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Contents
1 Introduction .............................................................................................................................. 2
2 Analysis ..................................................................................................................................... 3
2.1 Background ....................................................................................................................... 3
2.2 PEST Analysis .................................................................................................................... 3
2.3 Production Process ........................................................................................................... 5
2.4 Monthly Break-Even Quantity Analysis ............................................................................. 7
2.4.1 Current situation ................................................................................................................... 7
2.4.2 If a draftsman were hired ...................................................................................................... 8
3 Conclusion ............................................................................................................................... 10
4 Sources and references ........................................................................................................... 11
4.1 Primary Source: .............................................................................................................. 11
4.2 Secondary Sources: ......................................................................................................... 11
4.3 Other Sources: ................................................................................................................ 11
5 Appendix ................................................................................................................................. 12
5.1 Primary Source: Interview to Arch. Marco Cabrera Sandoval .......................................... 12
5.2 Primary Source: Interview to Arch. Marco Cabrera Sandoval – Answers ......................... 13
5.3 Secondary Source: Decreto Ejecutivo N° 18636-MOPT, art. 4 - Arancel de Servicios
Profesionales de Consultoría para Edificaciones (Executive Decree N° 18636-MOPT, art. 4 - Tariff of
Professional Consulting Services for Buildings) ................................................................................ 16
5.4 Secondary Source: Informe económico del sector construcción (Economic Report on the
construction sector) ........................................................................................................................ 17
5.5 Secondary Source: Guía: Administración profesional de proyectos en arquitectura para
casas de habitación (Model of Professional Project Management in Architecture) ......................... 18
5.6 Secondary Source: Company X Financial Summary, Jan 2014 - July 2015 ........................ 19
Marco Antonio Cabrera Aguilar IB Business & Management: Internal Assessment (SL)
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1 Introduction
Company X is a firm that provides services of Architecture and Design to the high
class of Costa Rica. During the ’08-’09 global crisis, the contraction of the country’s
construction sector was so severe that Company X had to go as far as reducing its staff to
avoid bankruptcy. However, the industry is slowly recovering, and the demand for the
company’s services is increasing. This poses a dilemma for Company X Management
Department, which must choose between keeping operation with the current staff or
hiring an additional employee to be able to engage in more upcoming projects. Thus arose
this project’s research question:
To what extent would an increase in staff have a positive effect on the Revenue-Cost Ratio
of Company X?
In order to give an appropriate answer to this question, this analysis makes use of
several business tools to assess the current state of the company. The PEST Analysis
allows for a thorough comprehension of the external factors that affect the company’s
operations and how these relate to its current state. An analysis of the company’s
Production Process helps to determine the areas in which it can be improved, which
results in the judgement that the most fruitful course of action is hiring an additional
draftsman. Finally, the Break-Even Quantity analysis provides a clear visualization of the
performance of the company in its current form and after implementing the improvement
proposed.
By contrasting these two scenarios, this analysis leads to the conclusion that an
increase in staff would greatly enhance the company’s operations, since it would achieve
greater profits while making use of less time, and would have a significant positive effect
on its Revenue-Cost Ratio.
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2 Analysis
2.1 Background
Company X began in 1993 as a consultancy firm that provides services of
Architecture and Design. Since then, it has built itself a reputation of devising high-quality
products, oriented towards the high class of Costa Rica. This brand image is the basis for
its marketing strategy, which relies mainly in the clients’ loyalty and their
recommendations to other potential customers.
Furthermore, the Association of Engineers and Architects of Costa Rica (CFIA, for
its acronym in Spanish) establishes price floors for the services the companies provide,
which are set as percentages of the total value of the projects2. This is intended to
eliminate unfair competition, but it also prevents companies from using price penetration
as a strategy for attracting customers and increasing market share.
As has been mentioned, the recent global crisis had a major impact on the
construction sector. For instance, a report by the Chamber of Construction of Costa Rica
shows that inter-annual growth rates for this sector fell from 18% in January 2008 to -3%
in January 2009, which was followed by a slow and unsteady recovery up to date3.
Furthermore, according to Company X General Manager, Arch. Marco Cabrera, the
1
Interview to Arch. Marco Cabrera Sandoval, Company X General Manager, September 4, 2015.
2
Executive Decree N° 18636-MOPT, art. 4.
3
Cámara Costarricense de la Construcción, Informe económico del sector construcción, June 2015.
