Cash flows and Quality2 Executive Summary This cash flow forecast details the daily procedures and methodologies that will be utilized during the construction phase of the domestic home belonging to William and Pamela Thiel. The cash flow model will be used in this project to guide the management of financial resources of the site. This document comprises of the cash flow model and the cash flow forecast that will be used to manage the financial resources of the construction to ensure that the best possible construction outcome is achieved. The cash flow model will consider each stage in the construction process to ensure that the financial budget and the allocated time are not exceeded for the success of the project. It also comprises of a construction program that has been edited to reflect the insights of the cash flow forecast in mind. The report also includes an exploration of the different methods that the construction manager will utilize to mitigate the cash flow situation if it happens to be negative. Considering that quality is always achieved when the scope is clearly defined, and the constraints of time and finances are effectively managed, the cash flow forecast and the construction program will be the first steps in the achievement of quality in the construction of this house. It also explores how the triple constraints of time, cost, scope and quality relate as well as how these constraints can affect the operations of the construction company given that quality assurance guarantees more referrals thus organizational success.
Cash flows and Quality3 TOC Table of Contents Introduction.................................................................................................................................................4 Background..............................................................................................................................................4 Summary.................................................................................................................................................6 Methodology...............................................................................................................................................7 Financial Management............................................................................................................................7 The cash flow Forecast........................................................................................................................8 Negative cash flows...........................................................................................................................16 Program Management...........................................................................................................................18 The construction Program.................................................................................................................18 HIA, Building Act 1995, and the Australian Building Standards.............................................................24 The Contract in Program and Financial Management...........................................................................25 Risk Management Plan..........................................................................................................................26 Cost Management.................................................................................................................................26 Summary...............................................................................................................................................27 Conclusion.................................................................................................................................................29 Time, Scope and Cost in relation to Quality...........................................................................................29 Summary...............................................................................................................................................31 Recommendation.......................................................................................................................................32 Impact on organizational operations.....................................................................................................32 Summary...............................................................................................................................................33 Critical Reflection.....................................................................................................................................34 Summary...............................................................................................................................................35 References.................................................................................................................................................36
Cash flows and Quality4 Cash Flow Forecast and Construction Program in Building Quality Client Details: William and Pamela Thiel Contact Number: Type of building: Domestic House Site Address:8 Learmonth Street in Queens Cliff Victoria Approximate Cost: $495,475.00 Project Time: 8 months Introduction In a construction project, the role of financial and program management is necessary as it guarantees that the resources of time and finances are available for the remainder of the construction project. Cash flow management cannot be overemphasized as it is cash that finances the construction activities that are done during the project. This clearly brings out the connection between the cost constraints in the project and the quality of the building as the mismanagement of the cash flow could result into a complete halt of project activities thus compromising the quality of the outcome of the project. This exercise looks into the importance of cash flow management and program management as well as how it can be beneficial for both the owners of the home in terms of customer service and the construction company in terms of profitability (Sommerville and Robertson, 2000, p. 457). This exercise explores the relationships between the constraints of time, scope, and cost in order to bring out the relationship between cash flow management, program management and the product quality. Project Objectives The main aim of this exercise is to establish the different tools and techniques that will be utilized to guarantee that quality is achieved in the project through the management of the constraints of time, costs and scope. Since the project is expected to encounter different internal and external risks that may cause the project to be completed after exceeding the triple constraints of the project, the concepts of financial and program management have been employed to manage these resources and thus guarantee the achievement of quality in the
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Cash flows and Quality5 project. These techniques will ensure that the project factors are controlled to ensure that the deliverables of the project are achieved to guarantee project quality through managing the triple constraints. Project Description This report details the construction process of a house on 8 Learmonth Street in Queens Cliff Victoria specifically how to carry out effective project management in order to guarantee the successful delivery of the project.
