ACADEMIC YEAR 2016

MASTER OF BUSINESS ADMINISTRATION

SQQP 5023
Decision Analysis

A CASE STUDY : TURNER CONSTRUCTION COMPANY

GROUP ASSIGNMENT (30%):
PROJECT MANAGEMENT CONTROL SYSTEMS

PREPARED FOR:

Dr Martino Luis

PREPARED BY:

MAGDALENE JOHN 820005

JAYA KRISHNAN 820006

SANGEETHA KISNA 820004

SAIRA NUR FARRIN BINTI BAHARIN 820916

NOREMI SHAARI 820790

 SQQP 5023 Decision Analysis – Group Assignment

Table of Contents
1 1.0 Important Aspects of the Chosen Chapter Which Related to The Case Study ........... 3
1.1 Project Management .............................................................................................. 3
2 COMPANY BACKGROUND / HISTORY .............................................................................. 4
2.1 BACKGROUND & INDUSTRY .................................................................................... 4
2.2 COMPETITORS......................................................................................................... 6
3 THE ISSUES, PROBLEMS, AND CHALLENGES FACED BY TURNER CONSTRUCTION
COMPANY IN THE CASE STUDY. ............................................................................................. 6
4 STAKEHOLDERS AND THEIR ROLES IN THE CASE STUDY .................................................. 8
4.1 Internal Stakeholders .............................................................................................. 8
4.2 External Stakeholders ............................................................................................. 9
5 THE CASE STUDY DISCUSSION QUESTIONS ................................................................... 10
5.1 What is Turner’s Business Strategy? How does the strategy differ from competitors?
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5.2 What contingencies could threaten or invalidate the viability of Turner’s strategy?
10
5.3 Evaluate the IOR system and related reports and meetings. Does the IOR system
force managers and the project team to address the contingencies you identified in Q2. 11
5.4 If you were Gary Thompson, what would you say about the $500,000 contingency
to :- 11
5.4.1 Senior Manager (Les Shute & Don Kerstetter); .................................................. 11
5.4.2 The Owner of Kent Square ................................................................................. 12
5.4.3 Project Team ..................................................................................................... 13
5.5 Conclusion: ........................................................................................................... 13
6 RECOMMENDATION ......................................................... Error! Bookmark not defined.
6.1 Other tools ............................................................................................................ 14
7 Appendixes
………………………………………………………………………………………………………………………………………… 14

8 References ................................................................................................................... 18

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1 1.0 Important Aspects of the Chosen Chapter Which Related to the Case Study

Before we continue to discuss on the case study given, it is pertinent to analyse the
important aspects of the chapter related to the case study which is Project
Management.

1.1 Project Management

Based on literature review, “Management is generally perceived to be concerned

with the planning, organization and control of an ongoing process or activity such as
the production of a product or delivery of a service.” (Bernard W. Taylor, 2014, p.
367)

In the meantime, Project Management is concerned with control of an important

activity for a relatively short period of time after which management effort ends.
There are several elements of project management which involves project planning,
project return, project team and project control.

With regards to the case study given, Turner Construction Company: Project
Management Control Systems, it allows us to critically examine the control
mechanism adopted by the said company on one of their biggest Philadelphia
construction projects, the new Kent Square office tower through the Indicated
Outcome Report (IOR System).

Project control can be defined as the process of making sure a project progresses
toward successful completion. It requires that the project be monitored and progress
measured so that any deviations from the project plan and particularly the project
schedule, are minimized. (Bernard W. Taylor, 2014, p. 374)

This case gives details description of the project management control system, the
IOR system adopted by the company. Apart from explaining the mechanics of the
IOR system, the case also recognises the usages and benefits of the system from
different level managers’ perspectives. The usage of the IOR system as a decision
support tool is illustrated through the $500,000 dilemma which arose as the project
progresses.

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2 COMPANY BACKGROUND / HISTORY

2.1 BACKGROUND & INDUSTRY

Turner Construction (“Turner”) is a North America-based, international construction

services company with its headquarters in New York City. Turner aims to be the
highest value provider of global construction services and technical expertise.

As of today, Turners is the biggest general contractor in America and its services
encompasses various market segments including aviation, pharmaceutical, retail,
healthcare, education, commercial, sports, and green building. Turner has also
expanded its wings and ventured successfully in the global market through Turner
International and is well known for its role in the construction of the world’s tallest
building, the Burj Khalifa in Dubai, the United Arab Emirates.

