, to develop a strategy for the business the new management team need to look closely at the predicted global economic environment in which the company is operating. GLOBAL OUTLOOK For the UK Construction Industry it appears that after the UK’s exit from the European Union growth may stall initially, but then improve from 2018 onwards. Further afield, outside the UK, there is optimism of a quicker global upturn for the Construction Industry. NEW WORK In line with an expected upturn in the construction industry worldwide, the overall value of new work in the global market is predicted to steadily increase from currently 364m in period 5 to around 412m by the end of period 9. There appears to be work in all sectors, particularly in the building & commercial sector. Navigate to "Main menu/Assessing performance/Overhead analysis/Market trend" Keep clicking anywhere on the screen to advance

Overview Of The Decisions To Be Made
LABOUR It is vital to ensure the workforce (labour) on the sites is sufficient to progress jobs in line with the company's strategy for job completion. A well-managed job will be one that either completes either early or on time. There are two types of labour that can be employed on a job :- The company's own labour Subcontract labour Planned labour levels each period were assessed during the estimating stage in order to complete the contracts on time, and they can be used as guidelines in setting the labour levels. BIDDING FOR A JOB A number of elements make up a bid. ESTIMATED COSTS The estimated design, build and site costs, which cannot be altered. ONCOSTS An additional cost added to a bid to cover the contract costs over and above the design, build and site costs, and includes :- Project manager allowance Contingency for risk MARK UP The margin, or mark up, is the profit to be made on the job. The competition for each job comes from a number of known, and unknown, rival companies. Each one has their own unique profile and bidding history, and a careful assessment of them is required to determine the margin to be added. INVESTMENTS The core business of the company is procuring and progressing contracts, and if done successfully the company will report a healthy operating profit, and increase the company’s value. However, there are alternative ways of increasing the value of the company, such as by investing in other concerns, which may or may not be construction-related. There are two ways of increasing the company’s value through investments :- INVESTMENT RETURNS, depending upon how well the investment is performing. INVESTMENT BENEFITS, that can reduce reduce costs on jobs in progress, namely build or risk costs. MARKETING The Marketing Department are on the ladder to winning and progressing contracts. Each period the marketing staff identify new construction jobs in the global market, known as prequalification, which the company may then decide to try and win through the procurement process. All jobs belong to one of 5 market sectors: Industrial, Building and Commercial, Transport, Energy, Water and Sewage. The value and number of jobs that the company can prequalify for in any period is governed by a number of factors :- The size of the Marketing Department (number of company staff) The size of the global market (value and number of jobs available) Where the marketing effort is directed (5 potential sectors of work) MAKING OVERHEAD DECISIONS Overheads are the non-contract based support services required to enable the company to identify, procure and and progress work. They consist of :- 4 key departments; Marketing, Head Office, QHSE and Measurement Non-departmental overheads, such as idle labour and idle project managers The Overhead Manager is responsible for :- Setting appropriate staffing levels for each department Directing marketing effort into the 5 market sectors The non-departmental overheads are the responsibility of others, and are related to jobs in progress. PROJECT MANAGERS Project managers are concerned with the overall planning and co-ordination of a project from inception to completion aimed at meeting the client's requirements and ensuring completion on time, within cost and to the required quality standards. A project manager with well-matched experience for a particular type of job will handle available resources more efficiently, whilst a project manager with inappropriate experience will impair contract efficiency. There are a number of project managers that can be recruited with differing levels of expertise in each market sector, as defined by the career profile. Project managers that are employed by the company are either :- In the Idle Project Manager Pool awaiting allocation to a job Allocated to an ongoing job MAKING JOB PROGRESSION DECISIONS Progressing a job awarded to the company involves :- Allocating an appropriate project manager to oversee the job Allocating labour to progress the job through to completion MAKING PROCUREMENT DECISIONS Each period the company is offered a number of jobs for which a bid is invited. The jobs were identified by the marketing department in the previous period depending upon the sectors into which the marketing effort was directed. There are two types of jobs that can be bid for :- Build Only, where the client has already had the design produced, and the contractor is only responsible for the build Design and Build, where the contractor has responsibility for both the design and the build In both cases it is assumed that the estimators have produced an accurate assessment of the costs to be incurred in completing the job, along with planned labour levels for each period of the planned duration of the job. PAYING DIVIDEND TO SHAREHOLDERS The company's was originally funded from a share issue, and shareholders expect a return on their investment, in the form of a dividend, related to how well the company is performing. Any dividend paid comes out of the cash account, and reduces the value of the business. The dividend paid to shareholders is one of the key factors that affects the company share price :- Insufficient dividend will disappoint the shareholders and have a negative affect on the share price Sufficient dividend will keep the shareholders 'content', with no change in the share price Ample dividend will make the shareholders happy, and have a positive affect on the share price The affect on share price is determined by the % of the company's current equity value that is paid as a dividend. The current equity value is the number of shares in circulation multiplied by the current share price. THE CAPITAL BASE The capital base is the company’s investment in infrastructure (plant, equipment, buildings etc), and determines the level of work that the company can have in progress at any point in time, which limits the value of work that can be won on the Procurement Screen. Any changes to the capital base affect the cash account. The capital base can be :- INCREASED, reducing cash reserves, in order to support further growth, and to secure more new work on the Procurement Screen. There are limitations on the increase possible each period, which can vary by period. DECREASED, increasing cash reserves, which may be desirable if money is needed for other things, or if the capital base is not being fully utilised. There are limitations on the % of the capital base that can be sold off each period, which can vary by period. MAKING FINANCIAL DECISIONS Financial management involves :- Looking after the shareholders’ interests Trying to increase the value of the company by making the best use of the company’s assets In all business areas monitoring performance to improve company profitability HEAD OFFICE, QHSE AND MEASUREMENT DEPARTMENTS The staff in these departments perform tasks related to the company’s jobs in progress :- Head Office staff deal with buying, accounting and IT issues QHSE staff deal with quality, health & safety and environmental issues Measurement staff (quantity surveyors) ensure that money is recovered from the client The task of the Overhead Manager is to ensure that the level of staff in each department each period is able to manage the company’s jobs in progress without any deterioration in the performance of the jobs. As the company does more work, or turnover, so the staffing levels in the Head Office, QHSE and Measurement departments will need to be increased to cope with the additional workload. Keep clicking anywhere on the screen to advance

Making Financial Decisions
Financial management involves :- Looking after the shareholders’ interests Trying to increase the value of the company by making the best use of the company’s assets In all business areas monitoring performance to improve company profitability Making Financial Decisions Dividend Company value Cash account Capital base Investments Profit definitions Corporation tax Gearing ratio Factors affecting share price Overdraft limit Calculating capital employed

Making Financial Decisions
For each available concern, the following information is given :- The profile describes the concern, and gives clues as to whether or not benefits may be accrued by investing in the business. The period returns gives the % return given in previous periods to all investors, and details any monies the company may have invested. The information for investors is news about the company that can highlight any issues that investors need to be aware of, such as if the company is having problems, and may cease trading. Taking into account the current cash account balance, bank rates, potential returns and benefits from the concerns, a decision would now be made about whether or not its worth investing any cash in any of the available opportunities. CAPITAL BASE The level of future workload (turnover) that can be undertaken is limited by the size of the company’s capital base, as shown on the Procurement Screen. The capital base of 4.2m can support up to 42.3m of workload. Since the current forward workload is only 15.8m (the value of work still to be completed on the Job Progression Screen), there is still scope for winning more work. With the size of the capital base as it is, 26.5m of new work can be won. However, once the company’s procurement decisions have been made, there may need to be a reassessment of the size of the capital base to decide if an increase is required. At this point in time, since procurement decisions have not been made, and since there is ‘unused’ capital base, we’ will leave it unchanged. KEY POINTS Any changes to the capital base also affects the cash account. If the capital base is being underutilised, it may be appropriate to reduce it to raise cash for other uses, such as further investments or reducing an overdraft. There are limitations on the changes to the capital base each period, defined in the Industry information. The capital base depreciates by a % each year, as shown in the Industry information. INVESTMENTS THAT CEASE TRADING Investment concerns that are performing badly can go bust, and cease trading. How do we know if one of our investments may cease trading ? The clues lie in the information for investors, which should be carefully monitored each period for signs that the company may be in trouble. Consider the example of Stressed Out Plc. Investors were sent a letter about the company’s deteriorating performance in period 7, and in period 8 it became obvious that there was a threat of administration in period 9. Faced with this information, at the beginning of period 9 the Financial Manager must decide whether to remove all the investment in Stressed Out Plc, or continue investing in the hope that the company does not go bust. We will now look at what happens if the investment concern does go bust. Apart from paying dividend, each period the Financial Manager could choose to leave the rest of the financial structure of the company unchanged, and simply hope to earn some interest from a credit balance in the cash account. However, this would be short-sighted, since there are other ways of manipulating the company’s assets to improve the company’s value, involving the transfer of funds between the cash account, capital base and investments. Although these changes do not immediately change the value of the company, by the end of the period the affects of the changes will have been felt, including, amongst others :- Capital Base affecting the value of jobs that can be secured during the bidding process Investment changes yielding returns, and increasing operating profit through cost reductions The long-term objectives of the Financial Manager are to look after the interests of the shareholders, and make effective decisions to manipulate the company’s assets and improve the value of the company. Navigate to "Main menu/Assessing performance/Job analysis/Risk analysis for all jobs won" During period 4 the only energy or water & sewage job in progress was job 10, a water & sewage contract. However, no risk costs were incurred during period 4 on the job, and hence no risk cost reduction benefits were gained. KEY POINTS The larger the investment concern the greater the benefits, but more has to be invested to obtain the savings. Whether or not the minimum level required to obtain benefits has been reached is based upon the required level after the financial decisions have been made, and does not take into account the returns made from the investments during the period. Some other points to bear in mind about build cost reductions :- The build cost savings vary linearly between the minimum and maximum level depending upon the level of investment. The amount needed to achieve the maximum is not given, and has to be determined from experience. Some other points to bear in mind about risk cost reductions :- The reduction in risk cost does not vary as the investment increases. Navigate to "Main menu/Making decisions/Financial decisions/Assessing financial performance/Share price analysis" The Company was originally funded from a share (equity) issue of 5,000,000 shares of value 1, with an equity value of 5,000,000. At the end of the History the share price stands at 0.91, and the equity value at 4,550,000 (5,000,000 x 0.91). The share price is influenced by internal factors, related to the company’s decisions :- The level of dividend paid to the shareholders, which is under the direct control of the Financial Manager Changes in the value of the company Changes in the future profitability of the company Changes in the debt burden of the Company and external factors (world events), outside of the company’s control. Since period 1 the company has paid dividend of 2% of equity every period (8% per annum), and this has kept the shareholders content, as we can see from the Management consultants report. In period 5 we will continue to pay dividend at this level. KEY POINTS Shareholder expectations can change as the operating performance of the company changes, and may be higher or lower than the History level. This will affect the level of dividend that needs to be paid to keep them happy. All the financial decisions have an affect on the cash account, and it may go into overdraft, or it may already be in overdraft from the last period. This is not a great concern if the money from the cash account is used productively in other areas, but there is an overdraft limit, as defined in the Industry information. There are also different overdraft rates depending upon the size of the overdraft. When the overdraft limit is exceeded, all efforts must be made to reduce the overdraft to below the limit, which may involve :- Not paying any dividend in the current period Selling off part of the capital base Reducing investments If an investment concern ceases trading , a % of the current investment is recovered, as defined in the Industry information. The actual amount recovered depends upon how badly the investment concern is performing, with the minimum % recovered from those performing the worst. KEY POINTS The money recovered when an investment ceases trading is paid into the cash account. The net value of the company will fall by the amount lost. Finding an investment opportunity that offers good returns and benefits is not always possible, and often key decisions have to be made balancing risk and reward. For example, an investment opportunity may arise that offers substantial build cost savings in the Transport sector, in which the company are very active. However, the investment returns may not be very good. In this scenario, the Financial Manager must decide if the net gain from cost reductions outweighs the risk that the investment may run into difficulty, and cease trading, a decision that could impact on the profitability of the company. INVESTMENTS The core business of the company is procuring and progressing contracts, and if done successfully the company will report a healthy operating profit, and increase the company’s value. However, there are alternative ways of increasing the value of the company, such as by investing in other concerns, which may or may not be construction-related. There are two ways of increasing the company’s value through investments :- Investment returns; that change the value of the investments Investment benefits; that reduce costs on jobs in progress We can examine each one by reviewing the investments the company currently has using the Display details option. The value of the Company at any time is measured by its assets, and the other main responsibility of the Financial Manager is to make the best use of the assets to try and increase the company value. After paying dividend the assets consist of :- CASH IN THE BANK (-216,410) This can either be in credit or in overdraft, when it is considered a liability. The overdraft limit is defined in the Industry information. CAPTAL BASE (4,227,438) This is the company’s investment in plant, equipment, facilities, buildings etc (infrastructure), which determines the level of work that the company can undertake. INVESTMENTS (669,322) The company’s cash investment in other concerns, which may not be construction-related. The company is currently valued at 4,680,350. KEY POINTS Not only is the company based in the UK, but its bank account is held in a UK Institution. Hence, the company is subject to UK financial rates, such as interest and tax rates. In addition to the current investments, there are also a selection of other companies that can be invested in, and these can be viewed using the Add new investment option. The dividend payment comes out of the cash account, and the value of the company is reduced by 91,000. The Industry information shows that for a medium sized company we would need to invest at least 200,000 to obtain preferential rates, and we could expect risk cost reductions of 15%. Although a minimum of 200,000 is required, any single investment in a period cannot exceed 100,000, so it would take at least 2 periods to gain any risk cost reductions from the investment. During period 4 our investment in Asia Pacific Solutions was 203,800, more than enough to obtain the benefits, so this was not the reason no risk cost reductions were gained. INVESTMENT BENEFITS As well as investing in other companies to yield a better return than can be obtained from the bank, there is potentially an even more lucrative reason for investing in other concerns. If enough money is invested in particular concerns, costs may be reduced on work in progress in specific sectors. There are two types of cost reductions :- Build cost reductions; these are earned by investing in businesses that supply commodities that are used directly in the construction phase, such as materials and plant e.g., investing in an asphalt company would reduce build costs for any Transport work being undertaken. Risk cost reductions; these are earned by investing in management consultants that offer risk management services to the construction industry. In both cases the clues as to the type of benefits lie in the investment profile. DIVIDEND Dividends are taxable payments declared by a company's board of directors and given to its shareholders, normally quarterly. They provide an incentive to own stock in stable companies even if they are not experiencing much growth. The dividend paid to shareholders is one of the key factors that affects the company share price :- Insufficient dividend will disappoint the shareholders and reduce the share price Sufficient dividend will keep the shareholders content, with no change in the share price Ample dividend will make the shareholders very happy, and increase the share price The affect on share price is determined by the % of the company’s equity that is paid as a dividend. Clues as to the affects of different levels of dividend are available by examining what happened in the History, using the Assessing financial performance/Share price analysis option. KEY POINTS As the share price changes, so does the equity value of the company, and paying the same level of dividend in consecutive periods will have a different affect on share price as the % of equity changes. An increase in company value can be achieved in several ways. MAKING EFFECTIVE USE OF THE COMPANY’S ASSETS A number of choices are available :- Using cash to increase the Capital Base and support further growth. Selling off a % of the Capital Base to raise cash, which may be required if the cash account has exceeded the overdraft limit, or if the Capital Base is not being fully utilised. Using cash to invest further in other companies who offer a better return than can be obtained from the bank, or who may be able to offer benefits to reduce costs on jobs in progress, or conversely, selling off investments to raise cash. OPERATING PROFIT Generating operating profit increases the cash account, and hence the value of the company, and is achieved through good job and overhead management. Although having no direct control over these functions, which is responsibility of other people, such as the Overhead and Construction Managers, the Financial Manager must monitor progress in these areas to ensure the company is being run as profitably as possible. We will now look at some of these options in more detail. It is period 5, and the Financial Manager needs to review the financial structure of the company, and decide upon any changes that need to be made. One of the main responsibilities of the Financial Manager is to look after the interests of the company’s shareholders. Some additional points to note about investments :- Any increases or reductions in investments affect the cash account, but since money is being moved between assets, the value of the company is unchanged. There are limitations, shown in the Industry information. on the :- Increase in a single investment that can be made each period, depending on the size of the concern The number of investments that can be held at any one time There is no limitation on the reduction that can be made to an investment. Any investment returns change the value of the investments, and not the cash account. KEY POINTS The affects of the investment changes on the company’s value will be felt during the period when cash account interest is calculated, and investment returns and build cost savings are known. INVESTMENT RETURNS Cash returns vary each period depending upon the performance of an investment, and either increase or reduce the value of an investment. Whether or not the investment has been a success, in terms of the cash return, which would be worth investing further in would depend upon looking deeper into the prevalent bank rates, both credit and overdraft rates (as defined in the Industry information) at the time the investments were made, as well as the balance of the cash account. During periods 1 to 4 the return from Asia Pacific Solutions was very good, between 3.2 and 4% each period, and it is certainly worth considering further investment if the cash account will support it. KEY POINTS The size (small, medium or large) of the investment concern determines the amount that can be invested each period, as defined in the Industry information. The benefits from investing in Asia Pacific Solutions, a medium sized management consultant, are reductions in risk costs in the energy and water & sewage job sectors. This is clear from the phrase in the company’s profile that states “.... providing risk mitigation solutions at all stages of the construction process .... The company operates solely in the energy and water & sewage sectors ...” We can see that to date no risk costs have been reduced. This could be due to no risk costs yet being incurred for jobs progressed in the energy or water & sewage, or because the level of investment made is not large enough to accrue any benefits. We will investigate this further. KEY POINTS If enough money is invested, benefits can be accrued even if the investment is performing badly. However, poorly performing investments can cease trading. This will be discussed further in due course. The benefits are cumulative e.g., a job can receive cost reductions from more than one investment each period. On close investigation of all the current investments the following decisions are made :- To leave the investment in Asia Pacific Solutions as it is, since the level of investment for a medium sized investment is sufficient to obtain the benefits, in this case risk cost reductions for risks incurred on jobs in the energy and water & sewage sectors. To reduce the investments in The Thistle Group and Valleys Water Plc to 0, and remove them completely, as neither on close examination provide any benefits to us as a contractor in the construction industry. We will be looking for other investments to take their place. KEY POINTS To remove an investment the reduction in the investment has to be same as the initial value, to set the Required level to 0. Keep clicking anywhere on the screen to advance Quit