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volatility of interest rates and the lack of government involvement combine to restrain
potential investors from pursuing infrastructure projects, both in the public and the
private sector4.
The social repercussions of this situation are endless, but the ones that most
closely relate to this investigation include the increase in unemployment and, as a
consequence, the fall in the price of labor. This of course reduces operating costs for the
companies, but has negative effects on the quality of living of the workforce.
4
Op. cit. Marco Cabrera Sandoval
5
Ibid.
6
Ibid.
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According to the company’s General Manager, the first steps of the process are
very straightforward, while the bulk of the project corresponds to the creation of digital
3D models and other visualizations by the draftsmen. This stage tends to suffer a myriad
of changes, both from the clients’ requests and the Designer Architect’s criteria8.
7
This figure was elaborated using information from the interview to Arch. Marco Cabrera and the
document Guía: Administración profesional de proyectos en arquitectura para casas de habitación.
8
Op. cit. Marco Cabrera Sandoval
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This is backed by the information presented in Figure 29, which shows the
estimated amount of hours each employee invests on an average Company X project. As
can be seen, draftsmen account for 284 man-hours of the 726 that make up the whole
process, that is, around 40%.
Figure 2. Company X employees' tasks and hours spent on each task for a typical project
9
This table was elaborated using information provided by Arch. Marco Cabrera Sandoval
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The average project generates $29,700.00 in revenues for the company11. Since
each project takes about 726 man-hours to be completed, it follows that each man-hour
generates, on average, $40.91 in revenue. In total the staff brings in $327.32 per hour 12.
10
The data used in this table proceeds from Company X Financial Summary, Jan 2014 – July 2015
11
Op. cit. Marco Cabrera Sandoval
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All the previous information is summarized in the following table, which displays
the equations of the functions that describe the curves corresponding to each aspect 15.
12
Current staff consists of a Designer Architect, a Coordinator Architect, two Draftsmen, two
Interior and Spatial Designers, an Accountant, and a Janitor, for a total of eight people.
13
Company X Financial Summary, Jan 2014 – July 2015.
14
If a draftsman were hired, the staff would be constituted by nine people.
15
These equations take 𝑥, the amount of hours worked, as the independent variable, and 𝑦, the
monetary value of the cost/revenue resulted, as the dependent variable.
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From this data we can calculate the Break-Even Quantities for the current situation
and the hypothetical case of hiring an extra draftsman, which correspond to 76 hours and
69 hours, respectively16. In each case, the Total Costs/Revenues reached at said Break-
Even Quantities are $24,909.05 and $25,503.6117. This is reflected in Figure 5.
16
BEQ for current situation:
22465.08
𝑇𝐶 = 𝑇𝑅 ⟹ 22456.08 + 32.10𝑥 = 327.32𝑥 ⟹ 𝑥 = 327.32−32.10 = 76.10.
BEQ for hypothetical situation:
23298.41
𝑇𝐶 = 𝑇𝑅 ⟹ 23298.41 + 31.86𝑥 = 368.23𝑥 ⟹ 𝑥 = 368.23−31.86 = 69.26.
17
Total Cost/Revenue for current situation: 𝑇𝐶 = 𝑇𝑅 = 327.32 ∙ 76.10 = 24909.05
Total Cost/Revenue for hypothetical situation: 𝑇𝐶 = 𝑇𝑅 = 368.23 ∙ 69.26 = 25503.61
18
If an employee works 45 hours per week, then they work 45 ∙ 4.33 = 194.85
𝑇𝑅 327.32∙194.85
Revenue-Cost Ratio for current situation: 𝑇𝐶 = 22456.08+32.10∙194.85 = 2.22
𝑇𝑅 368.23∙194.85
Revenue-Cost Ratio for hypothetical situation: 𝑇𝐶 = = 2.43
23298.41+31.86∙194.85
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3 Conclusion
The analysis carried out leads to the conclusion that the recruitment of an
additional employee, specifically a draftsman, would have a significant positive effect on
the Revenue-Cost Ratio of Company X, which would be increased from the current 2.22 to
2.43, a 9.46% growth. This is because an extra draftsman would help expedite the process
of production of the company, especially the stage of development of the design of the
projects. As a result, the company would be able to engage in a larger amount of projects,
thus generating more revenue. Furthermore, the cost of hiring said draftsman would not
significantly increase the total costs of production, so this increased revenue would be
translated into an increased profit.