Cash flows and Quality6 It describes the methodology the project uses to monitor the constraints of time and costs which mainly, especially in the case of domestic constructions, has the greatest impact on the construction quality. The project was undertaken by Duncan Pascoe Pty Ltd, which is a reliable and well accredited construction management that has been operational for the past 19 years. The company seeks to guarantee the priority of fulfilling the construction needs of the customer through the achievement of the best possible solution for their individual need, considering the time and budgetary constraints of each project presents (Yu, Tweed, Al-Hussein, and Nasseri, 2009). The company has succeeded to enter into a contractual agreement with one William and Pamela Thiel for the construction of his domestic home on Learmonth Street in Queens Cliff Victoria. The task of constructing this domestic home has been detailed by the tender had specified the materials and requirements of the house he would wish for so that the company could aid to professionally optimize the project cost and timeline. The construction process will be carried out over a period of eight months, as the project entails the demolition of the house that already exists on the land and constructing a double story domestic house. The estimated cost for the construction of this project has been estimated at $495,475.00 as is detailed in the business contract that was signed by both the company and the clients. Summary This section introduces the project detailing the background of the project, its location and details about the site and the scope of the project. This section also discusses the different constraints of this project and how these constraints affect the outcome of the project in case the cost and time constraints are not prioritized in this project. This therefore brings out the relationship between the triple constraints and quality as well as the meaning and implication of quality for both the how it affects both the client and the construction company.
Cash flows and Quality7 Methodology This project utilizes the concepts of Financial Management and Program Management in order to management the resources of time and money on site to guarantee that the project finally achieves completion successfully. Specifically, the project resources of time and cost will be managed using a construction program technique using the tools of CPM and the Gantt Chart, as well as a financial management technique using the cash flow forecast as a tool in the project. Monetary and time resources are fundamental resources in the successful achievement of the best outcome in every project. Further the mismanagement of any of these constraints in any construction project also has an impact of extending the mismanagement of the rest of the constraints thus having a great negative impact on the quality of the construction project. For instance the mismanagement of funds on the site may lead to exceeding the $495,475.00 budget which may cause the construction project to stall and thus also have a time overrun exceeding 8 months. The concepts of financial and program management are bounded by the construction contract, the Building contract of 1995, and the Australian building standards.
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Cash flows and Quality8 Financial Management As has been earlier explained the most important plans to put into place in order to guarantee the successful and quality assured completion of the project is through the management of financial resources on site. Financial management on a project site refers to all the activities involved in the planning of monetary resources allocated to the project, including the cost estimations, accounting work, reporting, cost control and auditing activities, the purchasing, payment disbursements, as well as the other activities that guarantee the monetary resources of the project are managed efficiently and properly to ensure that the project is completed to achieve its individual responsibilities. This is necessary in construction projects because it aids in the decision making processes thus ensuring that funds for the continuation of the project are always available and no delays or challenges emerge. On the other hand, program management ensures that the program is managed in a manner that promotes a seamless information flow among all the major stakeholders to ensure that the full scope of the construction project is delivered successfully and on time. This also guarantees that the project contract is used to guarantee that the specific requirements of the project have been achieved according to the agreed performance standards as is stipulated in the agreement contract. Financial management in this sense helps to ensure that the time constraint is strictly observed to guarantee that the required standards of performance according to the contract agreement have been met using critical path modelling, effective time based resource allocation, and continuous appraisal of the rate of productivity from the different stakeholders considering both time and financial constraints. For this project, financial management was conducted through a cash flow forecast that would aid the stakeholders to have a visionary outlook on the project to allow all stakeholders play their part on time to guarantee that the project is completed successfully and quality is guaranteed. The cash flow Forecast The management of costs during this construction will be done using a Cash Flow Forecasting Model which is able to plan for the costs of the different construction activities. The forecast is able to simulate how financial needs can emerge depending on the company’s and the client focused risk factors that could affect the general overlook of the flow of cash and the different costs for every construction activity that is carried out (Alzahrani and Emsley, 2013, p. 319). The
Cash flows and Quality9 construction industry is marred by different changes that continue to occur in industry which in turn may have an impact of the timelines, cost estimations and resources of the project. The use of a cash flow forecast as a mathematical model in the construction industry is extremely beneficial. For the construction of a domestic home, the forecast will aid the construction manager, who is responsible for all operations on the site, to find cash required to finance the ongoing and near future construction activities as required for a smooth running of construction activities without exceeding the triple constraints. This cash flow forecast was also designed to reveal any instances of money spent in the project being more than what is coming in from the client given the progressive payment per stage agreement the company made with the clients. It also helps the construction manager to identify when to require funds from the Thiel couple to finance the activities that will be coming in the near future in following stages and how to manage the finances at his disposal to optimize productivity on site. The design of this cash flow gave way for the assessment of the amount of money and batches that the client will have to make and in the right timelines to avoid operations coming to a standstill due to the mismanagement of funds. It also allows the construction manager to identify the important phases when the cash requirement will be so high in order to plan for those times and ensure that operations continue to optimize on time(Bassioni, Price, and Hassan, 2004, p.45). The following terms will be used in this cash flow forecast: Cash inflows These are the payments that the client will pay to the company for purposes of financing the project and paying out utilities and labor and contractual charges. In this project the cash flows will include the initial 5% of the project price as agreed in the HIA contract and the following payments during the different construction phases. This however required the consideration of the construction program and then a synchronization of the two timelines. This will be helpful in providing insights to the construction manager on how to manage the batch of money present until the next expected batch according to the agreement(Chen, Wang, and Lin, 2009, p. 681).The cash inflows of this project will be taken care of by the progress payment of the credit terms that the client had with the company as is stipulated in the HIA contract. The contract stipulates the details of the progress statement to be as is summarized in the table below. This will represent the cash inflows.