Turner has an office in Malaysia situated at The Intermark, 348 Jalan Tun Razak,
50400 Kuala Lumpur. In Malaysia, it is now doing infrastructure work on the Tun
Razak Exchange, the construction of the Warisan Tower and the Warisan Merdeka
Mall, the Four Seasons Place KL and working on Tradewinds Square, Menara Tun
Razak and the Etiqa office tower, a 38-storey office tower in Greater Kuala Lumpur.

In the late 1980s, Turner already has offices in over 35 cities and during 1989 alone
was managing 550 active projects and completed construction works valued at $3.6
billion. At that point of time, the operating income was $35.6 million. Turner in 1989
managed to secure $3.2 billion of new business contracts.

Structurally, Turner domestic operations were divided into 28 territories, each led by
a territory general manager (TGM). The TGM has considerable autonomy to run his
territory as an independent business and an important role of procuring new work.
Turner adopts a decentralised structure where the TGM will then reports to one (1)
of the five (5) group vice presidents who will then report to three (3) division
executive vice presidents (EVPs) wherein all of three were members of the Corporate
Executive Group. The Corporate Organisational Structure can be referred to
Appendix 1. Turner manages its construction operations on a project by project
basis. A territory operations manager (TOM), who will then report to the TGM,

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assembles project teams from his territory’s staff based on specific project
requirements, staff availability and employee development objectives.

It is important to note that TOM operates similar to a Chief Operating Officer whilst
the TGM functioned more like a territory Chief Executive Officer. TOM usually has
about 3 to 6 project executives who head 4 to 5 projects at a time. These project
executives will then be assisted by project managers who were assigned to manage
each large project. The typical construction operations in territory structure, Refer
Appendix 2.

Usually, a typical construction project at Turner will last between 1 to 3 years and
was valued between $10 million to $25 million. Turner, upon being awarded a
construction project will thereafter plan and schedule construction, procure the
required materials and manpower, award subcontracts and manage overall
operations.

Throughout the contract period, Turner project team members will maintain on-
going communications with the owner and architect as well as its subcontractors and
suppliers. The negotiations with the owner to set the terms of each contract will be
done using Turner’s own estimating staff, subcontractor input and database of past
experience to estimate project costs. The owner will compensate Turner on a cost-
plus basis up to the guaranteed maximum price (GMP) stated in the contract.

Similarly, the fees for managing the project such as gross earnings will also be
stipulated in the contract. As an incentive for careful cost management, any savings
between the GMP and actual costs will be shared between the owner and Turner in
accordance to the contract. Meanwhile for costs in excess of the GMP, will be
absorbed by Turner, reducing its project fee earnings.

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2.2 COMPETITORS

According to Hoovers.com (which is a site that claims to be the largest database of

over 85 million companies), Turner has 2 main competitors namely Bechtel Group
Inc. and Skanska.

Bechtel Group Inc. is a global engineering, construction, and project management

firm serving the oil and gas, power, transportation, communications, mining, and
defence and security markets. It’s Oil, Gas & Chemical business unit (particularly
liquefied natural gas) and its Mining & Metals group are Bechtel's leading revenue
producers.

Founded in 1898, it may be best known for building the Hoover Dam and its
containment work at the Chernobyl nuclear plant. Since 1898, Bechtel Group Inc.
completed more than 25,000 projects across 160 countries on all seven continents.
Bechtel Group Inc. operates through four global businesses namely Infrastructure:
Nuclear, Security & Environmental; Oil, Gas & Chemicals; and Mining & Metals.

Skanska AB is a multinational construction and development company based in

Sweden. Skanska is the 5th largest construction company in the world according to
the Construction Global magazine.

Founded in 1887, Skanska offerings include pre-construction consultation, design-

build, and construction management. It serves sectors ranging from infrastructure,
sports and entertainment, education, and health care.

In the Malaysian context, since Turner is also participating in the construction

industry, it is also wise for them to consider the following companies as their
competitors:-

3 THE ISSUES, PROBLEMS, AND CHALLENGES FACED BY TURNER CONSTRUCTION

COMPANY IN THE CASE STUDY.

One of the main issues faced by Turner construction management company is that
the owner of the Kent Square office tower) is requesting the company to release

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COMPETITOR INFORMATION
UEM Group  UEM is one of the largest construction companies in Malaysia &
famous for large scale infrastructure projects.
 It has assets totalling USD 6.7 billion (RM23.4 billion) and shareholders'
funds standing in excess of USD 2.2 billion (RM7.7 billion) as at end
December 2014.
 Completed infrastructure, transportation and building projects in
Malaysia totalling more than USD 8.4 billion since 1988.

YTL Corporation  YTL is Malaysia's largest contractor (construction) company.

 YTL Corp, together with its four listed entities in Malaysia (YTL Power
International Berhad, YTL Land & Development Berhad, YTL
e-Solutions Berhad and YTL Hospitality REIT)
 Has a combined market capitalisation of approximately RM31.0 billion
(US$8.40 billion) as at 31 March 2015.

IJM Corporation  IJM Corporation is the product of a merger between IGB Construction,
Jurutama, and Mudajaya in 1983.
 IJM’s main services include property development, manufacturing,
infrastructure concessions, and plantations both locally and globally.
 IJM has a market cap of 2.8 billion USD.

Gamuda  Gamuda was established in 1976 & focuses mainly on engineering and
construction, infrastructure concessions, and property development.
 Their work can be found in Malaysia, as well as abroad.
 The company has a market cap of 2.2 billion USD.

Malaysian Resources  Formally known as Perak Carbide in 1969, today Malaysian Resources
Corporation Corporation focuses on property engineering and construction,
infrastructure, concessions, and environment and building services.
 The company has a market cap of 661 million USD.

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$500,000 in projects savings so that the money will be available to the owner to
reinvest in additional projects.

On the other hand, the project is expected to complete in the next 5 months as they
have only achieve 80% of completion. The company strongly believes that the
contingency reserves are deemed necessary. To add on, the contract for the job calls
for the savings participation that means that once they released a contingency as
savings they will share it with the owner in this case keeping 25 percent with
themselves and returning 75 percent to the owner.

Their managers are trained to be conservative and have been threatened to their
lives to protect their gross earnings on the job. Then they are forced to dip into the
fee earnings to complete the job. Because of the pressures their people have a
tendency to hold contingency until the very last minute. But if they wait too long to
release the savings it can threaten the relationships with the owner. This timing of
the issues worries them the most because it can really bite them sometimes. The
other pressure is the because of a loss of sale of a turner development building,
corporate had called on the division executive VP to come up with an additional $
200,000 earnings for the quarter. They said to see how much territory they could
contribute. This is the strategy that could violate or reduce the contingency.

4 STAKEHOLDERS AND THEIR ROLES IN THE CASE STUDY

Oxford Dictionary defines stakeholders as a person with an interest or concern in

something, especially in business. In the context of a project, a key stakeholder can
make or break the success of a project. Even if all the deliverables are met and the
objectives are satisfied, if the key stakeholders are not happy, then no one is happy.
Based on our case study, we have identified the key stakeholders to be as follows:

4.1 Internal Stakeholders

 Territory GM (TGM) – Gary Thompson:
Run his territory as an independent business and prospect for new work and also act
as the Territory CEO.
 Territory Operation Manager:

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Assembled project teams from his territory ‘s staff based on specific project
requirements, staff availability & employee development objectives. Also act as
Territory Chief Operating Officer.
 Project Executive – Jim Verzella:
Assisted by project managers who are assigned to manage each large project, he
would fix the Turner’s fee for managing the project under the contract.
 Owner of Kent Square Project
Future scope development, compensate Turner on a cost-plus basis, up to the
guaranteed max price (GMP) stipulated in the contract.
 Project Team, led by Project Manager
Bill Rantanen and assisted by Project Superintendent, Project Engineer, Assistant
Superintendent, Assistant Engineer, Field Engineer : Maintains ongoing
communications with owner, architect, as well as with large number of
subcontractors & suppliers.
 Senior Cost Engineer – Jayne Murphy:
Hands on with the IOR updating process.
 Cost Engineer – Holly Green
Review variety of document logs to note all new transactions, such as new work
orders issued to subcontractors.
 Chief Estimators & Estimators:
Develop IOR report for the job.
 Eastern Division Executive Vice President – Don Kerstetter
To make sure each territory knows all the problems, opportunities & focuses on the
proper level for contingencies. Decide the risk management aspect when a proposal
was approved.
 Southern Group Division Manager – Les Shute:
Monitor the monthly territory review meeting.

4.2 External Stakeholders

 Owner of Kent Square Project
Future scope development, compensate Turner on a cost-plus basis, up to the
guaranteed max price (GMP) stipulated in the contract

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5 THE CASE STUDY DISCUSSION QUESTIONS

5.1 What is Turner’s Business Strategy? How does the strategy differ from competitors?

Turners Business Strategy is to make the owner as partner in managing the project
and to Turner; this is viewed as a way of getting repeat business. This strategy differs
from its competitors because Turners has competitive advantage whereby turner has
the ability to share accurate information with the owner during the progress of the
project. Besides that, the company proclaims by projecting itself as quality work and
not competing on price. On the other hand, the company use of GMP which leads to
sharing of savings. The other major competitive advantage is the utilization of IOR
system as their project control. This IOR system is used to identify the timing of the
savings in the project and also to identify the problems and options in the project.
The other success reasons are, Turner does not compete solely on price and they
show that they are expert managers and can spend money efficiently. Other reasons
include they would select knowledgeable clients to work and the company also has
decentralized organization structure.

5.2 What contingencies could threaten or invalidate the viability of Turner’s strategy?

Some of the challenges encountered by the company are cost, time and owners
experience and knowledge.

From the cost perspective, there may be high running cost in making IOR, decision
making and negotiation with owners. Cost over runs that might occur after a decision
taken under pressure of owner after releasing the savings some situation like strike,
overtime demand etc. might incur cost overruns that occur because of improper cost
estimates which happen because of difficulty in estimating.

Where else, as for time challenge, lots of time will be invested in updating IOR and
decision making later. This time is of waste if IOR is not estimated properly. But, not
all cost engineers are equally adept at making IOR and the company will need
executives who have been exposed to all parts of business.

On the other hand, from the owner’s experience and knowledge in making decision
is critical; demands of owner to release savings prematurely thinking they could

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invest the savings and pressurizing the company is unnatural and may require
frequent changes in scope.

5.3 Evaluate the IOR system and related reports and meetings. Does the IOR system
force managers and the project team to address the contingencies you identified in
Q2.

A system for project control that Turner uses is known as Indicated Outcome Report
(IOR) which allows them to be proactive in their ability to determine the areas where
potential savings or cost overruns may occur within a project. The IOR is a forward-
looking project management tool, which also includes Exposure Holds (E-Holds) and
Contingency Holds (C-Holds). The IOR is used to inspect risks on the project and make
recommendations. The IOR is required for the project to determine independent,
interpretive analysis with respect to the budget report, including general conditions,
general requirements, staff, labor, insurance and taxes required to manage the
indicated costs of projects, holds, contingencies and allowances. At the same time,
as part of the IOR system process, Turner would conduct IOR Review Meetings
continuously throughout the project period. In summary, the following illustration in
Appendix 3 would show us the analysis of the IOR Review Meetings:-

5.4 If you were Gary Thompson, what would you say about the $500,000 contingency
to:-
5.4.1 Senior Manager (Les Shute & Don Kerstetter);

When talking to the senior management if we were Gary Thompson we would

provide Turner with an alternative option to consider as well as our recommendation
on how it would be best to proceed.

The alternative option is to release the entire $500,000 from the construction
contingency. Since the contingency “reserves are often viewed as the part of the
budget intended to address the “know-unknowns” that can affect a project”. This is
because the project is 80% complete and the project has been able to mitigate
contingencies with minimal need to use the money from this fund.

By releasing this money it would help this earnings quarter, because a 25% of the
release with the project 80% completes provides $100,000 into quarter’s earnings.
The risk with this is if the project does encounter additional expenses higher than
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anticipated then they would have to go back to the owner to return some of the
contingency reserves, which would not look good for the company.

Another alternative would be to release only a portion of the Construction

Contingency reserve as well as a portion from the E-Holds and C-Holds reserve. This
is because in order to provide the owner with the best service, we need to find a way
to ensure we can provide him the requested $500,000. The fund in Construction
Contingency is $511,000 whilst in the E-Hold is $471,000 and C-Hold is $328,000.

As the project progresses with the adjusted amounts “each reserve pool will be
exhausted at the end of the project.” With the talk of possible strike in one of the
trades and additional cost expected for clean-up we are of the view that releasing
the E-Hold would be unwise. In the C-Hold we recommend to release $97000 which
still leaves some balance for Turner to deal with any possible unknowns during the
last few months of the project. To demonstrate this matter, it is best for us to refer
to Appendix 4.

5.4.2 The Owner of Kent Square

To the owner of the Kent Square office tower we would reassure him that the Turner
business is dependent upon their ability to provide the best risk management of
projects to their customer. We would take the time to sit down and provide a review
of the IOR reports and describe where best we believe we can release funds and still
provide high-quality risk mitigation towards completing the project.

We would explain our concerns about pulling all the money from the Construction
Contingency because there are still five months left before the project is complete.
There are still risks such as possible strike and clean-up risk that will need to be
addressed and if all funds were released just from the Construction Contingency
reserve any unknown events would have to be covered by him.

By releasing a portion from contingency fund we will allow Turner Construction

Company to mitigate contingencies, while at the same time ensuring we do not end
up with under estimating cost and expenditures. It is important to note that
releasing funds according to proportionate estimate from the Contingency Fund is
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not an accurate method and that deviations may occur. Also, these deviations will
be shared between the company and the owner.

5.4.3 Project Team

To the project team we would have to ensure everyone was informed of the
changes to available funds. Each team lead would be responsible for ensuring that
their portion of the project was re-evaluated to ensure cost overruns did not occur.
Each situation will have to be more closely monitored over the last five months,
and any needed precautions should be taken to keep cost at a minimum.

Top managers down to the line supervisors will need to ensure the project
continues to run as smoothly as possible. The goal of the project should be to
continue to be committed to provide the smooth running of the project should be
continued at any costs.

5.5 Conclusion

After taking into account the business strategy of Turner and the pressure from the
top management to book $200,000 quarterly earnings due to loss of sale of a
building, we would advise for the money requested by the owner be released
accordingly which will solve all the issues raised.

6 Recommendation

Turner adopts the IOR system which would provide each general manager with the
tools to sufficiently estimate the progress of each project. By separating the
contingency funds into multiple reserves, it will make it easier for them to be able to
make adjustment as the project.

Also, assigning key accounts to the different E-Holds and C-Holds areas will ensure
the general manager and senior leadership account for project expenses and
potential contingencies that need to be addressed accurately.

Apart from that, it will be best if a special arrangement of early release of

contingency fund prior to project completion can be predetermined such as the
following:-
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 Return of lesser 10% of the total contingency fund

 Investor to assign another new projects to Turner
 Existing investor with long relationship with Turner

6.1 Other tools

In project management, there are other tools for project management such as
construction management software which combines project management,
document management, budgeting, scheduling and more to create a catch all system
for contractors. These solutions help managers of a construction site stay on time
and on budget by making most of their materials and labour. Append Appendix 5 is
a summary of some of the popular software used by other companies. In this regard,
hopefully the recommendations can assist Turner to a better project management
exercise as a whole.

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7. Appendixes

Appendix 1

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Appendix 2

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Appendix 3

Appendix 4

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Appendix 5

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8. References
Bernard W. Taylor, I. (2014). Introduction to Management Science. Pearson Education.

Project Decision Analysis Process. (n.d.). Retrieved from http://www.intaver.com:

http://www.intaver.com/Articles/Article_ProjectDecisionAnalysis.pdf

Qualitative and Quantitative Risk Analysis. (n.d.). Retrieved from Intaver Institute:
http://www.intaver.com/Articles/Article_QuantitativeRiskAnalysis.pdf

http://www.turnerconstruction.com/office-network

http://www.theedgeproperty.com.my/content/turner-international-keen-expand-malaysia

http://www.thestar.com.my/business/business-news/2014/08/04/turner-sets-sights-on-
greater-kuala-lumpur/

http://www.marcopolis.net/top-construction-companies-in-malaysia.htm

http://www.hoovers.com

http://www.bechtel.com/about-us/

http://www.constructionglobal.com/top10/25/Top-10-construction-companies-in-the-
world

http://group.skanska.com/about-us/skanska-in-brief/

http://www.marcopolis.net/top-construction-companies-in-malaysia.htm

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