The advantages of this course of action can also be seen in the Break-Even Point of
the company. Currently, this lies at a Break-Even Quantity of 76 hours of staff work, at
which $24,907.76 are perceived. Hiring a draftsman would drag down the Break-Even
Quantity to 69 hours, and increase the revenue to $25,505.17. This data points to an
enhancement in Company X Production Process, for it would be able to generate a greater
amount of revenue in a smaller period of time.
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5 Appendix
Company X
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they provide us with setbacks [zones of the property left unbuilt], availability of basic services, maximum
allowed inhabitants, and if the project is environmentally viable or not.
We usually operate in established condominiums, but there are restrictions on environmentally fragile
areas, like Escazú and Santa Ana, or areas destined to the preservation of nature, like parts of San Rafael
de Heredia and Ciudad Colón.
8. No, en absoluto, porque al menos dentro de la administración una de las políticas es el cumplimiento al
100% de la normativa. Nosotros procuramos cumplir con las normativas y las leyes, porque a pesar de
que son restrictivas, permiten un mejor desarrollo de los proyectos. Además, tampoco queremos tener
ningún problema legal, ni con las instituciones ni con nuestros clientes.
9. Después de la crisis del 2009 la construcción no volvió a ser la misma. Duró por lo menos unos tres años
en recuperarse un poco. A partir de ahí ha sido muy inestable porque no hay una política clara del
gobierno y de las instituciones involucradas. Hay mucho temor de inversión, mucha volatilidad en
cuanto a las tasas de interés, mucha amenaza al factor cambiario. Todo esto hace que para los
inversionistas Costa Rica no sea atractivo. Ha aumentado el riesgo de inversión, la calificación país ha
bajado. Todo eso ha ahuyentado un poco la inversión.
After the 2009 crisis construction was never quite the same. It took at least three years to somewhat
recover. Afterwards, it was been very unstable, because there are no clear policies from the government
and other relevant institutions. There is a lot of fear to invest, volatility of interest rates, threats to the
exchange rate. All this turns Costa Rica into an unattractive setting for investors. The risk of investment
has risen; the country’s ratings have lowered. All this has driven investment away.
10. [Ha causado] bajo flujo de trabajo. Muchos clientes han querido hacer proyectos pero se ha quedado en
sólo una propuesta porque terminan decidiendo invertir en otro país.
It has led to a low flow of projects. Many clients have wanted to engage in projects but have retracted,
leaving just a proposal behind, because they ended up investing in another country.
11. El acceso a los ingresos ha sido, como le decía, muy inestable. No ha sido continuo como en otros años,
sino que [se ha usado] casi que para cubrir costos de operación. No hay posibilidades de inversión o
crecimiento para la compañía, de momento.
12. Totalmente dependiente. Manejamos sistemas de cómputo muy sofisticados y muy caros. Las licencias
de un programa por computadora andan rondando los $6000, y estos son muy especializados. Son
programas como AutoCAD, como 3D Studio, Vector, entre otros. Cada uno es muy caro. En fin,
dependemos muchísimo de la tecnología. En términos de hardware, hay renovaciones de licencia, los
programas se vuelven mejores pero también más pesados, más complejos, entonces los equipos tienen
que renovarse para poder correrlos.
Completely dependent. We deal with very sophisticate and expensive software. The licenses of one of
these programs cost about $6000, and these are very specialized. We are talking about programs like
AutoCAD, 3D Studio, Vector, among others. Each of them is very expensive. Anyways, we rely heavily on
technology. In terms of hardware, when the licenses are renovated and the programs get better but also
heavier and more complex, so the computers have to be upgraded to be able to run them.
13. El 90% de los proyectos que desarrolla Company X están en el lado de Santa Ana, y hay unos pocos en el
lado este de la ciudad, específicamente en los condominios Monterán y El Gregal.
14. Llevan estilos de vida de lujo. Estamos hablando de casas que como mínimo tienen un área de 600m2,
hasta lo que uno se pueda imaginar. Para que usted se dé una idea, una casa de interés social mide tan
sólo 50m2. Entonces una casa de estas familias de clase alta tiene a su haber doce casas de interés
social.
They have very luxurious lifestyles. We are talking about houses that, as a minimum, span 600m2, and
get as big as you can possibly imagine. For you to picture it better, a low-income house spans only 50m 2,
so a house of one of these high class families equates twelve social-interest houses.
15. Es muy variado. En términos generales, el cliente nos contacta, se hace la reunión con el cliente, el que
tiene la reunión siempre es el dueño de la empresa y a través de él se canaliza la información. A partir
de ahí hay dos áreas: la administrativa y la técnica. Dentro de la parte administrativa se genera un
archivo, una base de datos, donde viene la parte de adquisiciones, contratos, facturación, y seguimiento
en la parte contable y de finanzas. Por otro lado viene la parte técnica, donde se recopilan los
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requisitos, y se hacen estudios preliminares para cumplir con la normativa legal. Luego se hace un
diseño, y una vez que se aprueba se hacen planos arquitectónicos, los cuales se envían a las ingenierías
para elaborar planos de ingeniería estructural, mecánica, eléctrica; a su vez está el diseño de espacio
interno. Posteriormente todo eso se recopila, se hace una conciliación de esos planos y a partir de ahí se
inicia el proceso de los permisos de construcción. Finalmente se recogen los planos sellados y visados y
se envían a presupuesto, lo cual no lo hacemos nosotros, y se inician las obras.
It varies greatly. In general terms, the client contacts us and we have a meeting with him; always carried
out by the company’s owner [the Designer Architect], through which information is collected. From there
on there are two areas: administrative and technical. The administrative part encompasses the creation
of an archive, the data base management the relations with suppliers, contracts, bills and finance.
Conversely, the technical part includes the collection of requisites and the elaboration of preliminary
studies to comply with the legal regulations. Then comes the design, and once it is approved, the
architectural plans, which are sent to engineering firms that develop structural, mechanical and
electrical plans; parallel to this comes the interior and spatial design. Afterwards all the information is
compiled, and then starts the process of gaining construction permits. Finally, the approved blueprints
are retrieved and sent to quotation, which is external to us, and the building process begins.
16. Los costos de operación directos incluyen la planilla: dos arquitectos, dos dibujantes, dos asistentes
administrativas y dos diseñadoras. Después estamos hablando del alquiler de una oficina en Lindora, lo
cual representa un costo alto, y los gastos de operación, servicios, pólizas de riesgos, obligaciones
obrero-patronales y mantenimiento, aire acondicionado, equipos de cómputo y algunas pequeñas
inversiones hechas para renovar los equipos.
The costs of operation include payroll: the staff is composed by two architects, two draftsmen, two
administrative assistants and two designers. Then there is the rent of an office in Lindora [a high class
zone], which represents a high cost, and the usual expenses, basic services, insurance, social
responsibilities, and maintenance, like air conditioning, computers, and some minor investments in
physical capital.
17. [Los] ingresos directos provienen de los clientes que nos contratan. Para que usted se haga una idea,
una casa de habitación de esa magnitud paga alrededor de $30000 por sus planos.
The revenues come from the clients that hire us. For you to picture it, a project of this magnitude injects
about $30000 in payments for our services.
18. En este momento, podríamos decir que sí. Sin embargo, estamos necesitando un dibujante más, por el
flujo de trabajo que se tiene, el cual a pesar de no ser alto genera mucha ocupación.
At this moment, we could say that it is. However, we are in need of an extra draftsman, because the
current work flow, in spite of being low, generates a great workload.
19. Me parece que es necesaria la figura de un dibujante más que nos ayude a generar más trabajo para
procurar mayor flujo [de trabajo] y por ende mayor ingreso.
I find necessary the presence of an extra draftsman to help us engage in more projects and as a result
generate more income.
20. Sería un dibujante, con salario de 45000 colones por mes más gastos obrero-patronales y pólizas.
It would be a draftsman, and their salary would amount for 45000 colones, plus insurance and social
responsibilities.
21. Sí claro, por supuesto.
Yes, sure, of course.
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Translation:
a) Preliminary studies
If the contract is referred exclusively to the concretion of the preliminary studies, or if the
client decides to call off the project during this stage, the honorarium will correspond to
1.5% of the estimate value of the project
b) Construction plans and technical specifications
The standard house defined by the state as of social interest will pay, for this category, 3%
of its value.
c) Budget
The fare to be charged for this service will be 1% of the estimate value of the project.
d) Advice on government contests and adjudication
The fare for this service will be 0.5% of the value of adjudication of the project.
e) Inspection
The fare for this service will be 3% of the final value of the project.
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5.4 Secondary Source: Informe económico del sector construcción (Economic Report
on the construction sector)
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5.6 Secondary Source: Company X Financial Summary, Jan 2014 - July 2015