Cash flows and Quality10 StagePercentage of Contract PriceAmount Deposit According to Clause 9 of the HIA Contract 5%$ 24,773.75 Base Stage10%`$ 49,547.50 Frame Stage15%`$ 74,321.25 Locked Up Stage25%$ 173,416.25 Fixing Stage25%$ 123,868.75 Completion10%$ 49,547.50 Total Contract Price100%$ 495,475.00 This table can thus be said to detail all the cash inflows of this project. It is important to note that the clients have agreed to bring pump in cash into the project based on the pace of the construction as is marked by the construction stages. These stages can be incorporated into the construction program in order to ensure the design of an effective, efficient, and reliable cash flow plan for the successful completion of the project. Incorporating the Cash inflows into the construction program yields:
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Cash flows and Quality11 Cash outflows These comprise of the amounts of cash that move out of the cost management kitty to either the suppliers or the subcontractor’s possession. During the design of this cash flow forecast, the construction manager was keen about the amount of payments that have to be made and the timing of these payments, as this could cause an inadequacy of cash required to fund the following construction activities resulting in the project coming to a complete stop. This means that the construction manager had to identify all the stakeholders of the project and their contribution to the success of the project in order to identify the correct payment times and amounts(Chen, Wang, and Lin, 2009, p. 681). The cash outflows for this project included the cost of all the materials, utility costs, labor and subcontracting costs, hiring and procurement costs, the costs of services as well as that of equipment maintenance. It is also important to note that the suppliers and subcontractors have agreed to a credit term of 30 days before any payment is required and this could further influence the decisions made on the cash outflow timings and magnitudes. It also budgets for contingencies as a mitigation measure for risks in the project. The cash outflows that will be necessary for this project will include: The credit terms of the contractors and suppliers only allow for a window of 30 days at the very maximum before the services and products of these stakeholders are paid for All preliminaries of the project are spread out across the different activities or phases of the construction project. This will prevent the event that the cost burden of a the preliminaries fall during cost intensive construction project which leads to a lack of financial resources that stall the project and exceeds the triple constraints.
Cash flows and Quality12 The other terms in the cash flow are: Net cash flow- The difference between the cash flow inflows and outflows and it may vary depending on the last inflow of every month. The positive figures are also referred to as the net cash inflows while negative figures are net cash outflows are used to as a mark that an injection of inflows is necessary for the project. These outflows are in most cases caused by one off payments to subcontractors and vendors or in situations where there is a long period since the last inflow. Opening balance-This is the money the construction manager will have in his kitty at the beginning of construction stage. For the beginning of the project the construction will start with an opening balance of 5% of the project price as the project will commence after the deposit is paid by the client. As more funds are added then the cash flow commences. Its value should be the same as the closing balance of the previous month. The Closing balance- This is the amount of cash the construction manager will have in his kitty at the end of every construction stage. Cash flows discussion For this project the negative cash flows were not able to be completely avoided, as they were identified within the first three months of the project. This can be attributed to smaller amounts of payments that were deposited in the first three payment stages, in comparison to the magnitude of the deposits made to in the final stages of the project. The construction manager will be able to utilize the information identified in the cash flow to manage expenditures on site
Cash flows and Quality13 to ensure that the daily activities of the project in this phase were activated. Further, the outflows of the project were budgeted at a fixed price monthly to ensure that all costs were catered for and more was left to cover the project in the event of any risks. The fixed rate explains why the graphs had a constant line when considering the dependencies of the project. Cash flow forecast is shown in the figure below The inflows were only the progress payments that the clients committed to pay at different stages of the construction project. The first instalment will be the initial deposit, while the other instalments will be made according to the progress payments according to the initial contract. At the base stage of the project, the clients will make a payment of $24,777.75 to be succeeded by a further $49,547.50 payment at a frame stage. During the locked up stage the payment to be made will be the $74,321.00 followed by an installment of $179,416.25. The last two payments of $123,868.75 and the $49,547.50 will be made at the fixing and completion stages respectively. The outflows for every month are of $12,500 for the materials, $7,500 for the equipment, $1,000 for the utility bills on the site, $4,000 for labour, $700 for the sub- contracting fees, and $3,000 for the maintenance and operation of the site activities for every month. The outflows of this project were set at a constant amount per time because the amount of outflows including the materials, equipment, bills, labor, sub-contraction fees and the costs of operations and maintenance were slightly inflated in the cash flows in order to cover for the profits that the construction company is to make from undertaking this project. This allows the net flows of the project to be computed for every
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Cash flows and Quality14 month through finding the difference between the inflows and the outflows for every month, allowing the construction manage to have a visionary look at the distribution of funds that hell have at the beginning and closing of every month to enable him to collaborate with the stakeholders and ensure conservation of the resources of time and costs through planning for these resources. The graph of the inflow outflows and net flows is as follows ($100,000.00) $0.00 $100,000.00 $200,000.00 $300,000.00 $400,000.00 $500,000.00 $600,000.00 a graph of the inflows outflows and netflows of the project Inflows Outflows Net Flows Month of Construction phase Amount in $ Since the outflows into the project were at a constant rate as has been seen in the construction program the graph shows that the outflows remain constant with time. The inflows are seen to fluctuate as it is expected that money will be injected into the project depending on the different stages of the project at different amounts as is directed by the progress payments made by the client. The net flows also fluctuate at the same rate as the inflows but only at a lower level because the net flows are determined by the difference between the inflows and the outflows. Since the outflows are constant figure for this project, the net flow curve falls just below the inflow curve and follows the trend of the inflows. This represents the margin that the construction company will gain from this construction. This explains why the outflows fluctuate as the graph demonstrates in the above graph. are also seen to flare determine by the amount of inflows into the p The following is the graph of the inflows against the outflows and it shows a constant line since the outflows for this project are expected to be constant.
Cash flows and Quality15 $0.00$100,000.00$200,000.00$300,000.00$400,000.00$500,000.00$600,000.00 0 5000 10000 15000 20000 25000 30000 35000 Inflows VS Outflows Outflow Inflows The following is the relationship between the inflows and the cumulative outflows. 024681012 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 Inflows Vs Outflows Cummulative Outflows Inflows This chart demonstrates that the amount of outflows increases as the cumulative outflow increases. This is due to the fact that as more money is injected in the project, the construction manager is financially able
Cash flows and Quality16 to afford to service for more financial activities thus resulting in a resultant increase in the amount of outflows. Negative cash flows Negative cash flows refer to situations where the cash outflows are paid out before the client delivers the cash inflows. This could get the contractor into a lot of financial trouble as a project that lacks the cash in hand to carry on the next processes of the construction. The construction manager will factor in a good profit margin of about 10% for the consultancy in order to shield the project from any cases of negative cash flows. However it is not entirely possible for a project to run at 100% positive cash flows due to the cash retention policy. To ensure that the project did not get negative cash flow, the construction manager will emphasize on the importance of the contractors submitting progress claims to ensure payments are only done after the completion of an activity to the expected standards to ensure the client always pays up and no issue on the quality of work or contract breach bring the project to a halt (Perren and Grant, 2000, p.392). Managing negative cash flows A number of strategies can be employed to ensure that the construction project does not fall into negative cash flow conditions. The first and most important of these seeks to adopt a reasonable inflows timeline that allows the construction manager not to stress themselves too tight to increase the cover for such risks. