MERIT 2013

1. Financial
Dividend: How much dividend should be paid? o Dividend is paid as a % of Equity (Equity = Share value x Number of shares). Paying a good dividend pleases the share holders and improves the share value. It is not necessary to pay dividend. The share value is also influenced by other factors like future profitability, gearing ratio etc. Capital base: How much should the capital base be changed? o Increase of capital base allows us to support more workload. This is basically like improving infrastructure facilities of the company. o If we are short of liquid cash, capital base can be liquefied to get some money in cash. Investments: Decisions regarding the investments in other companies. o Bank gives poor returns compared to what we can potentially gain from other companies and firms. o A good investment improves our relation with that firm and helps us to get preferential rates. Savings in build cost because of the preferential rates usually outshines the % return for investment. Terminology: o (Assets) Company value = Cash A/C + Capital base + Investments Cash in bank can be in credit or in overdraft (then it is a liability) There is an overdraft limit. If the operating profit of a period is more than the overdraft, it is noted that going to overdraft does not have any ve impact. However, if operating profit is less than overdraft, cash a/c will be ve at the end of period and we will have to pay high interest for that amount. In addition, it also affects the share values. Paying dividend temporarily reduces the company value as it goes from cash a/c Financial Manager: Makes effective use of companys assets o Turnover (measured value): is the actual value adjusted by the measurement effort of the company for the period. Expected value = effective labour planned value per man period Actual value = Expected value adjusted for factors affecting productivity Project manager performance Level of site cost allocated Labour relations policy of the company Measurement Effort depends upon how well measurement staff is able to cope with the turnover. o Retention = a small % of the measured value is held by client each period. (Say 1.5%). This value is released in two stages i) when the work is finished and ii) 2 periods after the completion of work.

o Early completion Bonus and penalty: If the project is completed at least 1 period before the schedule, the client pays a small bonus (about 0.5%) and if we exceed the contract duration, we will have to pay a significant penalty per period. o Money received = Turnover + Early completion bonus + retention repaid retention held o Overheads costs = Overhead dept costs (Marketing + Estimation + Head office + QHSE + Measurement) + Cost of bidding + Idle labour + Idle project manager + Ext. Performance review cost o Corporation Tax: almost 23% of (Gross profit Over head costs) We do not need to pay tax if we are on loss and capital allowances are carried forward to future periods Capital Allowances are acquired by investing in the companys capital base. Almost 25% per annum o Profit Gross profit = Total money received costs Operating profit = Gross profit overheads tax + credit interest (from bank) overdraft interest (to bank) Operating profit directly goes into the cash a/c

2. Overheads
Overheads are the non-contract based support services required to enable the company to win and progress work. Consists of 5 departments + nondepartmental overheads Overhead Manager is responsible for decisions related to the departments (staffing and directing the marketing efforts into sectors). Non-departmental overheads are the responsibility of other managers. Marketing o They forecast the market trends and opportunities o Helps the company pre-qualify for projects. Estimating o Estimates the projects that were prequalified for. Head office o Head office staff deal with buying, accounting and IT issues o Based on turnover QHSE o QHSE staff deal with quality, health & Safety and environmental issues o Based on turnover Measurement o Measurement staff (quantity surveyors) o Based on turnover Non-departmental o Idle labour o Idle project managers

3. Estimating
Estimating Manager decide how much effort (man weeks) to put into pricing the job which involves estimating costs and associated risks. Sufficient resources produce accurate estimates high confidence in the estimate and o This enable more informed competitive bidding. o Enhance client satisfaction

4. Bidding
Each period the company can bid for projects which were estimated in the previous period. There are 2 types of projects (i) Build only and (ii) Design and build Bid value = Estimated build and design costs + Oncost (= site support costs + contingency for risk + PM costs - savings) + mark-up (margin) A bid also includes the allocation of a consultant if it is a design and build project. Other factors o Sequential tendering : where we change mark-ups based on other bidding results o Work load limits o Limit of maximum number of ongoing projects at any stage o Client relation Bidding results o High bid: our bid value is way higher than rival bids we lose the project o Low bid: our bid value is way lower than the rival bids client is suspicious about the quality of work we will be delivering we lose o Competitive bid: If our bid is competitive enough, we will win the project on cost alone. o Bids are close: if our bid values are close to the rival bids, the client awards the project to the one having better client relation. This can make bid differences.

5. Personnel
Personnel Manager needs to make decisions about who the company should employ, which idle project managers to payoff etc. o Right person can noticeably improve the progress of job and wrong person can affect the progress. o Involves assigning project managers for all ongoing projects to take oversee the work. Also involves taking decisions about bonus to be paid and Gold en hello to be given to ensure services of newly recruited project managers. Project managers Resign: if the bonus paid is not sufficient o They may bear a grudge and may not be available for some time future.

The top performing project managers can be poached by rival companies regardless of the level of bonus they are paid.

6. Construction
Construction Manager is responsible for ensuring the progress of jobs that have been awarded to the company by o Providing sufficient labour o Providing sufficient site support Over-manning limit the permitted level of effective labour that can be allocated without any detrimental effect on performance. o Effective labour = labour allocated ineffective labour (due to the training of companys new recruits) Trying to complete job early - the benefits include o Early completion bonus o Labour gets freed and becomes available for other projects o Companys capital assets (plant, buildings etc.) can be diverted elsewhere o Cash flows are improved. Avoid Overrun o Overrun has the following effects A penalty for late completion Resources are held -ve impacts on company reputation and client satisfaction Own v/s Subcontract Labour o Subcontractors cost more than own labour o Reliance on subcontractors can affect the morale of the companys own labour o Factors to be considered The time it takes to train new recruits, and cost involved The site costs that need to be paid whilst people are being trained The additional cost of employing subcontractors The anticipated duration of a contract How many periods subcontractors need to be employed for The affect of using subcontractors on the morale of compa nys own labour. o Also controlled by the maximum number of new recruits possible in each period.