Company Value The value of the company at any time is measured by its assets and liabilities, which consist of :- The cash balance can be :- In credit (an asset) In overdraft (a liability) There is an overdraft limit. CASH IN THE BANK + The company’s investment in plant, equipment, buildings etc, which determine the level of work that the company can undertake. CAPITAL BASE The company’s cash investment in other concerns, which may not necessarily be construction-related. INVESTMENTS INCREASED BY REDUCED BY Generating an operating profit (into the cash account) Good investments Dividend payments to shareholders (from cash account) Making an operating loss (from cash account) Depreciation of the capital base Poor investments

Cash Account INCREASED BY REDUCED BY
The company has one UK bank account, known as the cash account, which can be :- In credit, when it is considered an asset In overdraft, when it is considered a liability Interest is earned/paid on the cash account balance at the beginning of the period. The prevalent interest rates each period are defined in the Industry information. CREDIT INTEREST If the cash account is in credit, interest is earned at the annual rate shown. OVERDRAFT LIMIT The cash account can be overdrawn up to the overdraft limit. If this is exceeded steps need to be taken to try and reduce the overdraft. OVERDRAFT INTEREST If the cash account is overdrawn, interest is paid at the annual rate shown. The company generating an operating profit Selling off a % of the capital base Selling investments INCREASED BY The company making an operating loss Dividend payments to shareholders Increasing the capital base or investments REDUCED BY

Overdraft Limit Consider the following example. Its period 9, and after decisions were processed last period the company’s overdraft has reached 787,649. This has exceeded the limit of 700,000, and as a result a warning message is displayed. As soon as the Financial Decisions Screen is closed a critical warning message appears. The message informs the Financial Manager that all possible measures need to be taken to reduce the overdraft to below the limit. The Financial Manager decides the best action to take is to reduce some of the company’s investments. The warning message has now disappeared, and the cash account balance is below the overdraft limit. KEY POINTS If all possible measures have been taken, and the cash account balance still exceeds the overdraft limit, then no further action needs to be taken, and the user is not prevented from moving to another screen. The cash account can exceed the overdraft limit when decisions are processed, but during the following period all possible measures need to be taken to reduce the balance to below the overdraft limit. The amount of money that can be borrowed from the bank is not unlimited. The current overdraft limit, imposed by the bank depending upon the economic climate, is shown in the Industry information. What happens if the overdraft limit is exceeded ? KEY POINTS The ‘base’ overdraft limit imposed by the bank is normally the same for all companies. However, it may be reduced even further for a specific company if the company’s current share price falls too far relative to the price at the start of the History. This will be reported in the Management consultants report. Keep clicking anywhere on the screen to advance Quit

In the example shown, the gearing ratio is the :-
Liabilities Investments Capital Base The gearing ratio is the ratio of the company’s liabilities, when the cash account is overdrawn, to its assets, and indicates the debt burden of the company. 0 indicates no liabilities 1 indicates serious debt problems In the example shown, the gearing ratio is the :- Absolute value of the Cash Account / (Capital Base + Investments) 930,607 / (5,105, ,487) = 0.155 INCREASES REDUCES The company will be viewed as being vulnerable to both interest rate rises, and its ability to service its debts from its future profit flows. Consequently, this will have a depressing affect on the company share price. Conversely, if the gearing ratio decreases then the company will be viewed as being more financially sound, and the company share price will increase.

Capital Base INCREASED BY REDUCED BY
The capital base is the company’s investment in plant, equipment, buildings etc, and determines the level of work that the company can undertake. One of the key company performance indicators is capital employed, which measures how well the capital base is being utilised over a period of time. Changes to the capital base are the responsibility of the Financial Manager, and the Industry information shows factors that affect the capital base. It can be increased, reducing cash reserves, in order to support further growth. There are limitations on the increase possible each period. The Company based Restrictions on the Procurement screen gives an indication of when an increase may be necessary. INCREASED BY It can be reduced, increasing cash reserves, which may be desirable if money is needed for other things, or it is not being fully utilised. There are limitations on the % of the capital base that can be sold off each period. REDUCED BY DEPRECIATION Each period the capital base depreciates by a %, reducing the overall value of the company. This occurs at the end of the period. WRITING DOWN Any increases in the capital base can be used to reduce the company’s tax burden, known as capital writing down.

Calculating Capital Employed
The company’s capital employed measures how much of the company’s capital base (plant, equipment, buildings etc) is being utilised. Not utilising the capital base is a waste of resources that could be directed elsewhere, and can hinder growth. Consider the following example where a company is in period 5, and the financial performance is being reviewed for period 4. Navigate to "Main menu/Assessing performance/Procurement analysis/Analysis of all previous bids" At the start of period 4 the company’s initial forward workload was 15,963,660. This was based on the turnover still to be completed on the 4 jobs in progress at the start of the period. 5 jobs were bid for, and 3 were secured, which took the cumulative forward workload post-bidding to 25,951,610. The capital employed measures how much of the company’s potential workload (42,540,260), based on the capital base, was actually being utilised i.e., (25,951,610 / 42,540,260) * 100 = 61 % For Period 4 the company’s capital employed was 61 %, indicating that the capital case was being reasonably well utilised. But how was the capital employed % determined ? The answer can be found by looking at the Procurement Analysis for period 4. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" Keep clicking anywhere on the screen to advance Quit

Investments The core business of the company is procuring and progressing contracts, and if done successfully the company will report a healthy operating profit, and increase the company’s value. However, there are alternative ways of increasing the value of the company, such as by investing in other concerns, which may or may not be construction-related. Such investments can :- Offer a better return than can be obtained from the bank Provide benefits for work in progress, in the form of reductions in build and risk costs Each period a number of new investment opportunities may arise, adding to the list of available investments, and for each one some key information is given to help in making investment decisions :- The investment profile describes the concern. The Past Performance gives the % return given in previous periods to all investors, and details any money the company invested, and any build cost savings gained. The Industry information shows factors that affect investments. BENEFITS Depending upon the size of the concern, there is a minimum level of investment required to gain the benefits. INCREASING INVESTMENTS The increase in a single investment each period cannot exceed a given amount, depending upon the size of the investment concern. NUMBER OF INVESTMENTS There is a limit on the number of investments that can be held at any one time. CEASE TRADING Poorly performing investments can cease trading, in which case a % of any investment is recovered..

Operating Profit Before Interest & Tax
Corporation Tax Corporation Tax is a tax on a company's taxable profit, which is defined as :- If the company makes a operating loss before interest and tax no corporation tax is paid, and any capital allowances are carried forward to future periods. Capital Allowances are acquired by investing in the company’s capital base, and are calculated on a ‘written down’ basis; the rate of writing down allowances is shown in the Industry information. - Operating Profit Before Interest & Tax Gross Profit Overheads Taxable Profit = Capital Allowances Capital writing down rate per annum. The corporation tax rate is shown in the Industry information. Calculating Corporation Tax

Calculating Corporation Tax
The Capital Allowances to be written off is adjusted each period as follows :- Increased/reduced by changes in the company’s capital base Reduced by using up capital allowances that are written off by 25% per annum (6.25% per period) Capital allowances are not used if an operating loss is made. In period 4 an operating profit before interest & tax of 337,589 was made, and as a result capital allowances were used. These amounted to 6.25% of 317,449, the amount still to be written off, giving the figure of 19,841. Consider the following example where a company is in period 5, and the Financial Details are being reviewed for period 4. For Period 4 we can see that the company’s Operating Profit before tax & interest was :- Gross Profit: 468,589 Less Overheads: 131,000 Operating Profit Before Interest & Tax: 337,589 The Operating Profit Before Interest & Tax was then subject to Corporation Tax of 63,550. How was this calculated ? We can use the drill-down to investigate further. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" A Corporation tax rate of 20% was levied on the taxable profit of 317,748 to give Corporation Tax of 63,550. The tax burden was offset by the Capital Allowances of 19,841. Capital Allowances are acquired by investing in the company’s infrastructure (capital base), and are calculated on a ‘written down’ basis; the rate of writing down allowances is given in the Industry information. We can use the drill-down to see exactly how the 19,841 was calculated. Keep clicking anywhere on the screen to advance

Profit Definitions - - COMPANY GROSS PROFIT
In any period, the gross profit of the company is a measure of how profitable the jobs in progress have been. Measured value across jobs progressed Retentions repaid from completed jobs Early completion bonuses Monies IN - Retentions held from jobs progressed Costs across all jobs progressed Monies OUT Gross Profit = COMPANY OPERATING PROFIT In any period, the operating profit of the company is a measure of the overall profitability of the company. Gross profit Credit interest (cash account) Monies IN - Company overhead costs Overdraft interest (cash account) Corporation Tax Monies OUT Operating Profit =

EQUITY = NUMBER OF SHARES x CURRENT SHARE PRICE
Dividend The dividend paid to shareholders each period is one of the key factors that affects the share price of the company. The dividend paid is a sum of money. The equity of the company at any time is the overall share value. EQUITY = NUMBER OF SHARES x CURRENT SHARE PRICE The dividend paid is expressed as a % of the equity of the company, or the earnings per share. This can be :- Insufficient to satisfy the shareholders, which will reduce the share price Sufficient to satisfy the shareholders, which will have a no effect on the share price More than sufficient to satisfy the shareholders, which increase the share price If the cash account is in credit, interest is earned at the annual rate shown.

Factors That Affect Share Price
IN SUMMARY Both internal and external factors have different levels of impact upon the company share price. It may be, for example, that the share price rises even though most of the factors have negative affects, but the positive affect of one factor has the greatest impact. Careful examination is needed of the company data to determine which factors have had which affects, and to what level :- During period 1 the share price fall was down to a drop in company value. Even though company value fell further during period 2, this was more than offset by a rapidly improving forward profitability, and the share price rose. Falling company value, profitability and external factors contributed to the large drop in share price in period 3. During period 4 gearing increased slightly, but the improving company value had a greater positive affect, and the share price rose. Navigate to "Main menu/Assessing performance/Financial analysis/Share price analysis" Consider the following example, where a company is in period 5. Since period 1 the share price has fluctuated, with periods of improvement (2 and 4), and periods of deterioration (1 and 3). We will now look in more detail at why this has been the case. The company’s share price is one of the key performance indicators in measuring the success or failure of the company, with a rising share price signifying increasing industry confidence in the fortunes of the Company. The share price is influenced by internal factors, related to the company’s decisions :- The level of dividend paid to the shareholders Changes in the value of the company Changes in the future profitability of the company Changes in the debt burden of the Company and external factors (world events), outside of the company’s control. EXTERNAL FACTORS External factors that affect the company’s share price are caused by world events outside the control of the company’s management team. For example, in period 3 falls in both the New York Stock Exchange and the UK FTSE 100 Index resulted in significant falls in the company’s share price. All the world events that affect the company can be viewed in the Industry information. Navigate to "Main menu/Industry information/World events that have affected the company" COMPANY VALUE Changes in the value of the company from period to period also affect the share price. If the company value falls in a period, it will have a depressing effect on share price as shareholder and industry confidence falls. Conversely, if the value increases then confidence will improve, and the share price will increase. As can be seen the trend has been mixed, with adverse affects on share price in periods 1-3, then a positive affect during period 4 which would have helped to boost the share price. Comments in the Management consultant's report provide further evidence of the affects of the company value changes. DIVIDEND PAYMENTS Dividends are taxable payments declared by a company's board of directors and given to its shareholders, normally quarterly. They provide an incentive to own stock in stable companies even if they are not experiencing much growth. Dividend payments are based upon the current share price. The equity of the company at any time is the overall share value i.e., the number of shares in circulation multiplied by the current price per share. There is a level of dividend, measured as a % of the equity, at which the share price does not change. Paying more than the ‘equilibrium’ level will cause the share price to rise, but paying less will be not be well received by the shareholders, and the price will fall. Dividend payments of 2% of equity have been made each period, and the affect has been “Shareholders are content with the level of dividend paid”, implying no change to the share price. If dividend has had little affect on the share price, what about other factors ? GEARING RATIO The final internal factor that affects the share price is changes in the gearing ratio. The gearing ratio is the ratio of the company’s liabilities (cash account overdraft) to its assets (capital base and investments, and indicates the debt burden of the company. If there are no liabilities, the gearing ratio is 0. If the gearing ratio increases the company will be viewed as being vulnerable to both interest rate rises, and its ability to service its debts from its future profit flows. Consequently, this will have a depressing effect on share price. Conversely, if the gearing ratio decreases then the company will be viewed as being more financially sound, and the share price will increase. As can be seen, the cash account was only overdrawn in period 4, when the increasing gearing ratio had a negative affect on the share price, albeit a very slight one as there is no comment in the Management consultant's report. FUTURE PROFITABILITY Another factor that affects the share price is the changes in the future profitability (forward margin) of the company, which is based upon the company’s work in progress. At the end of period 1, whilst the company was being established, there were no ongoing jobs, and hence no forward margin. However, during periods 2 to 4 when some work was secured, forward margin fluctuated, increasing in period 2, but falling in periods 3 and 4, and generally having a mixed affect on the share price, as reflected in comments in the Management consultant's report. Keep clicking anywhere on the screen to advance Quit

Overhead Decisions Overheads are the support services required to enable the company to procure and progress work and consist of :- 4 key departments; Marketing, Head Office, QHSE and Measurement Non-departmental overheads, such as idle labour and idle project managers The Overhead Manager is responsible for :- Setting appropriate staffing levels for each department Directing marketing effort into the 5 market sectors The non-departmental overheads are the responsibility of others, and are related to jobs in progress. Making Marketing Decisions Making Head Office, QHSE & Measurement Decisions Departmental overhead staff Idle staff Non departmental overheads Forming client relationships

Making Marketing Decisions
Size of global market Number of marketing staff Where marketing effort is directed Other factors Value of new work identified The Marketing Department are the first step on the ladder to winning and progressing contracts. Each period the marketing staff identify new construction jobs in the global market, known as prequalification, which the company may then decide to try and win through the procurement process. All jobs belong to one of 5 market sectors :- Industrial Building and Commercial Transport Energy Water and Sewage The value and number of jobs that the company can prequalify for in any period is governed by a number of factors :- The size of the Marketing Department (number of company staff) The size of the global market (value and number of jobs available) Where the marketing effort is directed (5 potential sectors of work) Whether or not the company are experts in a particular sector The relationship with contract clients CLIENT RELATIONSHIP AND PREQUALIFICATION Client relationships play a role in prequalifying for work in two ways :- If the relationship is an improving one, and at least at a certain level, the company may prequalify for a job that would have been unattainable, as shown in the Management consultants report. If the relationship is a deteriorating one, then there is a chance the client will not allow prequalification, regardless of the effort being put into the particular job sector. The Assessing overhead performance/Marketing Performance option shows the % of the overall market that the company has prequalified for in previous periods. Based upon the last year, and assuming the marketing effort was directed into sectors in which there was some new work, the company was able to prequalify for only between 10 and 13% of the overall market with 2 marketing staff. The company’s strategy is for steady growth, and to achieve this more work will need to be identified, so we will need to increase the staffing level by the maximum allowed, 2 (the limit is shown in the Industry information). KEY POINTS No matter how large the marketing size is, and how well the marketing effort is directed, the company will never be able to identify 100% of the market. Marketing is a complex area, and subject to the availability of work, some marketing strategies that may be adopted include :- Targeting a variety of sectors to widen the country and client base of jobs identified. Although this may increase the choice of jobs that can be bid for, it may also reduce the chance of building long term relationships with particular clients, which may be vital in securing work if economic conditions deteriorate. Targeting a particular sector where there is a lot of work to look to build long term relationships with specific clients, and perhaps target particular sized jobs. The risk here in putting all ‘your eggs in one basket’ is that there may be more competition for the work. The company may look to find ‘niche’ markets, in which there is less competition for work, build up good relationships with a smaller number of clients, which could then improve the chances of future bidding success. Whatever marketing decisions are made have an important bearing on the future success of the company, since failing to identify any new work can ultimately lead to the demise of the business. The Marketing effort (by sector) indicates period by period in green the sectors in which the company is considered an expert. EXPERTS IN A SECTOR If the company’s average marketing effort in a sector exceeds a particular %, shown in the Industry information, then the company are deemed to be experts in the sector, and will prequalify for more work in the sector than anticipated. The additional marketing staff will have little affect if they do not direct their efforts into the market sectors in which there is new work. To determine where the new work is use the Assessing overhead performance/Market trend option, which shows the company’s forecast of the global market trend for the next year. The accuracy of the forecast depends upon the size of the marketing department. The overall value of the market is expected to steadily grow from 364m in period 5 to 412m in period 9. In terms of where the work is, there appears to be new contracts in all sectors for the foreseeable future, with each sector maintaining its share of the overall global market. There are a number of tools available to analyse the composition of the market in greater detail :- By number of jobs By client By location (UK or overseas) KEY POINTS Analysing the market in detail is essential because not only is the marketing effort to be directed by sector, but within each sector choices can be made by country and job size preference. Based on the information about the likely market split in period 5, and also looking to the long-term, the overhead manager decides to :- Leave the effort by sector unchanged for now, but reassess the situation each period Continue to show no preference to country or job size. JOB SIZE PREFERENCE When setting the job size preference :- If “Target large jobs” is chosen then large jobs are the primary choice, followed by medium then small jobs as the secondary choice. If “Target medium jobs” is chosen then medium jobs are the primary choice, with large and small jobs given equal weighting as the secondary choice. If “Target small jobs” is chosen then small jobs are the primary choice, followed by medium then large jobs as the secondary choice. For now the company has no particular job size preference. KEY POINTS Depending upon where the marketing has been directed by sector, and the composition of the work available, it may be that no jobs can be identified from the primary choice, and secondary choice jobs are indentified instead. Having set the staffing level, and directed the marketing effort into different job sectors, and indicated country and job size preferences, the company will be able to identify (prequalify for) a number of jobs that come onto the market in the current period. In addition, the value of work prequalified for can be influenced by other factors :- If the company are experts in a particular sector(s) The relationship with contract clients We will now look at each one in turn. Although the decisions are made about which sectors to direct the marketing effort into in period 5, the % change in each sector is limited, as defined in the Industry information, so wholesale changes cannot be made in one period. The change limitation makes it imperative that as well as the short-term, the long-term is considered when reviewing marketing strategy. HOW MUCH NEW WORK CAN BE IDENTIFIED IN PERIOD 5 ? The company’s forecast indicated that there is 364m of new work available during period 5. Let us suppose, for example, that increasing the number of marketing staff to 4 has increased the market share to 25%. In practice this means that potentially the company can identify 91m of new work in period 5 (25% of 364m). Taking the Building & Commercial sector as an example, the company have allocated 37% of the marketing effort to this sector. This should enable them to identify 34m of work in the sector during period 5 (37% of 91m). Any jobs indentified in period 5 will be available for the company to bid for on the Procurement Screen in period 6. KEY POINTS The above analysis is based on the assumption that there is enough new work in the sectors where the marketing effort has been directed. Consider the following situation. It is the beginning of period 5, and the Overhead Manager needs to decide upon the staffing level for the Marketing Department, and into which sectors the staff’s efforts are to be directed. There are currently 2 marketing staff, and the split of the marketing effort between the 5 market sectors is presently as shown, with effort being directed into all sectors, and in particular the Building and Commercial sector. PREFERENCES Where they are both set the country preference takes priority over the job size preference. For example, if “Prefer UK jobs“ and Target large jobs” are chosen, then the identification of jobs is prioritised as follows :- Large UK jobs Medium UK jobs Small UK jobs Large overseas jobs Medium overseas jobs Small overseas jobs Keep clicking anywhere on the screen to advance Quit

Making Head Office, QHSE And Measurement Decisions
Navigate to "Main menu/Making decisions/Overhead decisions/Assessing overhead performance/Head office, QHSE and Measurement performance” ASSESSING THE LEVEL OF TURNOVER THAT EACH PERSON CAN SUPPORT Referring to the Head office, QHSE and Measurement performance option, period 4, the last period of the History, sets the benchmark staffing/turnover level i.e., the number of staff required to support the level of turnover without impairing performance. We can see that 3 staff can cope with 10.1m of turnover. This is the benchmark for all future staffing levels for the Head Office Department. The staff in these departments perform tasks related to the company’s jobs in progress :- Head Office staff deal with buying, accounting and IT issues QHSE staff deal with quality, health & safety and environmental issues Measurement staff (quantity surveyors) ensure that money is recovered from the client The task of the Overhead Manager is to ensure that the level of staff in each department each period is able to manage the company’s jobs in progress without any deterioration in the performance of the jobs. We will now look at an example of how to set adequate staffing levels for each department. Navigate to "Main menu/Assessing performance/Performance summary" OVERSTAFFING Overstaffing of the Head Office, QHSE and Measurement departments, above the required level, has no negative affects across jobs being progressed, but does incur unnecessary additional overhead costs. The example shown indicates that staffing in all 3 departments was more than sufficient i.e., well above the 100% optimum level, with an overall net loss. KEY POINTS Understaffing is to be avoided at all costs, and it is better to slightly overstaff if the optimum level cannot be met due to the rounding of staffing levels to whole people. UNDERSTAFFING Understaffing of the Head Office, QHSE and Measurement departments, below the required level, will have negative affects across all jobs being progressed, namely :- Head Office, an increase in job costs (build costs) QHSE, an increase in job costs (build and risk costs) Measurement, a reduction in measured value (turnover) Understaffing is a false economy. It might reduce overhead costs, but will also reduce job profits, resulting in reduced operating profits for the company. The example shown indicates that staffing in all 3 departments was insufficient i.e., below the 100% optimum level. The company may have saved on overhead costs, but the reduction in job profit (increased costs and reduced value) is reflected in the overall net affect (loss). Navigate to "Main menu/Assessing performance/Performance summary" DETERMINING THE EXPECTED TURNOVER IN THE PERIOD FOR ALL JOBS PROGRESSED On the Job Progression screen, and assuming appropriate labour allocations have been made, the expected turnover for each job is calculated as follows :- (Total labour on site * expected value per man period) For all jobs in the period this equates to :- Job 10: ( 33 x 86,941) = 2.9m Job 17: ( 37 x 64,137) = 2.4m Job 29: ( 29 x 27,530) = 0.8m Job 52: ( 123 x 24,198) = 3.0m Job 53: ( 12 x 48,958) = 0.6m Job 58: ( 23 x 55,902) = 1.3m Total: 11.0m Hence, the expected turnover in period 5 across all jobs being progressed is 11m. The expected value (turnover) per man period is shown on the Display job details and is defined as :- (bid submitted during tendering / total man periods) When the decisions have been processed for the period, and the results received, the Performance Summary/Overhead performance can be used to review how effective the staffing levels have been. The optimum setting is 100% of the required level allocated. The net affect shows the affect on company profits from the staffing levels allocated. If the optimum levels are se t the net affects would be 0. Because the required level of staffing normally has to be rounded upwards, due to not being able to have fractions of staff, it is almost impossible to be exactly at the 100% optimum level, but it is better to be slightly over than under, as in the example. We will not look in more detail at what happens if the staffing levels set are lower (understaffing) than the required levels, or higher (overstaffing) Navigate to "Main menu/Assessing performance/Performance summary" Bearing in mind the benchmark of 3 Head Office staff being able to support 10.1m of turnover, if the turnover is expected to be 11m, the number of staff required is (11 / 10.1) x 3 = 3.3, rounded up to 4 staff, since fractions of staff is not allowed. Since there are currently 3 Head Office staff employed at the moment, an extra 1 person needs to be recruited to cover the slight shortfall, and to facilitate this there are two choices :- Employ more company staff, bearing in mind that there is a limit on the number of new company staff that can be employed each period, as defined in the Industry information (3 for Head Office). New company staff also incur a recruitment & training cost in their first period. Employ agency staff for the current period only. Agency staff attract a higher salary than company staff. Since the company is looking to increase turnover in the next year, its more cost-effective in the long run to increase the company’s own staff rather than use agency staff, so we’ll employ an additional 1 company staff, which is within the limitations for new staff. We have seen that setting adequate staffing levels in the current period for the Head Office, QHSE and Measurement Departments involves :- For each department establishing the level of turnover that each person can support, known as the benchmark level, which comes from the staffing/turnover levels during period 4. Complete the labour allocations for the current period on the Job Progression Screen, and calculate the expected turnover in the current period. Use the information from step 1, and the expected turnover level in step 2 to determine the required staffing levels for each department in the current period. KEY POINTS The benchmarks in step 1 will not change, but the company’s expected turnover will vary each period. Consider the following situation. It is the beginning of period 5, and the Overhead Manager needs to decide upon the staffing levels for the Head Office, QHSE and Measurement Departments. The principal for setting the staffing level applies to all 3 departments, so we will concentrate on the Head Office Department. This period we currently have 3 Head Office staff, all are company staff and there are no agency staff. How do we know if 3 staff will be enough to manage the company’s turnover this period ? To answer this question we must do two things :- Assess the level of turnover that each person can support Determine the expected turnover in the period for all jobs being progressed KEY POINTS The turnover of the company in the period is the amount of money the company receives from progressing all jobs in progress, and is directly related to the amount of effective labour on each site. The staffing levels for the QHSE and Measurement Departments are determined in the same manner, based upon benchmark staffing levels and anticipated turnover levels. Having performed the necessary calculations an extra 1 person is required in each Department to prevent any shortfall. Keep clicking anywhere on the screen to advance Quit

Overhead Staff Overheads are the support services required to enable the company to procure and progress work, and consist of :- 4 key departments; Marketing, Head Office, QHSE and Measurement Non-departmental overheads, such as idle labour and idle project managers The staff in each of the key departments can be either :- The company’s own staff Agency staff (except the Marketing Department) and are subject to costs and limitations shown in the Industry information. STAFFING LIMITATIONS There is a cap on the number of new company staff that can be employed in a period. COSTS (PER PERSON) Both company and agency staff incur an annual salary, which is higher for agency staff. For new company staff only, there is a recruitment/training and payoff expressed as a % of the annual salary.

Idle Staff IDLE PROJECT MANAGER POOL IDLE LABOUR POOL
Contains the company’s project managers who are currently not allocated to a job. Project managers can reside in the pool for a number of reasons :- They may have been deliberately recruited by the personnel manager prior to being used on site, perhaps to prevent other companies from employing them (Later Years). Project Managers are automatically transferred to the pool upon completion of a job. IDLE LABOUR POOL Contains the company’s own fully-trained operatives who are not currently allocated to a job. Labour can reside in the pool for a number of reasons :- They may have been deliberately transferred there by the construction manager, and not reallocated to site. Own labour is automatically transferred to the pool upon completion of a job. It is always more cost-effective to keep the idle labour pool as low as possible, using the company’s own fully-trained staff on contracts that are in progress.

Making Non-Departmental Overhead Decisions
Navigate to "Main menu/Assessing performance/Management consultants report" MANAGEMENT CONSULTANTS REPORT Each period an external management consultant carries out a detailed review of the company’s activities, looking in particular for any problem areas. The review is in the form of a report, and this has to be paid for, the cost being defined in the Industry information. IDLE PROJECT MANAGER POOL (JOB PROGRESSION SCREEN) Project managers employed by the company who are not currently allocated to a job in progress are held in the Idle Project Manager Pool. They can be placed there if :- A job has just finished, and the project manager is placed in the pool until the company decides what to do with him. The project manager has been recruited from the market for use on a future contract, and the company does not want to risk losing them to a rival. Project managers must be paid their salary whilst they are in the idle pool, which is a wasted cost, and it is important to try and allocate them to appropriate contracts, which is the responsibility of the Personnel Manager. As well as the departmental overheads, there are also non-departmental overheads :- Idle project managers (Job Progression Screen) Idle labour pool (Job Progression Screen) Bidding cost (Procurement Screen) Management consultant report We will take a brief look at each one. BIDDING COST (PROCUREMENT SCREEN) Each job that the company bids for incurs a bidding cost, depending upon the approximate value of the job, defined in the Industry information. APPROXIMATE VALUE The approximate value is the anticipated cost of the job rounded to the nearest million. IDLE LABOUR POOL (JOB PROGRESSION SCREEN) The company’s own site-based labourers who are not currently allocated to job in progress are held in the Idle Labour Pool. Idle labourers incur a cost whilst they are in the idle pool, so it makes sense to either allocate them to appropriate contracts or pay them off, which is the responsibility of the Construction Manager. KEY POINTS Sometimes a decision is made to deliberately keep excess labour in the idle pool. This may happen if the company is expecting to win a labour-intensive job, and its cheaper to pay them for being idle in the short-term, rather than incur potentially higher costs for laying off and then retraining new staff in the future. The cost per annum of keeping one idle labourer is shown in the Industry information. In this example the cost of keeping 1 idle labourer each period is 1,500 (6,000 / 4). Hence, for 243 idle labourers the cost in the period is 243 x 1,500 = 364,500. Keep clicking anywhere on the screen to advance Quit

Forming Client Relationships
The company can influence their relationship with a client in a number of ways :- Positively by :- Identifying and winning jobs Submitting competitive bids, even if jobs are not secured Managing jobs well, and completing them at least on schedule Negatively by :- Submitting uncompetitive (poor) bids Managing the jobs poorly, and completing late Not keeping jobs on schedule In this example, the company currently have a fairly good relationship with Auckland City Developments, based upon a number of factors. But why is the client relationship so important ? Each period a number of jobs are available in the market. The company’s marketing effort will determine how many of the jobs the company identify (prequalify for). Each job has a client, in either the public or private sector, for whom the work is to be carried out. PERFORMANCE INDICATORS The company’s relationships with ALL clients forms one of the key performance indicators upon which the progress of the company is measured. PREQUALIFICATION The level of a company’s relationship with a client can determine whether or not the company prequalifies for new work with the client :- If the client relationship has deteriorated, ‘poor’ or worse, then the company may not be able to prequalify for work with a client. If the client relationship has improved to a certain level, prequalification may be possible even if the company’s marketing effort may not have previously identified a job i.e., preferred bidder status with the client. Consider the following example. The company have prequalified for a job with Auckland City Developments. As the company prequalifies, tenders for and secures work with the client a relationship is built up between the two parties. The current state of the relationship can be analysed using the Display Client Details option. The Client History provides a detailed analysis of the company’s current relationship with each client. Navigate to "Main menu/Assessing performance/Client history" PROCUREMENT As time passes, and depending upon economic conditions, clients may look to preferred bidders, and if the client relationship is not strong enough the client may refuse to accept the bid. Keep clicking anywhere on the screen to advance Quit

Procurement Decisions
Each period the company is offered a number of jobs for which a bid is invited. These jobs were identified by the marketing department in the previous period depending upon the sectors into which the marketing effort was directed. Making Procurement Decisions Successful Tendering Job details Bidding cost Choosing a consultant designer Job risk Consultant details BIM The job cycle

Making Procurement Decisions
It is assumed that the estimators have produced an accurate assessment of the costs to be incurred in completing each job, along with planned labour levels for each period of the planned duration of the job. At the procurement stage some of the estimated costs are automatically included in the bid, and cannot be altered. These are the :- Design cost Build cost Site cost The remaining elements :- Design consultant Oncost Mark-up can be adjusted at the procurement stage depending upon the strategy to be adopted in bidding for each particular job. Since a design & build job includes all the bid elements, we will look at an example of how to form a bid for such a job. MARKUPS FROM KNOWN RIVAL BIDDERS Job 79 is a large sized job, and the bidding history of each of the known rival bidders is filtered to show bids for large jobs only. The lowest markup previously set was by the Chota Nagpur Group at 3.2%, but they have also had margins as high as 3.6%. We will also set a markup of 3.2% to hopefully be the most competitive on price, and assuming that the Chota Nagpur Group do not match their lowest margin to date. If we were concerned about potential unknown rival bidders undercutting us, we may reduce the margin each further. KEY POINTS The level of markup set by rival bidders does not depend upon the job sector, only the job size i.e., for a large contract the markup strategy is the same across all sectors. Some companies may have just joined the market, and not have a bidding history. In this situation their profile is the only guide to their likely markup settings. Rival bidders will adjust their markups as time passes depending upon the prevailing economic climate. Filtered to show bids for large jobs only. An appropriate consultant for the job can be found by reviewing the profiles of each consultant, and matching the consultant’s expertise to the job sector, along with looking for evidence of BIM experience if required. The choice of consultant can have a significant impact on the build costs. Consultants with appropriate expertise and BIM experience produce designs that reduce the expected build cost. For job 79, a Building and Commercial contract, the Harper Partnership have been chosen due to their expertise over many years in the Building and Commercial sector, and since the job is using BIM, their significant BIM experience. KEY POINTS The list of available consultants changes each period due to some consultants being unavailable, as shown in the status column e.g., too much workload. The company are able to bid for jobs that were identified by the Marketing Department in the previous period. There are two types of jobs that the company can bid for. BUILD ONLY JOBS The contractor is only responsible for the build. If the job entailed any design work, this would already have been commissioned by the client, who would have engaged their own consultant designer. DESIGN & BID JOBS The contractor has responsibility for both the design and the build. This involves more effort during the procurement stage because a consultant designer needs to be allocated, but the profit from the design element can make the jobs more attractive to secure. There are a number of elements that make up the bid for each type of job, as shown in the following table. As discussed earlier all bids entered are processed in strict job number order. Bids are awarded through competitive tendering, and at the time a bid is submitted to the client success in being awarded the contract depends upon a number of factors :- PROCUREMENT RESTRICTIONS Company based Can the company’s capital base support the additional workload ? Have the company reached the limit on the number of jobs in progress that the company can support at any one time ? Job specific If BIM is being used for a design & build job, has a consultant with BIM experience been allocated to produce the design ? Is the relationship with the client strong enough for the client to accept the bid ? PRICE Is the company able to compete on price against rival bidders ? Once the bids have been submitted, whether or not the company is successful won’t be known until the next period. Bids are processed in strict job number order, to simulate what happen in the real world as bids would be submitted throughout the quarter. A bid has also been submitted for job 88, but the order of processing the bids is :- Job 79 Job 88 KEY POINTS Since bids are processed in strict job number order it can influence the decision as to which jobs to try and win, since it is not always possible to win all the jobs bid for, and a favoured job may be near the end of the tender list. The oncost is an additional allowance added to a bid to cover the contract costs over and above the design, build and site costs. The oncost covers :- (+) Project manager costs (+) Contingency for risk Unlike the estimated costs that cannot be changed, oncosts can be altered depending upon the company’s strategy for bidding for a particular job. Having selected an appropriate design consultant, use the Set the bid option to establish the bid price. Select ‘Yes’ to indicate that a bid is to be submitted. Element Description Build Only Design & Build Design Cost Cost of producing the design. x  Design Consultant Design consultant allocated to create the design. Build Cost Costs directly involved in the build (labour, plant, materials etc). Site Cost Support staff and services required to administer a site whilst the build is in progress. ONCOST Project manager Risk contingency An allowance for the costs of recruiting and paying a project manager to oversee the job for its planned duration. Contingency to cover the potential risks that could occur on the job causing monetary losses to the company. Markup (%) The profit (margin) to be made on the job. A decision is made to bid for job 79, a Design & Build job. We will now look at how the bid formed ? MARKUP (RIVAL BIDDERS) When determining the mark-up, the level that may be set by rival bidders needs to be considered very carefully. Assuming a similar cost base, including a ‘sensible’ level of oncost, setting too high a markup could make the bid uncompetitive, and not give the company a chance of winning the job. The nature of the rival bidders depends upon the timeframe :- In the early years, the competition comes from fictional rival companies, Each one has their own unique profile and bidding history, and a careful assessment of them is required to determine the appropriate level of margin. In the later years the competition comes from the other ‘human’ teams in the competition, with less certainty about possible bidding strategies, and hence setting the markup becomes far harder. KEY POINTS Only the KNOWN rival bidders are shown. Other UNKNOWN rival bidders may bid for the job, and this may affect the decision about the level of markup to apply. A consultant needs to be allocated to produce the design who has appropriate expertise for the job. In addition, since the job is using BIM, or Building Information Modelling, the client has imposed a bidding restriction that requires the consultant to have some BIM experience. The Allocate from available list option can be used to choose from a list of all available consultants. RISK CONTINGENCY The estimators made an assessment of the potential risks that could occur on the job causing monetary losses to the company, and job delays, and a risk register was formed for the job. Each potential risk in the risk register has 2 key elements that need to be considered at the bidding stage :- The likelihood of the risk occurring (risk level), classified as High, Medium or Low. The % chance of each level happening is defined in the Industry information. The impact cost if the risk hits. A contingency needs to be added for each risk to cover the company for the impact cost if the risk occurs. KEY POINTS Although the risk contingency only covers the cost of the risk striking, if a risk strikes there may also be delays to the job, which have to be considered in the labour allocation when a job is progressed. The likelihood of the risk occurring (risk level), classified as High, Medium or Low is defined in the Industry information. PROJECT MANAGER ALLOWANCE (SALARY) The Useful information section gives an indication of the range of annual salaries for project managers. If we win the job we would be looking to employ a really good project manager for the job. To keep our bid competitive we would not be looking to use the maximum annual salary of 64,000, but instead we would base our salary allowance a bit lower, at around 56,000 per annum. Bearing in mind that job 79 has a planned duration of 4 periods the allowance for salary is set as follows. Using an annual salary of 56,000 as the base Salary per period is 14,000 (56,000 / 4) Salary for the planned duration is 56,000 (14,000 x 4) Allowance: 56,000 KEY POINTS For this particular job the planned duration is a year, which makes setting the salary allowance straightforward. If the planned duration was not a year, the allowance would have to be adjusted as required e.g., if the planned duration was 2 periods, the allowance would be half of the anticipated annual salary. The allowance can now be entered for the project manager, set as follows :- Salary for planned duration: 56,000 Recruitment costs: 8,400 Total: 64,400 PROJECT MANAGER ALLOWANCE Although project managers are not normally recruited until a job has been secured, and is in progress, an allowance is made in the bid for the costs of recruiting and paying a suitable project manager to oversee the job for its planned duration. Project managers vary in experience and salary, and the choice of an appropriate project manager for a job can have serious implications for the progress of the job. The project manager allowance consists of 2 elements :- Salary Recruitment costs We will consider each one in turn. The estimated costs that cannot be changed are the design, build and site costs. DESIGN COST (D&B JOBS ONLY) The design cost to be paid to the consultant designer is expressed as a % of the build cost. Design cost is paid back in relation to the progression of the job e.g., if 30% of the job is completed in a period, then 30% of the design cost has to be paid. BUILD COST The build cost covers the labour, plant, materials and specialist subcontract trades needed to complete the job. SITE COST Site costs pay for the support staff and services required to administer a site. KEY POINTS Design and build costs paid in a period relate directly to the % of the job completed in the period, whereas the site costs to be paid are related to the actual labour on site. E.g., if there is a lot of ineffective labour on site, site costs still have to be paid even though the ineffective labour does not contribute to progressing the job. PROJECT MANAGER ALLOWANCE (RECRUITMENT COST) The Industry information shows the cost of recruiting a project manager, which applies to all project managers. Based on the annual salary of 56,000 already determined, the recruitment cost is expected to be 15% of the annual salary, or 8,400 MARKUP The markup applied to a bid is one of the company’s most critical decisions, and is the margin, or profit, to be made by the job over and above the costs. Markup is entered as a %, and is added to the costs already set. To determine the markup to be applied, a number of factors need to be taken into account. We will look a each one in turn. MARKUP (COVERING OTHER COMPANY COSTS) The profit made across all jobs should at least cover the company related costs not covered in the individual jobs, such as :- Company overheads Paying dividend to shareholders If the profit over all jobs progressed does not cover these additional company costs, then the company could suffer serious cash flow problems. The Display Job Details option can be used to display detailed information about the job. RISK CONTINGENCY For the potential risk ‘Structural defects’ :- The likelihood of the risk occurring is medium, which is defined as a 40-50% chance of happening. If the risk hits there will be an impact cost of 165,000. We could cover ourselves for the full impact cost, but this could make our bid uncompetitive (too high). Based upon the probability of the risk hitting, a sensible approach would be to cover ourselves for 45% of the risk cost, or 74,250. This makes our bid far more competitive, and also provides some cover if the risk occurs. Using a similar logic the other risk contingencies are set. KEY POINTS Assuming we win the job, if the risk does not occur then the extra risk becomes profit, or margin, made on the job. Conversely, if the risk hits it will eat into job profits, although this will be offset by the risk contingency we’re building into the bid, and any mitigating actions taken to reduce the risk costs. The bid has now been set for job 79. We will know next period whether or not we have won the job. The company incur a cost for each bid submitted, depending upon the approximate value of the job, defined in the Industry information. These form part of the overhead costs for the period. KEY POINTS The company can bid for all jobs available, but this can lead to substantial bidding costs, and it is normally more cost effective to bid in a more scientific, and strategic manner based on the number and value of jobs that can be secured. Keep clicking anywhere on the screen to advance Quit

Successful Tendering COMPETING ON PRICE If the client does not immediately reject the company’s bid because of the procurement restrictions, then the decision as to whether or not they are awarded the job comes down to competing on price against rival bidders :- In the early years, the competition comes from fictional rival companies, Each one has their own unique profile and bidding history, and a careful assessment of them is required to determine the appropriate level of margin. In the later Years the competition comes from the other ‘human’ teams in the later years, with less certainty about possible bidding strategies, and hence setting the markup becomes far harder. Based upon the company’s strategy for growth, a number of bids may be submitted in a period. Each one is processed in strict job number order. Each bid is awarded through competitive tendering, and at the time a bid is submitted to the client success in being awarded the contract depends upon a number of factors. PROCUREMENT RESTRICTIONS Company based procurement restrictions include :- Number of jobs in progress If the company has too many job commitments, clients will reject a company’s bid because they feel that the company will not be able to manage further contracts efficiently. Workload limitations Clients will not accept a bid from the company if they feel that the company does not have the resources (capital base) to complete the job. Job specific restrictions include :- Client relationship As time passes clients may look to preferred bidders, and if the client relationship is not strong enough the client may refuse to accept the bid. BIM experience For Design & Build jobs if BIM (Building Information Modelling) is being used for the job, the client will insist that the consultant chosen to produce the design has some BIM experience. PRICE The company’s bid being able to compete on price against rival bidders. We will look at each factor in turn. PROCUREMENT RESTRICTIONS: BIM EXPERIENCE For design & build jobs, if BIM (Building Information Modelling) is being used for the job, the client will insist that a consultant designer is chosen with some BIM experience. In the example shown for job 79 Neo Creative Designs have been chosen because of their suitability for the job, and because they have some BIM experience. To improve the company’s chances of avoiding the capital base workload limitations, the threshold can be raised for the current period by using more of the company’s cash reserves to increase the capital base. This is a decision to be made on the Financial Decisions Screen. The Industry information indicates the workload that can be supported based upon the size of the company’s capital base. In the example the workload cannot exceed 10 times the capital base, so an additional 253,646 of capital base will support 2.5m of further workload. This would then be enough to support both jobs 79 and 83. KEY POINTS Any changes to the capital base on the Financial Decisions Screen are immediately reflected on the Procurement Decisions Screen, and active for the current period. PROCUREMENT RESTRICTIONS: CLIENT RELATIONSHIP As time passes clients may look to preferred bidders, and if the client relationship is not strong enough the client may refuse to accept the bid. In the example shown from period 7 onwards the relationship with Electragen will need to be at least ‘fairly good’ for the client to accept the bid. Rival Bid High Bidding HIGH BIDDING If the company’s bid is above the rival bid, the client will reject the company’s bid due to high bidding. The actual value of work that can be won is shown. Client Relationship CLIENT RELATIONSHIP In the Later Years, when the teams compete ‘Head to Head’ against each other, client relationship becomes a factor where bids are within a % of the most competitive bid. This % range depends upon the job size. Consider the following example in the Early Years. The most competitive (lowest) rival bid is as shown Job Secured ‘SAFE’ AREA If the company’s bid falls below the rival bid, but above the low bidding threshold, then the job will definitely be won. The initial forward workload is 15.8m, and if the 3 bids were to be won the affect would be :- Job 78: 3.2m (cumulative workload 19.0m) Job 79: 19.6m (cumulative workload 38.6m) Job 83: 7.8m (cumulative workload 46.4m) However, the workload limitations will not enable all 3 jobs to be won, since the cumulative forward workload cannot exceed the upper threshold of 42.3m, based upon the current value of the capital base. The following successful bidding combinations are possible :- Jobs 78 and 79 could be secured since the cumulative workload would not exceed 42.3m, but then not job 83 If job 79 was not secured, jobs 78 and 83 could be secured If neither jobs 78 or 79 were secured, then job 83 could be secured Successful bidding of course, depends on other factors other than just workload limitations, which will be discussed shortly. KEY POINTS In the example the values have been rounded to 1 decimal place. During processing there is no rounding, and all calculations work to exact numbers. PROCUREMENT RESTRICTIONS: NUMBER OF JOBS IN PROGRESS The client will also reject a bid if the company’s number of jobs in progress exceeds the limit defined in the Industry information, feeling that the company is spreading its resources too thinly, which will affect the quality of any work progressed. In this example the limit is 10 jobs in progress. With 6 jobs already in progress at the beginning of the period, shown on the Job Progression Screen, the company can only win up to 4 jobs before the number of jobs limit takes affect. KEY POINTS The number of jobs that can be won does not take account of any jobs that are likely to complete in the current period. PROCUREMENT RESTRICTIONS: WORKLOAD LIMITATIONS The company’s initial workload at the beginning of the period, based upon the value of work still to be completed from the jobs in progress on the Job Progression Screen, is 15.8m. The company has bid for 3 jobs, but will the capital base support winning the additional jobs, and adding to the existing workload ? The Limitation on the value of work in progress shows that company’s capital base of 4.2m can support future workload of up to 42.3m without any problems. The ‘future workload’ is defined as the company’s initial forward workload (before any jobs are progressed in the period), plus the value any jobs won in the period. We will investigate further what would happen if we were to win the additional work. Low Bidding LOW BIDDING If the company’s bid is too far below the most competitive rival bid, the client will reject the company’s bid on the grounds of low bidding, believing that the quality of the work will be undermined because the company cannot possibly complete the project without cutting costs. Keep clicking anywhere on the screen to advance Quit

The Job Cycle Keep clicking anywhere on the screen to advance
In period 7 the company put in a successful bid for the job. Work started in period 8, and the job completed in its planned duration, 3 periods, finishing in period 10. As has been demonstrated, the job cycle consists of up to 3 stages :- Prequalification Procurement Progression Although the job was progressed from timeframe periods 8 to 10, the job periods were :- Period 1 of the job was period 8 of the timeframe Period 2 of the job was period 9 Period 3 of the job was period 10 The company is managed over timeframe measured in periods, which represent 3 months (one quarter) in the ‘real world’. Each period a number of jobs will become available in the market which can be identified, tendered for and progressed (if won). The progressing of jobs can begin in any period, and the jobs can last from 2 to 5 job periods. It is important to grasp the concept of the job cycle, and the following example should illustrate this key point. In period 6 the company identified a new job for which the client invited prequalification by interested parties. The job had a planned duration of 3 periods. Period 1 of the job Period 3 of the job 5 Period 6 7 8 9 10 11 12 Identify (Prequalify) Bid Submitted (Procurement) Progress the job Keep clicking anywhere on the screen to advance Quit

Job Details BIM JOB NUMBER
A unique number that identifies a job, ranging from 1 (earliest jobs) onwards. TYPE There are two types of job :- BO (Build Only); traditional type of job where the client is responsible for the design, if appropriate, and the contractor is only responsible for the build. DB (Design and Build); the contractor has responsibility for both the design and the build. PERIOD IDENTIFIED The period in which the company identified the job through marketing effort. COUNTRY/LOCATION Where the job is located. APPROXIMATE VALUE The anticipated cost of the job rounded to the nearest million. TOTAL LABOUR MANNING The total number of man periods required to complete the job. DURATION The planned duration of the job (2 to 5 periods. SIZE The size is based upon the approximate value :- Small (range 1m - 6m) Medium (range 7m - 13m) Large (range 14m - 25m) DESCRIPTION A brief description of what the job entails. BIM Indication of whether or not BIM (Building Information Modelling) is being used for the job. SECTOR Each job falls into one of 5 sectors :- Industrial Building and Commercial Transport Energy Water and Sewage RISK REGISTER Possible problems that may occur during the progression of the job. CLIENT The public or private-sector organisation for whom the job is being carried out.

BIM OVERVIEW OF BIM BIM is an acronym for Building Information Modelling. It describes the process of designing a building collaboratively using one coherent system of computer models rather than as separate sets of drawings, which is the traditional method. It is a digital representation of physical and functional characteristics of a facility, and a shared knowledge resource for information about a facility forming a reliable basis for decisions during its life-cycle; defined as existing from earliest conception to demolition. At the technical core of BIM is the software that enables 3D modelling and information management. Extensive use of the software eventually leads to a more complete understanding of the technical core. BENEFITS BIM offers enormous gains in saving in cost and time, much greater accuracy in estimation, and the avoidance of error, alterations and rework due to information loss. To achieve all the benefits BIM offers, everyone in the architecture, engineering and construction industries will have to learn to work in fundamentally new ways.

Job Risk Glossary TARGETED INVESTMENTS Target investments on the Financial Decisions Screen into risk management consultants to the Construction Industry can reduce any risk costs incurred. The profile of Phoenix Horizons shows that they appear to be an ideal company to invest in for reducing risk costs on Transport contracts, providing that we are undertaking jobs in the Transport sector. Although there are a number of risk management companies, many management consultants do not specialise in this area, and would not reduce risk costs on job s undertaken. The clues always lie in the investment profile. The Industry information shows the reductions possible. KEY POINTS If the company are already investing in an appropriate risk consultant e.g., that serves the sector of a job being bid for, then the risk contingency may be reduced below the ‘sensible’ level. This would make the chances of securing the job even better, in the knowledge that should any of the job risks strike, they will be reduced by the investment made. Navigate to "Main menu/Assessing performance/Job analysis/Risk analysis for all jobs won" As well as targeted investments, risk costs incurred can be reduced by employing a good project manager, who will be able to identify and address the potential effects of the risk. Conversely, risk costs may be increased if the project manager is inadequate, or if the QHSE Department is understaffed. In addition, where BIM (Building Information Modelling) has been used on a job, some risk costs may be reducing by using the BIM model, but this will not apply to all risks. The Risk Analysis for all jobs won and progressed displays a detailed risk analysis for all jobs progressed, covering both costs incurred and delays to jobs. Navigate to "Main menu/Making decisions/Procurement decisions/Display job details” Navigate to "Main menu/Making decisions/Procurement decisions/Set the bid” If the decision is made to bid for the job, what mitigating actions can be taken to deal with each risk, and the potential cost incurred ? The action taken depends upon each risk element. SCENARIO 3: ‘SENSIBLE’ RISK CONINGENCY If a sensible level of contingency is added the bid will still be competitive, and the company have partly covered themselves in case the risk occurs. Since there is a 40-50% chance of the risk occurring, based upon probability it is reasonable to cover 45% of the risk cost, or 74,250. If the risk occurs, the company has to find the other 55% of the risk cost, or 90,750, which eats into the margin. If the risk does not occur then the 74,250 is additional margin. SCENARIO 2: FULL RISK CONTINGENCY If the full cost of the risk is added then there is less chance of the company winning the job since their bid would probably be less competitive than their rivals who may have included some, but not the full risk contingency. However, if the contract is secured and the risk occurs the additional cost will have been covered, and will not affect the job margin. If the risk does not occur the margin would be significantly improved. LIKELIHOOD AND IMPACT COST For each risk in the risk register the bid itself contains a contingency for the likelihood of the risk occurring, and the potential impact cost. The company are bidding for a job that has a risk register consisting of 3 potential risks. One of the identified risks is ‘Structural defects’, which is classified as having a Medium likelihood of occurring, and this implies a 40-50% chance the risk will occur at some point during the progressing of the job, as shown in the Industry information. If the risk strikes there will be an impact cost of 165,000. There are 3 possible scenarios for determining the risk contingency, and we will investigate each one in turn. SCENARIO 1: NO RISK CONTINGENCY If no risk contingency is added then there is a good chance of the company winning the job since their bid could be far more competitive than their rivals who would probably have included some risk contingency. However, if the contract is secured, and the risk occurs, the additional cost could seriously affect the job profits, and adversely affect the cash flow of the company. BIM REDUCTION IN IMPACT COST No action needs to be taken as the cost reductions are made automatically if the risk occurs, and BIM is being used on the job. MITIGATING ACTIONS TO REDUCE RISK COSTS As we have seen, setting ‘sensible’ levels of risk contingency in a bid can keep a bid competitive in relation to rival bids, and cover the company for a proportion of the risk cost if a risk occurs. In addition, if a job is secured and being progressed, the impact costs of any risks incurred can be reduced by taking a number of mitigating actions. We will examine possible mitigating actions further. LIKELIHOOD OF OCCURRING The likelihood of the risk occurring, or level of risk, is classified as either High, Medium or Low. The % chance of each level happening is defined in the Industry information. If the risks occur they only occur once during the planned duration of the contract. KEY POINTS If a job is completed early there is a possibility of avoiding risks that may occur towards the end of the job. BIM MODEL AFFECTS If the job is using BIM (Building Information Modelling), there may be an opportunity to reduce the impact cost if the risk occurs. For example, if there is the risk of structural defects, these may be identified in the BIM model, and the threat mitigated. KEY POINTS The cost reductions are graded depending upon the particular risk, and the reductions to date across all jobs can be found in the Main menu/Assessing performance/Job analysis/Risk analysis for all jobs won. The nature of the potential risks, particularly the likelihood and impact cost, may be some of the deciding factors in determining whether or not the company bids for a job, along with factors such as the job sector, location, size, client etc. KEY POINTS If a job is won, and being progressed, any risk that strikes can delay the job, resulting in a % reduction in the effectiveness of the labour on site in the period when the risk strikes. Action can be taken to deal with potential job delays by adjusting the labour allocated to site when the job is being progressed, and is discussed in a separate topic. No construction project is risk free, and when a job is identified the estimators make an assessment of the potential risks that could arise on a job, which are stored in a risk register. We will take a closer look at the features of each risk. IMPACT COST The impact cost is the cost incurred if the risk occurs. Keep clicking anywhere on the screen to advance

Choosing A Consultant Designer
One of the key decisions when bidding for a design & build job is the choice of the consultant to produce the design. But why is the decision so important ? The choice of consultant can have a significant impact on the build costs. Consultants with appropriate expertise and BIM experience produce designs that reduce the expected build cost when a job is progressed, which improves the profit margin on the job. There are a number of consultants available, and there is no restriction on the number of design & build jobs a particular consultant can work on at any one time, but finding the most suitable consultant is not always easy. Navigate to "Main menu/Assessing performance/Consultant history" If job 79 is secured, and then progressed, we can use the Consultant history option to determine if our choice of the Harper Partnership is justified. Clearly we made the right choice as the Harper Partnership’s expertise in the Building & Commercial sector, and BIM experience, has helped to reduce build costs by 2.38%, a significant saving. KEY POINTS Unlike project managers, for design consultant being based in one country does not inhibit their performance on jobs in other countries. Consider the following example. The company is submitting a bid for job 79, a large design & build Building & Commercial contract in the UK. One of the restrictions imposed by the client, South Wales County Council, is that because the job is using BIM (Building Information Modelling), the consultant designer chosen must have some BIM experience. The Harper Partnership have been chosen to produce the design. Their company profile indicates that they have vast experience in the Building and Commercial sector, and significant BIM experience, in line with the client’s wishes, and they appear to be an ideal choice. Keep clicking anywhere on the screen to advance Quit

Consultant Details EXPERTISE
The consultant’s profile highlights the sectors of expertise of the consultant. Expertise is graded behind the scenes between 1 and 5. BIM EXPERIENCE The consultant’s BIM (Building Information Modelling) is graded from ‘none’ through to ‘significant’. CHOICE OF CONSULANT The choice of consultant for a Design & Build job can have a significant impact on the build costs when a job is progressed. Consultants with appropriate expertise and BIM experience produce designs that reduce the expected build cost.

Cost of Bidding Each job that the company bids for incurs a bidding cost, depending upon the approximate value of the job, defined in the Industry information. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance [Performance (By Period) tab]" The bidding cost incurred each period across all jobs is recorded as a non-departmental overhead.

Job Progression Decisions
Progressing jobs that have been won involves :- Allocating appropriate project managers to oversee the jobs. Allocating labour to progress the jobs in line with the company’s strategy for job completion. Making Project Manager Decisions Making Labour Decisions Key Points For Progressing Jobs Project manager information Project manager performance Measured value (turnover) % of a job completed Job costs Labour costs Retention Job completion bonus Forward workload and margin

Project Manager Decisions
Gordon Simcoe’s profile and past history with the company indicate expertise in the Building & Commercial sector, and he would appear to be a good candidate for job 58, so we will move him onto the job. Project managers are concerned with the overall planning and co-ordination of a project from inception to completion aimed at meeting the client’s requirements and ensuring completion on time, within cost and to the required quality standards. A project manager with well-matched experience for a particular type of job will handle available resources more efficiently, whilst a project manager with inappropriate experience will impair contract efficiency. Project Managers employed by the company are either :- In the idle pool awaiting a placement on site; once a job finishes the project manager on site is placed in the idle pool. Idle project managers still have to be paid, so its far more cost-effective to have them working on site than doing nothing. Allocated to a specific job in progress. Decisions need to be made about :- Which idle project managers to payoff. Allocating suitable project managers to jobs in progress, especially those that don’t currently have one, or have a poorly performing one. The project manager can come from the idle pool, another job or from the market (a list of available ones who have registered with the recruitment agency). Navigate to "Main menu/Assessing performance/Project manager history” But how do we know the affects that different levels of bonus have on performance ? The clues lie in the Project Manager History, which shows the level of bonus paid for each period a project manager has worked for the company (on site), and the affects. We will try and boost the performance of Gordon Simcoe considerably by paying a 6% bonus, double the previous amount paid that produced a small improvement in performance. We will also review the performance of the other project managers, and pay appropriate bonuses to boost performance, and keep them happy. KEY POINTS If too much bonus is paid it, it may be money down the drain, because there comes a point when the performance does not improve no matter how much bonus is paid; the trick is to find the level. The affects of bonus payments are the same for all project managers. We now need to find a suitable project manager for job 52, a Transport contract in the UK. To this we need to use the Recruit from the agency option to find a suitable one from the PROJECT MANAGER RECRUITMENT AGENCY. PROJECT MANAGER RESIGNATIONS Project managers can resign from the company for a number of reasons :- Good project managers whose average bonus over the time they are working on a particular job is below a certain level may resign because they do not feel they are being adequately rewarded, and the average level can vary for each project manager. In such a case the project manager may bear a grudge, and may not be available again for some time in the future. The top performing project managers can be poached by rival companies regardless of the level of bonus they are paid, although paying a good bonus will help to lesson the chance of this happening. Once poached, a project manager will not be available again. Project managers resign from a job at the end of the period, providing that the job is still in progress. KEY POINTS Project managers never resign in their first period on a job. If Gordon Simcoe had not been suitable for a job in progress, we would have had one of 2 choices to make about him. Either :- Pay him off from the company (Payoff from pool option). OR Leave him in the idle pool if we are bidding for jobs in the current period that he may be suitable for next period, in this case Building & Commercial contracts. Although this still incurs a salary cost each period, for the right people it may be a price worth paying because paying them off may be risky as there is no guarantee they will be available again in the following period. The key to finding the right person is to is to review the profile (or curriculum vitae), which covers both work and personal details, both of which may be important. We are looking for a project manager with expertise in the Transport sector, and the Search Phrase can be used to narrow down the list. On closer examination Fraser Coyle appears a good candidate, having extensive project management experience in the transport sector, and also being based in the UK, where job 52 is located. As well as relevant experience, job and project manager location is one of the other factors that affects project manager performance. There is an adverse impact on performance if the project manager is not based where the job is, although this is only a minor consideration in relation to the expertise of the project manager. The Select option is used to choose Fraser. KEY POINTS The list of project managers signed up to the Project Manager Agency is dynamic, and can change from period to period. Appropriate project managers have now been allocated to all the company’s jobs in progress, and next period the Project manager history can be used to review the performance of each project manager. The Project manager recruitment agency is dynamic, and project managers can come and go from the agency. This makes is essential that it is reviewed each period to ensure that the best possible project managers are being used by the company. The performance level of project managers can be improved by paying them a bonus. This is a % of their salary for the period (quarterly salary). KEY POINTS Project manager expectations can change as the operating performance of the company changes, and may be higher or lower than the History level. This will affect the affect bonus levels have on performance. As well as recruiting project managers from the agency, there are a number of options available for moving project managers between the idle pool and jobs in progress. In addition, there are a number of charges incurred for :- Recruiting a project manager from the agency Paying off a project manager from either the idle pool or a job in progress Relocating a project manager from one job to another The costs are shown in the Industry information. If possible the idle project manager, Gordon Simcoe, should be placed on a suitable job, and there are 3 jobs at the beginning of this period that do not have a project manager, both of which have just started :- Job 52, a Transport contract Job 53, an Energy contract Job 58, a Building & Commercial contract But is Gordon Simcoe suitable for either job ? We can determine suitability by using the Display details option. The Transfer to a job option is used to indicate which job to transfer Gordon Simcoe to. Ralph Moran is also recruited from the Project Manager Agency onto job 53, an Energy contract in the UK. Each job now has a project manager allocated. Project managers newly recruited in the current period have a “New” status of “Yes”. KEY POINTS Although we have now allocated appropriate project managers to the jobs that did not already have one, it may be worth using the Display details option for the jobs that already have project managers to determine if they were the most suitable ones for the jobs. If not, they could be replaced. The Status column shows the availability of project managers in the agency. Project managers may be unavailable for a number of reasons :- They may be off work for personal reasons, such as illness. If they have previously resigned from the company, or have been paid off, they may bear a grudge and be unwilling to work for the company again for a while. At the start of period 5 the company employs the following project managers :- Gordon Simcoe in the idle pool Craig Wooten on job 10 Sid Arkle on job 17 Harry Mitcham on job 29 Keep clicking anywhere on the screen to advance Quit

Labour Decisions The Performance Summary for the job shows that the job was 60.3% complete at the end of the last period, and ahead of schedule, with 39.7% left to complete. The total planned labour required to complete the job is 69 man periods. Since there is 39.7% of the job left to complete, in manpower terms this is 39.7% of the total labour of 69, or men, rounded up to 28 men because fractions of people are not allowed. The planned allocation is 41 men, which although guaranteeing to complete the job, would complete the job far too early in the period, which would have had the following detrimental affects :- Labour is still retained until the end of the period, incurring additional labour costs (ineffective labour) Labour could be utilised other jobs, where it may be more productively used KEY POINTS The strategy adopted above will work well unless other factors affect the effectiveness of the labour allocated, such as delays caused by risks striking, which is discussed in the Key Points section. The Construction Manager now looks to set the labour levels for the other jobs by :- Setting labour levels that aim to complete the jobs either on time, or ahead of schedule. Trying to use the company’s own labour, which the Construction Manager feels is more cost effective in the long run than using subcontractors. LABOUR SHORTAGE As the company grows a problem the Construction Manager could face is one of an overall labour shortage. A number of choices are available to make-up the shortfall :- Under allocate labour on some jobs. This may put the jobs behind schedule, but attempt can be made to bring them back on schedule in later periods. This can adversely affect client relationships. Take on ‘New’ recruits into the company’s own workforce, who each incur a training cost in their first period with the company. Use subcontractors, who incur an additional premium each period they are with the company. Subcontractor premiums vary between countries, which can influence where they are used. The choice between new recruits and subcontractors is discussed in the Key points section. The Performance Summary for the job shows that the job is currently 69.2% complete, and well ahead of the of the 55% planned completion after two periods. There is 30.8% of the job left to complete, or 30.8% of the total labour required for the job (104 man periods), equating to men (.308 x 104). Rounding up gives a labour requirement of 33 effective men needed on site to complete the job a period early, and as efficiently as possible in period 5. The Performance Summary for job 17 shows that the job is currently 76% complete, and well ahead of the of the 55% planned completion after two periods. There is 24% of the job left to complete, or 24% of the total labour required for the job (149 man periods), equating to men (.24 x 149). Rounding up gives a labour requirement of 36 effective men needed on site to complete the job a period early, and as efficiently as possible in period 5. Navigate to "Main menu/Making decisions/Job progression decisions/Assessing job progression performance/Effective labour limit for jobs in progress” Having set the labour levels for each job, the Construction Manager needs to be sure that the labour levels set for each job are within the permitted overmanning limit. This can be checked using the Effective labour limits for jobs in progress option. Clearly the effective labour on site is within the effective limits. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details” When deciding upon the strategy to be used for completing jobs there are a number of ’sensible’ options :- Try and complete all jobs earlier than the planned duration (e.g., complete a 3-period job in 2 periods) Try and complete all jobs on time A mixture of the above In all cases the Construction Manager needs to assess the labour requirements each period for each job based upon the strategy being used. Planned labour levels each period were determined by the estimators in order for the job to complete on time, and they can be used as guidelines in setting the labour levels for whichever strategy is adopted. To complete a job early it is possible to overman above the planned levels. Overmanning limits are shown in the Industry information, and are sector-based. Due to the requirements of each job, it is likely that one of two situations may have to be resolved :- An overall labour shortfall new recruits into the company’s own workforce or subcontractors may have to be taken on. An overall labour surplus jobs could be overmanned to aim at early completion, or labour may have to be released. The Construction Manager must first ensure that each job has sufficient labour to enable them to progress in line with company strategy. There are two types of labour that can be used :- The company’s own labour; available either in the idle labour pool or on site Subcontract labour being used on site Job 58 is a 3-period Building & Commercial contract, also in its first period. It is decided to over man job 58 by the permitted 35% to try and complete it in 2 periods, and earn a bonus from the client for early completion. Since the planned labour for job 58 in its first period is 17 labourers, the required labour level is 23 labourers (17 x 1.35). Since there is no spare idle labour it is decided to taken on the 23 labourers needed as new recruits into the company’s workforce in order to build up the workforce for the future, rather than use subcontractors. This is achieved by entering 23 into the “New” column. Job 53 is a 3-period Energy contract, also in its first period. It is decided to over man job 53 by the permitted 18% to try and complete it in 2 periods, and earn a bonus from the client for early completion. Since the planned labour for job 53 in its first period is 10 labourers, the required labour level is 12 labourers (10 x 1.18). Since there is no spare idle labour it is decided to take on the 12 labourers needed as new recruits into the company’s workforce in order to build up the workforce for the future, rather than use subcontractors. This is achieved by entering 12 into the “New” column. There are now 84 idle labourers available for use in the company’s idle labour pool. These are the company’s own operatives currently not assigned to a job. If possible, the labour in the idle labour pool should be redeployed to site, since each idle labourer costs an additional 1,500 each period (6,000 per annum), as shown in the Industry information. We may be able to make use of the idle labour on jobs 52, 53 and 58, which we have yet to consider. Job 10 has a planned duration of 4 periods, and period 5 is the 3rd period of the job. The job is currently ahead of schedule, and we will see if it is possible to complete it in period 5. If we can, the job will complete early, before its planned duration, and this will earn a bonus from the client defined in the defined in the Industry information. We can use the Display job details option to investigate further. The bonus for early job completion is defined in the Industry information, and is a % of the tender (bid) value, which varies by job size. KEY POINTS Completing a job early means completing before the planned duration e.g., completing a 5-period job in 4 periods, or a 4-period job in 3 periods etc. The labour allocations have now been made for all the company’s jobs in progress. It will not be until next period that a full analysis can be undertaken of just how well the jobs were progressed this period. Any profits (or losses) generated from the jobs will be added to the company’s cash account at the end of period. Hopefully, overall there will be a profit that will help to increase the company’s value. Consider the following situation. It is the start of period 5, and the company has 6 jobs in progress. The status of the jobs in progress can be used to determine the current status of each job :- Job 10 is in its 3rd period, and has a planned duration of 4 periods. It is ahead of schedule Job 17 is in its 3rd period, and has a planned duration of 4 periods. It is ahead of schedule Job 29 is in its 2nd and final planned period, and must be completed this period. It is ahead of schedule Job 52 was won last period, and is in its first period Job 53 was won last period, and is in its first period Job 58 was won last period, and is in its first period Navigate to "Main menu/Making decisions/Job progression decisions/Assessing job progression performance/The status of jobs in progress” We have now determined that only 28 labourers are needed on job 29 to complete it as efficiently as possible in period 5. At the moment there are 41 labourers on site, of which all 41 are the company’s own operatives, and none are subcontractors It is more cost effective to keep the company’s own fully trained operatives on site, as subcontractors incur an additional premium each period (variable by country), as shown in the Industry information. To reduce the labour from 41 to 28 we will transfer 13 labourers to the idle labour pool using the “To ILP” column. KEY POINTS The surplus, full trained own labour is transferred to the idle pool for reallocation to other jobs. If they are not needed on other jobs they may be paid off instead. We have now determined that only 33 labourers are needed on job 10 to complete it as efficiently as possible in period 5. At the moment there are 39 labourers on site, all of whom are the company’s own operatives, with no subcontractors It is more cost effective to keep the company’s own fully trained operatives on site, as subcontractors incur an additional premium each period (variable by country), as shown in the Industry information. To reduce the labour from 39 to 33 we will transfer 6 men to the idle labour pool using the “To ILP” column. KEY POINTS The surplus, full trained own labour is transferred to the idle pool for reallocation to other jobs. If they are not needed on other jobs they may be paid off instead. We have now determined that only 36 labourers are needed on job 17 to complete it as efficiently as possible in period 5. At the moment there are 61 labourers on site, all of whom are the company’s own operatives, with no subcontractors It is more cost effective to keep the company’s own fully trained operatives on site, as subcontractors incur an additional premium each period (variable by country), as shown in the Industry information. To reduce the labour from 61 to 36 we will transfer 25 men to the idle labour pool using the “To ILP” column. KEY POINTS The surplus, full trained own labour is transferred to the idle pool for reallocation to other jobs. If they are not needed on other jobs they may be paid off instead. There is no hard and fast rule for deciding upon the order for determining the labour requirements, and the Construction Manager decides to concentrate first on job 29, as this must be completed in the current period, and is a priority. Period 5 is the second period of the job, and its final planned period. There are currently 41 labourers on site, all are the company’s own labour, and the planned requirement is also 41. Normally, allocating the planned level each period is sufficient to complete a job on time, providing a good project manager has been allocated to oversee the job, and all the labour is fully effective. However, since this is the final planned period of the job we should take a closer look at how the job has progressed to date, since other factors may have contributed to the job being behind or ahead of schedule, and we need to allocate sufficient labour to complete the job as efficiently as possible. Due to a number of factors the job may be behind/ahead of schedule, and require more/less labour than planned. We can use the Display job details option to investigate further. SURPLUS LABOUR After making the labour allocation decisions for each job, there may be a surplus of labour left in the idle pool. If this is the case, there are a number of options :- Leave them in the pool for use next period, if they are likely to be required. Use the “Number to layoff” to layoff as much of the surplus as possible prior to any labour allocations. Instead of transferring men to the idle labour pool from site, pay them straight off from site using the “Paid off” column instead of transferring them to the idle labour pool. KEY POINTS Unnecessary Idle labour costs money, as shown in Industry information, and is an overhead that can adversely affect company operating profit for the period. Job 52 is a 2-period Transport contract, also in its first period. Even allowing for over manning, 2-period jobs can never be completed in 1 period. Since job 52 cannot be completed a period early, it is decided to allocate the planned labour level of 85 labourers. To do this :- 84 men are transferred to site from the idle labour pool by entering 84 into the “From ILP” column. 1 new recruit is taken on into the company’s workforce in order to build up the workforce for the future, rather than use subcontractors. This is achieved by entering 1 into the “New” column. At the end of the last period, and available at the beginning of period 5, there are :- 40 labourers in the idle labour pool 141 labourers on jobs; all are the company’s own operatives, none are subcontractors If we take the combined idle labour and site-based labour, the company has a current workforce of 181. KEY POINTS The default labour allocations for each job in progress are the levels from the end of the last period. However, the default levels are unlikely to be the required ones for the current period. Keep clicking anywhere on the screen to advance Quit

Key Points For Progressing Jobs
Progressing jobs to completion is often a complex task, and the decisions that have to be made are often the result of the strategies adopted in other areas. For example, if the company has an aggressive tendering policy, and secures a large number of profitable new contracts in a particular period, this can cause problems when it comes to adequately resourcing the new and existing jobs. More work normally means more labour, and the company may have a significant shortfall of its own fully-trained labour. This would then require decisions on how to overcome the shortfall, by taking on new recruits into the company’s own direct workforce, or using subcontractors. An alternative policy may even be to deliberately delay jobs in the short-term, but this can affect the relationship with the clients. Some of the key issues are dealt with in the demos. The labour used to progress a job Overmanning to try and complete jobs early What happens if a job over runs Handling job delays Using new recruits or subcontractors Labour relations

Labour Used To Progress A Job
The labour used to progress a job is classified in a number of ways :- Planned labour Effective labour limit Total labour allocated Effective labour Ineffective labour The following example should demonstrate the classifications. The Job details shows the labour breakdown each period between the different classifications, and the costs incurred. TOTAL LABOUR ON SITE The total labour allocated contributes to the site costs. EFFECTIVE LABOUR Effective labour contributes to the build costs. As a rough guide, if the effective labour is 30% of the total labour required to complete a job, 30% of the job’s total build costs will be incurred. INEFFECTIVE LABOUR Ineffective labour costs are shown in the additional labour costs. EFFECTIVE LABOUR LIMIT The planned labour can be exceeded each period up to a point known as the effective labour limit. The overmanning limits are sector based, and shown in the Industry information. KEY POINTS It would be necessary to over man a job to complete it early e.g., to complete a 5-period job in 4 periods, 4-period job in 3 periods etc. 2-period jobs can never be completed in 1 period. Planned Labour Level INEFFECTIVE LABOUR DUE TO OVERMANNING After allowing for delays the labour ABOVE the effective labour limit is classed as ineffective labour due to overmanning, and does not contribute to progressing the job. The cost of ineffective labour is shown in the Industry information, PLANNED LABOUR The planned labour level for each period was estimated when the job was identified in order to complete a contract on time. Effective Labour Limit EFFECTIVE LABOUR After allowing for delays the labour BELOW the effective labour limit is classed as the effective labour on site, and contributes to progressing the job. Only effective labour generates value, or money from the client. As a rough guide, if the effective labour on site is 30% of the total labour required to complete a job, 30% of the job’s value (original bid) should be earned from the client. However, there are numerous other factors that can affect the measured value recovered, including :- The quality of the project manager on the site Morale of the company’s own labour Measurement effort across the company LABOUR ALLOCATED TO SITE The Construction Manager determines the total labour to allocate to site in the period depending upon the requirements of the job. The total labour level is adjusted by affect of any delays to leave the ‘potential’ effective labour on site. The labour lost by delays is classed as ‘ineffective’ labour. KEY POINTS The total labour level allocated may be higher than the anticipated required level to compensate for any delays to the job that may occur. Keep clicking anywhere on the screen to advance Quit

Overmanning To Complete Jobs Early
Trying to complete a job early has a number of benefits to the company, including :- The client may pay a bonus for early completion (see below). The company’s own labour that was being used on the completed job can be used on other sites, preventing the need to take on new recruits, or having to use subcontractors. The company’s capital assets (plant, buildings etc) being used on the job can be diverted elsewhere. Cash flows are improved. Early completion of a job means completing at least one period before the end of the planned duration e.g., if the planned duration is 4 periods, it must be completed in 3 periods or less to obtain the client bonus. The bonus paid by the client varies depending upon the job size. If the planned level of 16 labourers had been allocated, the job would have completed very early in the period, as shown in the Management consultant's report. This would have resulted in :- An increase in costs as labour was retained until the end of period, incurring 81,900 additional labour costs, and a significant amount of unnecessary site administration costs Inefficient use of labour that could have been used elsewhere But what happens if the Construction Manager attempts to complete the job early, overmanning in some periods, but is still not able to complete the job early ? This may occur for a number of reasons :- Delays to the job reduce the effectiveness of the labour on site. An overall ‘own’ labour shortage, and a reluctance to use subcontractors, may mean the job is not overmanned enough. A poor choice of project manager reduces the productivity of the labour on site. In this scenario, the job would enter its final planned period out of step with the completion schedule. In all probability it would still be ahead of schedule, because it has been overmanned, but the Construction Manager must be very careful about setting the labour level, since the planned level cannot be relied upon. We will now examine how the Construction Manager sets the correct labour level to complete the job as efficiently as possible. It is unlikely that any job will be progressed exactly in line with the planned progress, even if that is the intention. There are numerous reasons for this, including :- Job delays Changes in anticipated productivity levels due to the expertise of the project manager on the site A job may have been overmanned to try and complete it early, making the planned progress figures redundant Bearing this in mind, if a job is likely to complete in the current period, great care has to be taken in setting the correct level of labour to ensure that the job finishes as near to the end of the period as possible. If a job finishes too early in the period :- The workforce is retained until the end of the period, incurring unnecessary additional costs Excess labour is being used on the site that could have been utilised elsewhere In the anticipated final period of a job, you can ignore the planned labour level, and concentrate instead on the % of the job left to complete. To complete a job early the Construction Manager needs to refer to the sector-based overmanning limits in the Industry information. For example, consider a Water & Sewage job that has a planned duration of 4 periods, and that can be overmanned by up to 25% each period. If the Construction Manager follows the overmanning guidelines, and the labour allocated to site is fully effective, with no delays, the completion schedule should be as follows. < Labour Allocation  Period Planned Overmanning Actual Cumulative % % --- 104 The job should complete a period early, securing a bonus from the client. KEY POINTS Overmanning above the effective labour limits results in ineffective labour that does not contribute to the progress of the job, but incurs labour costs. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details” The Construction Manager needs to allocate less than the planned level of 16 labourers in the job’s final period to enable the job to complete at the end of its final period. If the full 16 labourers are allocated, the job will complete well before the end of the period, and additional labour costs will be incurred until the period end. Since there is only 1.4% of the job left to complete, the labour level required is 1.4% of the total labour (104), or 1.46 operatives, which is rounded up to 2 labourers, well short of the planned level of 16. KEY POINTS The strategy adopted above will work well unless other factors once more affect the effectiveness of the labour allocated, such as delays caused by risks striking, which is discussed in the Key Points section. Using the previous 4-period Water & Sewage contract as an example, the job was indeed overmanned in its first 3 periods, and was well ahead of schedule, and on course to complete a period early. However, job delays in the job’s third, and anticipated final period, resulted in the effective labour being reduced from 32 to 30 labourers, and the job was 98.6% complete at the end of the period, and just failed to complete. KEY POINTS The Construction Manager should have allocated more labour during the third period, and anticipated final period, to compensate for potential delays, and the job may then have completed. The topic of handling job delays is discussed in the Key Points section. Keep clicking anywhere on the screen to advance Quit

What Happens If A Job Overruns
Ideally all jobs progressed will be completed either early or on time. However, this is not always the case, and if a job overruns beyond its planned duration there are a number of affects :- A penalty will be incurred from the client for late completion, expressed as a % of the tender value for each period the job overruns. This can have a severe affect on the company’s cash account, and company value. Additional resources will be needed to complete the job (labour, project manager), diverting them from elsewhere. It reflects badly on the industry’s perception of the company, reflected in the ‘contract completion’ and ‘client satisfaction’ key performance indicators used to measure the progress of the company. If a job overruns, it is imperative that the Construction Manager allocates enough labour to complete the job in its first overrunning period. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details” Once the period has been completed, the Job Details shows the penalty incurred for late completion. The penalty for completing a job late is a % of the tender value per period, as defined in the Industry information. If the actual labour on site of 90 labourers had been allocated, the job would have completed very early in the period, as shown in the Management consultant's report. This would have resulted in :- A massive increase in costs as labour was retained until the end of period, incurring 500,661 additional labour costs, and a significant amount of unnecessary site administration costs Inefficient use of labour that could have been used elsewhere The relationship with the client will be affected by the late completion of the job. In this particular example, the ‘considerable deterioration’ in relationship with the client, East Midlands County Council, as a result of the job completing late has been the overriding factor in the current ‘poor’ client relationship. This may now affect trying to procure any further work with the client in the future. The Performance Summary for the job shows that the job is currently 99.5% complete, and has overrun. There is 0.5% of the job left to complete, or 0.5% of the total labour required for the job (212 man periods), equating to 1.06 labourers (.005 x 212). To ensure that the job completes 2 effective labourer should be allocated to the job. If a job overruns you can allocate as much labour as is required to complete the job, and the normal overmanning rules do not apply, since there is no planned labour as a guide. KEY POINTS Delays caused by risks occurring are not an issue when jobs overrun, since risks will only strike during the planned duration of a job. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details” Consider the following example. Job 52, planned to be a 2-period job, has overrun into its third period. There are currently 90 of the company’s own labour on site, but with no planned labour as a guide, what level of labour is required to complete the job this period ? Keep clicking anywhere on the screen to advance Quit

Handling Job Delays Navigate to "Main menu/Making decisions/Job progression decisions/Display job details/Job information/Risk and delay analysis” The Risk and delay analysis for job 52 reveals that there are 2 risks that have not yet struck :- ‘Personnel issues’, which has a ‘high’ chance of occurring ‘Site contractor co-ordination issues’, which has a ‘low’ chance of occurring Although both risks could strike, and potentially delay job 52 in period 6, it is decided that the threat of ‘personnel issues’ is most likely, and the Construction Manager decides to take action in case this happens. However, how much is the current labour level of 90 labourers to be increased by to offset any potential delay ? The effectiveness of labour allocated to a job by the Construction Manager can be adversely affected by a number of factors, such as :- The expertise of the project manager on the site Labour relations Overmanning of the site There is also another key factor that the Construction Manager needs to take into account, and that is delays to the job. We will at how the Construction Manager can mitigate against the consequences of job delays. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details” Consider the following example. Job 52 should have completed in period 6, when 90 labourers were allocated to site. However, the effective level of labour was reduced by 2.5 men due to delays. This resulted in the job being 99.5% complete at the end of period 6, and not quite completing. We will now look in more detail at what causes the delays, and what action could have been taken to mitigate against their affect. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details” All labour on site incurs site cost, including ineffective labour, and hence the cost of any delays is incorporated into the site cost for the period. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details/Job information/Risk and delay analysis” DELAYS ARE CAUSED BY RISKS STRIKING. The Risk and delay analysis for job 52 reveals that the delays were caused by the risk ‘Personnel issues’ striking in period 6, the second period of the job. KEY POINTS More than one risk can strike in any period of a job, but they only occur during the planned duration of a job, and not if it overruns. Completing a job at least one period early can prevent risks striking in future periods. Delays that occur in the periods before a job is due to complete are not such a concern, apart from the additional site cost. HOWEVER, delays that occur in the period a job is due to complete can be costly because they can prevent a job from completing, with associated late completion penalties, and a waste of resources in terms of the further labour and a project manager to complete the job. Gong back to the previous period, how could the Construction Manager adjust the labour on site for job 52 to mitigate against the affect of any potential delays ? The adjusted labour level of 93 labourers should compensate if the risk ‘personnel issues’ strikes, and enable the job to complete on time. Of course, if the risk ‘site contractor co-ordination issues’ occurs this could prevent the job completing, but it was a ‘low’ risk, and the Construction Manager decides to take a chance this will not occur. KEY POINTS If the delays do not occur the job will complete earlier than the end of the period, and as all labour is retained on site until the end of the period when a job completes, there will be additional labour costs due to the ineffective labour. However, at least the job will have completed. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details/Job information/Risk and delay analysis” The DELAYS SO FAR (ALL JOBS) reveals that ‘personnel issues’ have already caused delays of between 2.7 and 2.9% on other jobs, and this is a good guide to the likely affect if ‘personnel issues strikes on job 52. Of course, ‘personnel issues’ may not have caused any problems so far on other jobs, and in this case the Construction Manager would have to make an educated guess on the likely affect. As time goes by the potential delays can be more accurately assessed as more risks occur. Job 52 currently has 90 labourers on site, and the Construction Manager decides to assume a 3% reduction may be possible, and adjusts the labour to 93 labourers. Keep clicking anywhere on the screen to advance Quit

New Recruits v Subcontract Labour
In progressing jobs it is always more cost-effective to use the company’s own fully trained labourers, rather than using subcontractors. Subcontractors :- Cost more than own labour Reliance on subcontractors can affect the morale of the company’s own labour However, if there is an overall labour shortfall that the Construction Manager needs to address, two options are available :- Take-on new recruits, adding to the company’s own labour Use subcontractors But which option is now the most cost effective ? To answer this question we need to compare the costs involved in taking on one new recruit against one subcontractor. Navigate to "Main menu/Industry information/The environment in which the company is operating” NEW RECRUITS Each new recruit that is taken on into the company’s own workforce has to be trained in their first period with the company. This is a one-off cost allocated to the job they are placed on. The training is assumed to take place where the company is based, and does not vary between countries. Hence, no matter which job a new recruit is allocated to the training cost is the same. The training cost for each new recruit is shown in the Industry information. Comparing the training cost of new recruits versus subcontractor premium in a period, it would appear that subcontractors are the cheaper option. However, it must be remembered that the new recruit training cost is a one-off cost, whereas subcontractor premiums have to be paid every period. The decision as to whether to employ new recruits or use subcontractors may come down to the jobs where they may be needed, and there are other factors that may affect the company’s strategy :- The limit on the number of new recruits that can be employed. The anticipated duration of a contract, which can affect how many periods subcontractors need to be employed for. The affect of using subcontractors on the morale of the company’s own labour, which is covered in another demo. Eventually own labour may need to be paid off when work dries up, incurring additional labour payoff charges. The laying off of own labour may then impact on labour relations, affecting the morale and productivity of the workforce across the company. It is certainly worth taking the time to determine the most cost-effective approach, as this can have a significant bearing on the profitability of the company. Navigate to "Main menu/Industry information/Country information” SUBCONTRACTORS Subcontractors do not need to be trained, and are fully effective from day one. However, they do incur an additional subcontract premium each period, shown in the Industry information, which varies between countries. KEY POINTS Subcontractor cost variations between countries can have a crucial bearing upon which jobs they are used on. Where there is an overall labour shortfall in the period, the decision as to whether to employ new recruits or use subcontractors is further complicated by the limit on the number of new recruits that can be taken on in a period, as defined in the Industry information. The limit can vary each period. Keep clicking anywhere on the screen to advance Quit

Total Labour in Company
In any period a company’s total labour force consists of :- To source the jobs in progress with the labour required the Construction Manager will often be faced with either an overall labour shortfall, or a surplus. In this situation a number of decisions have to be made on how best to manipulate the labour force. The options available include :- FOR THE COMPANY’S OWN LABOUR Laying men off from the Idle Labour Pool (ILP) Transferring men from the ILP to jobs, or from jobs to the ILP Taking on new recruits onto jobs, or laying off labour from jobs FOR SUBCONTRACT LABOUR Taking on or releasing subcontractors Labour in the Idle Pool (Own) Labour on Jobs in Progress (Own + Sub) Total Labour in Company Labour Relations The most cost-effective way of managing the labour force is to use the company’s own fully trained labour, rather than subcontractors. For example, if 50 men are transferred to the idle labour pool from job A, then they are immediately used on job B. No training is required, no men are laid off, and the company does not incur any additional costs such as subcontractor premiums. In this scenario the company would be perceived to have a good labour relations policy and the morale of the company’s own labour would be high, ensuring greater productivity. The least cost-effective way of managing the labour force is to be constantly hiring and laying off the company’s own labour, and also relying on subcontractors. For example, if a high proportion of the company’s own labour is laid off in a period, then the morale of the remaining own labour (not subcontractors) would be weakened, leading to reduced productivity. In this case the Company would have a poor labour relations policy.. We will now look at detailed examples that illustrate good and bad labour relations. 38 men were available in the idle labour pool, but all of them were laid off when they could have been utilised on jobs. 8 men were laid off from site, and replaced by subcontractors. 84 subcontractors were used. The Construction Manager did not manipulate the labour force effectively, and :- Used 84 subcontracts when men were available in the idle pool, but were paid off Laid off 8 men from site, some of whom could have been used instead of subcontractors This is an example of poor labour relations, and the productivity of the company’s own labour would be adversely affected. EXAMPLE 2: POOR LABOUR RELATIONS 6 men were left in the idle pool and not used to replace subcontractors being used. EXAMPLE 1: GOOD LABOUR RELATIONS 38 men were available in the idle labour pool. None were laid off, and all were used on site, leaving no idle labour. None of the company’s own labour was laid off from site. No subcontractors were used. The Construction Manager was able to manipulate the labour force so that :- All idle labour was redeployed to site Additional labour was the company’s own, and not subcontractors None of the company’s own labour was laid off No subcontractors were used This is an example of very good labour relations, and the productivity of the company’s own labour would be improved. The affect of the company’s construction management decisions on labour relations is reflected in comments in the Management consultant's report. Navigate to "Main menu/Assessing performance/Management consultants report" Keep clicking anywhere on the screen to advance Quit

Project Manager Information
WEIGHTING (NEVER SEEN) The project manager’s performance on site each period is weighted between 1 and 10. The numeric weighting is not shown, but is described in words. The main factor affecting the weighting is the project manager’s expertise in the job sector, known as the basic grading, and the clues lie in their profile. This is adjusted further by a number of other factors to obtain the overall grading :- Time with the company (improves) Bonus payments (improves) Job location (impair) Taking over a job from another project manager (impair) The project manager weighting has a key bearing on how well the labour allocated to site performs. This is reflected in how effective the labour is. Navigate to "Main menu/Making decisions/Job progression decisions/Display job details” RECRUITMENT, PAYOFF AND RELOCATION CHARGES Project managers can be :- Recruited into the company Paid off from the company Moved from job to job within the company Each action attracts a cost expressed as a % of annual salary; details are given in the Industry information. BONUS A bonus may be paid to the project manager on a job, expressed as a % of the salary paid in the period. This is a one-off payment that does not change the current salary level. The payment of a bonus will improve performance in the period in which the bonus is paid. Project manager expectations can change as the operating performance of the company changes, and may be higher or lower than the History level. This will affect the affect bonus levels have on performance. RESIGNATION Project managers can resign from the company for a number of reasons :- Good project managers whose average bonus over the time they are working on a job is below a certain level may resign because they do not feel they are being adequately rewarded. In such a case they may bear a grudge, and may not be available again for some time in the future The top performing project managers can be poached by rival companies regardless of the level of bonus they are paid, although paying a good bonus will help to lesson the chance of this happening. Once poached, a project manager will not be available again. KEY POINTS Project managers never resign in their first period on a job. SALARY A quarter of the annual salary paid each period. Keep clicking anywhere on the screen to advance Quit

Project Manager Performance
We will take a look at the factors that have contributed to Bruce’s overall performance level. Project managers are concerned with the overall planning and co-ordination of a project from inception to completion aimed at meeting the client’s requirements and ensuring completion on time, within cost and to the required quality standards. But how do we know the affect a project manager has had on the performance of the company’s jobs ? OTHER REASONS FOR PAYING A BONUS Good project managers whose average bonus over the time they are working on a particular job is below a certain level may resign because they do not feel they are being adequately rewarded. In such a case the project manager may bear a grudge, and may not be available again for some time in the future. Project managers never resign in their first period on a job. The top performing project managers can be poached by rival companies regardless of the level of bonus they are paid, although paying a good bonus will help to lesson the chance of this happening. Once poached, a project manager will not be available again. To summarise, the main factor that affects a project manager’s performance is the past experience in the job sector. There are additional factors that can improve performance :- Time spent with the Company Bonus payments and others that can deteriorate performance :- Job location Taking over from another project manager Although these can be graded from “None” to “Dramatic” for affect, none of them has anything like the impact as the past experience. The experience/performance of the project manager can be gauged from :- Their profile Their career history with the company PROFILE Bruce’s basic performance is very good because of an outstanding track record in the Building & Commercial sector. The profile also includes some personal details. Although they can affect basic performance, they are also pointers as to the future outlook for the project manager e.g., tendency towards depression could indicate that the project manager may be off ill in the future, and not available. A good project manager, one with the relevant experience for a particular job, will produce more output from the resources available, while a poor project manager will impair contract efficiency. BONUS The performance of the project manager can be improved for the current period only by paying a bonus, which is a % of the salary for the period. Project manager expectations can change as the operating performance of the company changes, and may be higher or lower than the History level. This will affect the affect bonus levels have on performance. A 4% bonus has been paid to Bruce each period. This improved performance by a reasonable amount during period 5. However, from period 6 onwards project manager expectations rose as the company’s operating performance improved, and the 4% bonus only resulted in a small improvement in Bruce’s performance. KEY POINTS If project manager expectation remains constant, paying the same level of bonus will not necessarily result in the same improvement in performance level each time as there is a ‘human’ element built into the calculations which can marginally distort the results. The Project Manager History provides a detailed analysis of the performance of all project managers, and highlights :- The basic performance; based on the project manager’s profile The overall performance, taking into account a number of performance factors TAKING OVER FROM ANOTHER PROJECT MANAGER Taking over from another project manager can impair performance. The previous project manager will have worked differently, and there will be a period of adjustment. Better project managers are not affected so much. Since Bruce has managed all the jobs he has been on since they began, there has been no deterioration in performance due to taking over from another manager. JOB LOCATION If the project manager‘s home base is not in the same country as the job location it can have a negative impact on their performance, which increases as the project manager suitability for the job declines. Bruce is based in the UK, and all the jobs he has worked on have been in the UK, and there has been no problem with the location. TIME WITH THE COMPANY The longer a project manager works for the company, the better the performance, as they gain experience and knowledge and how the company operates. We can see that Bruce has worked continuously for the company for 6 periods, and during that time there has been an noticeable improvement in performance due to experience gained. Bruce Simpson managed jobs 62, 102 and 166 from period 5 onwards, all Building & Commercial contracts, and has had a very good basic, and excellent overall performance level each period. Navigate to "Main menu/Assessing performance/Project manager history" Keep clicking anywhere on the screen to advance Quit

Measured Value (Turnover)
Using the expected value per man period as a base, and taking into account the effective labour on site, three values are calculated for a job each period. EXPECTED VALUE The expected value is the amount of money that is expected to be earned from the client by progressing a job in the period. Expected Value = Effective labour on site x Expected value per man period ACTUAL VALUE The actual value is the expected value adjusted to take into account a number of factors that affect the productivity on the job :- The performance of the project manager allocated to the job The labour relations policy of the company MEASURED VALUE (TURNOVER) The measured value is the actual value adjusted by the measurement effort of the company for the period. The measurement effort depends upon how well the company’s measurement staff (quantity surveyors) are able to cope with the turnover in the period across all jobs. An understaffed measurement department will not be able to extract from the client all the value from the jobs progressed. The last period of the history provides the benchmark for determining the appropriate level of staff required each period. The measured value, also referred to as turnover, in the period is the amount of money the company receives from progressing all the jobs in progress, and is directly related to the amount of effective labour on each job. The measured value can be thought of as a measure of the amount of work that the company is undertaking at any particular time. We will now look more closely at how the measured value is determined for each individual job. The Assessing performance/Financial analysis/Financial performance/Performance (by period) option shows the measured value, or turnover, across all jobs progressed in a period. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" The Performance (all periods) tab can be used to display the measured value for all periods. For each job awarded to the company, there is an expected value per man period defined as :- Expected value per man period = Bid value / Total labour (man periods) In the example shown :- Expected value per man period = Bid value / Total labour (periods) = 9,556,476 / 149 = 64,137 Keep clicking anywhere on the screen to advance Quit

Percentage Of A Job Completed
The job has just completed its1st period, and the measured value to date is 2,224,862. This equates to 42.5% of the bid i.e., (2,224,862 / 5,235,191) * 100 However, the % complete shown is higher at 42.7%, so why is there a difference ? The % complete is derived from the actual amount of the job completed to date, and not the measured value. The Management Consultants Report shows that the Measurement Department was slightly understaffed in the period, and this led to less money been recovered from the client than expected, and the full value from the jobs progressed was not recovered from the client. Navigate to "Main menu/Assessing performance/Management consultants report" The % of a job completed on the Job Details does not always equate to the measured value recovered on a job in relation to the original bid value. We will take a closer look at this anomaly. A job was won with a bid of 5,235,191 Keep clicking anywhere on the screen to advance Quit

Job Costs DESIGN COST Applicable to design & build jobs only, the design consultant charges a fee paid in relation to the amount of the job progressed in the period. SITE COST Site costs pay for the support staff and services required to administer a site whilst the build is taking place. The level of site cost paid each period is based upon the total labour (own and subcontract) allocated to the site. BUILD COST Build costs cover all the direct costs (labour, plant, material etc) needed to complete a job. The build costs incurred each period depend upon the effective level of labour allocated to the site. RISK COST The costs of any risk incurred after mitigating actions have been taken, such as the use of a BIM model and targeted investments into risk consultants. COMPLETION PENALTY If the duration of a job exceeds its planned duration, the company is charged a penalty for each late period. The penalty is a percentage of the tender value (bid entered) for the job; details are given in the Industry information. ADDITIONAL LABOUR COSTS The bulk of the labour costs are built into the build costs, but there are additional labour costs, such as the cost of taking on and laying off of both own and subcontract labour. PROJECT MANAGER COSTS Various costs covering the project manager allocated to the site.

Labour Costs The labour costs are allocated to either job or overhead costs. The applicable rates are shown in the Industry information. LABOUR PAYOFF RATE (JOB/OVERHEAD COST) This is the cost per person of laying off the company’s own labour from either :- The idle labour pool (overhead cost) A job in progress (job cost) TRAINING COST (JOB COST) The cost of training a new recruit in their first period with the company. ANNUAL COST OF IDLE LABOUR (OVERHEAD COST) This is the cost of keeping someone idle for a year, and takes into account the redeployment of the person in other areas. INEFFECTIVE LABOUR COST (JOB COST) The cost of ineffective labour per annum. SUBCONTRACT PREMIUM (JOB COST) Each subcontractor used incurs an additional cost per period, which varies by country.

Retention Retention is a % of the measured value (turnover) achieved on a job in a period that is retained by the client until the job is completed. Any retentions held are repaid in two equal instalments :- In the period when the job is completed 2 periods after the job completes Details of the % retained are shown in the Industry information. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" Retention affects the cashflow of the company. In the example shown, tin period 8 the company’s retention figures were :- 208,605 repaid from completed jobs 137,285 held from work completed from jobs progress during the period The net retention of 71,320 helped improve the cashf low of the company. The retention held came from a number of jobs progressed during period 8. The Industry information showed retention to be 1% of measured value i.e., 1% of 13,728,570 or 137,285. The Retention Analysis for jobs won and progressed provides comprehensive information about all retentions held and repaid, along with the outstanding net retention to be repaid. Navigate to "Main menu/Assessing performance/Job analysis/Retention analysis for all jobs won" Keep clicking anywhere on the screen to advance Quit

Bonus For Early Completion
The client pays a bonus for early completion of a job. Early completion of a job means completing at least one period before the end of the planned duration e.g., if the planned duration is 4 periods, it must be completed in 3 periods or less to obtain the client bonus. The bonus varies depending upon the size of the job, and is expressed as a percentage of the tender value (bid entered) for the job; details are given in the Industry information. The bonus is shown in the Job Details for the last period of the job. The early completion bonus varies according to the size of the job.

Forward Workload And Margin
The forward workload (or potential turnover) on a job is the remaining value to be recovered from the present time until the job has been completed. The forward margin is the anticipated remaining profit on a job. Both are calculated at the end of a period, after all the company’s decisions have been processed. Forward workload and margin are important because :- They are two of the key performance indicators upon which a company’s progress is measured, indicating the potential future prosperity of the business. The forward workload provides the starting point during the bidding process for determining whether or not the client will allow the company to bid for a job based upon capital base limitations. We will take a closer look at how both are calculated, and used. Navigate to "Main menu/Assessing performance/Overall performance (KPIs)” The forward workload and margin values were formed from 4 jobs in progress. Taking job 140 as an example :- 68.4% of the job was left to complete at the end of period 8, giving a remaining forward workload of 8,473,506 (68.4% of the bid value of 12,388,170) The forward margin figure comes from the forward workload less the remaining cost. KEY POINTS The remaining cost is based upon the anticipated true cost of the job, taking into account build cost, design cost , site cost , ‘sensible’ risk and project manager costs. When determining the amount of work that the company can undertake based upon the size of the capital base, the forward workload at the end of the previous period is the starting point for any calculations. The value of any bids won during period 9 are added to the initial forward workload, and the cumulative figure is used to determine how much work the company can undertake. The for ward workload at the end of period 8 is shown in the Financial Analysis. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" In the example shown, the forward workload and margin values at the end of period 8 are :- Forward Workload of 24,051,590 Forward Margin of 909,729 The ? can be used to drill-down to job-level detail. Forward workload and margin form two of the key performance indicators of the company, and indicate the potential future prosperity of the business. As shown, both indicators fell during period 8. The forward workload and margin values at the end of period 8 were slightly lower than at the end of period 7, and this fall was reflected in the reduction in the KPI weightings. Keep clicking anywhere on the screen to advance Quit

Resetting Decisions Decisions can be reset to their defaults at the beginning of the period. Navigate to "Main menu/Making decisions/Reset decisions” The default setting is to reset all the decisions, but it is possible to select particular decisions.

Exporting Decisions Keep clicking anywhere on the screen to advance
Database ed Group 1 are the primary group, containing the team leader, and when the company database is received by them each period it is ed to Group 2. Each group now has a copy of the company database to work on when making their individual decisions. Communicate Decisions ? The decisions could be communicated back to Group 1 in a number of ways :- By phone By Each option has its drawbacks :- By phone could be time-consuming By requires a lot of typing of decisions However, there is a far more user-friendly method and that is to use the Export Decisions option. Decisions Made Both groups make their decisions for the period using their own copy of the database. Group 1 are responsible for sending the company database to the Competition Controller, and must put all the decisions for the team in their ‘master’ copy of the company database. How do Group 2 let Group 1 know what their decisions are ? Consider the following scenario. A team of 6 members is split into 2 groups of 3 members each, and is located in 2 different offices, geographically a long way apart. The responsibilities of each group are highlighted by the diagram below. The Export Decisions option enables decisions entered to be selected, by category, for exporting to a text file. This has a number of uses :- For keeping a hardcopy of decisions entered. Where a team is fragmented into smaller groups, it provides an efficient means for individual decisions to be communicated back to the team leader for entering into the master company database. We will look in more detail at the second use. The Export Decisions option is useful for keeping a history of decisions entered, or for communicating decisions between team members. However, when submitting decisions for processing the company database should always be sent, and NOT the text file export of the decisions. Navigate to "Main menu/Making decisions/Export decisions” Group 2 make the following changes to the default export options :- The Procurement and Job Progression decisions are chosen for export; the other boxes are unchecked The word ‘_for_group_2’ is added to the export name to make it very clear which decisions are contained in the export file The Export button is clicked to create the text file. The export file itself is a text file, and has the following characteristics :- Its name always begins with the competition id, and the rest can be altered It is placed in the folder from where the company database was chosen The text file created contains the procurement and job progression decisions made, in a clear and concise format. Group 2 can now the text file to Group 1 for entering into the master database. Group 2 Group 1 Team Responsible for :- Finance Overheads Procurement Job Progression Keep clicking anywhere on the screen to advance Quit

Exporting Information
Navigate to "Main menu/Making decisions/Exporting information” Selected information can be exported to CSV format for importing into spreadsheets for further analysis.

Key Performance Indicators
10 key performance indicators are used to measure the success of the company. The indicators are weighted according to their variability, totalling 1,000 at the end of the History. As time progresses the weighting of each indicator will change, highlighting improvements or deteriorations in that area, but the overall total will be the measure by which the ultimate progress of the company is determined. The weighting for each indicator at the end of a period is based on a comparison with the position at the end of the History, and there are two types of comparison :- TREND COMPARISON Smoothes the calculations over the time the company has been operating. Applies to Turnover, Gross Profit to Turnover ratio, Operating Profit to Turnover ratio, Capital Employed, Contract Completion and Client Satisfaction. SNAPSHOT COMPARISON Compares the current indicator to the position at the end of the History. Applies to Company Value, Forward Workload, Forward Margin and Share Price. Calculating Performance Indicators Performance indicator definitions

Performance Indicator Definitions
TURNOVER Measured value accrued across all jobs progressed; an indication of how much work the company has done. GROSS PROFIT TO TURNOVER The ratio of gross profit to turnover across all jobs progressed; a measure of how profitable the company’s jobs have been. OPERATING PROFIT TO TURNOVER The ratio of operating profit to turnover; a measure of how profitable the company is after considering operating factors. COMPANY VALUE A measure of the asset value of the company. CAPITAL EMPLOYED Measures how much of the company’s capital base is being utilised. CONTRACT COMPLETION A measure of the number of jobs completed early, on time or late. FORWARD WORKLOAD The remaining turnover (value) of jobs still in progress. FORWARD MARGIN The remaining profit of jobs still in progress. SHARE PRICE A measure of the strength of the company’s share price. CLIENT SATISFACTION An indication of how happy the company’s clients are; based on procurement and job progression.

Calculating Performance Indicators
CLIENT SATISFACTION To gain a feel for the relationship with each client, a textual description is given. The description is based upon a numerical value (hidden) determined by a number of factors, including prequalification, procurement and job progression. The sum of the numerical values across all clients is calculated for the relationship changes since the History, and then added to the performance indicator weighting at the end of the History. In this example the numerical value during periods 5-8 came to 90. This was added to the initial rating of 70 to give an indicator of 160 at the end of period 8. The weightings used in calculating the client satisfaction values are hidden, but the relative affects of different factors that affect the client relationship are shown. Navigate to "Main menu/Assessing performance/Job analysis/All jobs identified" CONTRACT COMPLETION Using the All jobs identified option the number and size of jobs completed since the History is established. Each completed job is given a score depending upon the completion status (early, on time or late) and job size. Scores are negative where jobs complete late, but positive for jobs that complete early and on time. The total calculated is added to the initial indicator weighting at the end of the History to give the current indicator value. In this example the completed jobs created a score of 80, which when added to the starting point of 100, gives an indicator value of 180 at the end of period 8. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" FORWARD MARGIN Using the Performance (all periods) tab, the forward margin :- At the end of the History was 568,410 At the end of period 8 was 909,729 The value at the end of period 8 was 1.6 times the value at the end of the History. The improvement was reflected in an increase in the forward workload performance indicator from 70, the initial weighting, to 160 (100 x 1.6). Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" CAPITAL EMPLOYED After bids have been processed, the forward workload of the company expressed as a % of the upper limit of workload that can be undertaken, based upon the company’s capital base, is the capital employed. Using the Performance (all periods) tab, the average capital employed :- For the History (periods 1-4) was 43.25% (173 / 4) To date (periods 1-8) has been 64.38% (515 / 8) The value at the end of period 8 was 1.49 times the value at the end of the History (64.38 / 43.25). This improvement is reflected in an increase in the capital employed performance indicator from 120, the initial weighting, to 179 (120 x 1.49). Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" FORWARD WORKLOAD Using the Performance (all periods) tab, the forward workload :- At the end of the History was 15,820,520 At the end of period 8 was 24,051,590 The value at the end of period 8 was 1.52 times the value at the end of the History. The improvement was reflected in an increase in the forward workload performance indicator from 70, the initial weighting, to 106 (70 x 1.52). Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" COMPANY VALUE Using the Performance (all periods) tab, the company value :- at the end of the History was 4,771,350 at the end of period 8 was 4,967,095 The value at the end of period 8 was times the value at the end of the History. The improvement was reflected in an increase in the company value performance indicator from 170, the initial weighting, to 177 (170 x 1.041). Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" GROSS PROFIT TO TURNOVER Using the Performance (all periods) tab, the gross profit/turnover :- During the History (periods 1-4) was (727,602 / 17,946,067) To date (periods 1-8) has been (2,794,175 / 64,765,158) The ratio at the end of period 8 was ( / ) times the value at the end of the History. This improvement is reflected in an increase in the gross profit to turnover performance indicator from 130, the initial weighting, to 138 (130 x 1.064). Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" TURNOVER Using the Performance (all periods) tab, the turnover :- During the History (periods 1-4) was 17,946,067 To date (periods 1-8) has been 64,765,158 To compare fairly the turnover to date with the Historical benchmark, which is based upon one year, we need to work out the average per year, which is 32,382,579 (64,765,158 / 2). The yearly average by the end of period 8 was times (32,382,579 / 17,946,067) the value at the end of the History. This improvement is reflected in an increase in the turnover performance indicator from 40, the initial weighting, to 72 (40 x 1.804). Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" OPERATING PROFIT TO TURNOVER Using the Performance (all periods) tab, the operating profit/turnover :- During the History (periods 1-4) was (240,383 / 17,946,067) To date (periods 1-8) has been (1,011,934 / 64,765,158) The ratio at the end of period 8 was ( / ) times the value at the end of the History. This improvement is reflected in an increase in the operating profit to turnover performance indicator from 130, the initial weighting, to 152 (130 x 1.164). Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" SHARE PRICE Using the Performance (all periods) tab, the share price :- At the end of the History was 0.91 At the end of period 8 was 1.09 The value at the end of period 8 was 1.2 times the value at the end of the History. The improvement was reflected in an increase in the share price performance indicator from 70, the initial weighting, to 84 (70 x 1.2). The Company is now in period 9, but how were the performance indicator weightings calculated at the end of period 8 ? Keep clicking anywhere on the screen to advance Quit

Using the Performance Summary
The Company Performance Summary provide a detailed set of performance statistics relating to all aspects of the company’s activities, and can be used to identify strengths and weaknesses, and explain the rise and fall of particular key performance indicators. The Performance Summary is split into 2 sections :- The top section of the summary relates to information from the History The bottom section of the summary relates to the performance of the company since the History Using the Performance Summary

Using The Performance Summary
We will now at how the performance summary can help to explain whether or not the company’s strategy has been successful. The Performance Summary provide a detailed set of performance statistics relating to all aspects of the company’s activities, and can be used to identify strengths and weaknesses, and explain the rise and fall of particular key performance indicators. We will look first at how performance statistics can help to explain changes in key performance indicators. We will now look at how the performance summary can help to identify strengths and weaknesses in company performance. Consider the performance indicators of the company after 8 periods. Since the end of the History the Gross Profit to Turnover indicator has increased. This would appear to indicate that jobs have been managed better since the History. To verify our reasoning, we can refer to the performance summary. Navigate to "Main menu/Assessing performance/Performance summary" Since the History, new management team have tried to target the company’s investments into other concerns that provide :- A better return than the bank Reduce job costs through lower build and risk costs Has the strategy paid off ? The Performance summary provide evidence that there have been mixed results :- The investment return of 2.2% each period is much better than the bank were offering Overall job costs have hardly been reduced, which has not been a success Navigate to "Main menu/Assessing performance/Performance summary" The Procurement analysis shows that since the History out of 25 jobs bid for, 19 were lost. 58% of the jobs were lost due to “capital base workload limitations”. This could possibly have been avoided if the Financial Manager had increased the company’s capital base more during periods 5 to 8 in order to enable the company to take on more work. Using the performance summary in this way will enable more effective decisions relating to the capital base to be made in future periods. Navigate to "Main menu/Assessing performance/Performance summary" Evidence from the Performance summary shows that :- During the History the average job profit was 4.3% (of cost) Since the History the average job profit has been 4.6% (of cost) This is clear evidence that job profitability has improved since the History. The job progression section can be used to analyse even further where the improvement was made, in terms of individual jobs progressed. KEY POINTS The performance summary cover the early years onwards and the history separately, but many of the performance indicators cover the full lifecycle of the company. These are specifically the trend-based ones such as turnover, gross profit to turnover etc. Keep clicking anywhere on the screen to advance Quit

Management Consultant’s Report
There are many methods available for assessing the performance of the company, such as key performance indicators, the performance summary and analysis tools. In addition the company has the use of an external management consultant, who looks in detail at all areas of the company’s business, especially where there may be problems, and compiles an appropriate report. We will now look in more detail at what the report looks like, and how it can be used. It cannot be emphasised enough how valuable the Management Consultant’s Report is, if used effectively. Navigate to "Main menu/Assessing performance/Management consultants report" The additional information relates to the highlighted comment about Sid Arkle being headhunted. Navigate to "Main menu/Industry information/The environment in which the company is operating" The cost per period of the Management Consultant’s Report is shown in the Industry information. It is recorded as a non-departmental overhead cost in the financial reports. KEY POINTS The cost of the management consultant cannot be avoided. Within each category the report can also be filtered by sub category. For example, the company is now in period 10, and the Construction Manager is interested in the performance of all project managers during the previous period. To achieve this the following filters used would be :- Category choice of “JOB” Period choice of 9 Sub Category choice of “Project Managers” What do the results look like ? The report can be filtered by decision area :- ALL (All comments) FIN (Financial) OVH (Overheads) PRO (Procurement) JOB (Job Progression) The report can also be filtered by period,. In most cases the previous processed period will be the one that needs to be analysed closely. The nature of the comments made is either :- ‘POSITIVE’ if the comment is positive ‘NEGATIVE’ if the comment is negative ‘UNCLASSIFIED’ if the comment neither positive or negative It is the negative comments that will need to be addressed as a matter of urgency. The Construction Manager can clearly see that all the project managers performed extremely well during period 9. However, there is one area of concern. The quality of the project managers is so high that there is a danger of Sid Arkle being lured away from job 160 by other offers, and a higher bonus may need to be paid to him to try and tempt him to stay with the company. The Show additional information option can be used to display more detailed information about the highlighted comment, if any is present. Keep clicking anywhere on the screen to advance Quit

Analysis Tools The Selected jobs analysis provides a graphical analysis of the jobs currently being displayed The Job analysis is the gateway to detailed information about any of the jobs that the company has identified (prequalified for). The information includes :- A list of all jobs identified; these can be filtered by status Detailed risk analysis; for all jobs won Detailed retention analysis; for all jobs won The Overhead analysis provides detailed period information appropriate to each department. For the Marketing Department :- Market trend; the past, current and future value of new work by sector and location. Marketing performance; staffing levels, where marketing effort was directed, and the value of new work identified. For the Head Office, QHSE and Measurement Departments :- Performance; staffing levels allocated in relation to the turnover of the company. Information is available to enable a detailed analysis of the affect of previous decisions in a number of key business areas, providing an aid for making effective decisions for the future. We will take a brief look at the range of Analysis Tools available. Navigate to "Main menu/Assessing performance/Financial analysis/Financial performance" On all analysis screens a ? indicates that more detailed information is available about how a figure was arrived at. The Financial analysis provides detailed information about the financial performance of the company since it began operating. This includes :- Financial performance; a summary, by period and graphically for all periods Share price analysis; including share price and dividend payments Investment analysis; the performance of all investments The Procurement analysis provides a detailed analysis of :- Bidding success by period; each job is examined in turn to see why it was won or lost, taking into account the various factors that affect the bidding, such as procurement restrictions (company based and job specific) and price. Rival bidding history; Detailed information about the all rival bids to date, to enable future bidding strategy to be refined. Further analysis tools provide historical information relating to the company’s relationship with :- Clients Project managers Consultants Displaying job details provides detailed information relevant to the current status of a job. The details can be filtered to show :- Job summary Period by period analysis Graphical analysis for all periods Keep clicking anywhere on the screen to advance Quit

Timeframe All decisions are made for a quarter, also known as a period, representing 3 months in the real world. The company has already been operating for one full year, 2016 (periods 1 to 4), before the new management team take control. The company is then managed from period 5 (2017 Quarter 1) onwards. The timeframe shows the current period the company are in, and where the rival competition for comes from when bidding for work.

The Environment In Which The Company Is Operating
Financial, overhead, procurement and job progression parameters define the environment in which the company is operating, and can influence the decision making each period. Most remain fixed (shown in yellow), but some can vary from period to period (shown in red), such as the prevalent interest rates.

Global Economic Outlook
The Economic outlook is given for the UK and overseas economies for the foreseeable future. Knowledge of the global economic outlook is important in helping the management team to form an effective strategy for the future growth of the business. Navigate to "Main menu/Industry information/Global economic outlook"

ENN World News Information is critical for re-evaluating business strategy, and to reflect this world news, based upon current and future world events, is available from ENN, the ENGINUITY NEWS NETWORK.

World Events World events that have affected the company are shown, and can be filtered in a number of different ways.

Country Information The Country information describes the countries in which the country may be able to identify work, including country-specific settings, such as subcontractor cost per period.

Client Information The Client information lists the clients with whom the company may be able do work for, depending upon which sectors and locations their marketing effort is directed. An indication is also given of the level of relationship that may be needed with the client in the future in order to be able to bid for work with them.

ENGINUITY 2017 Tutorial Copyright Virtual Management Simulations.

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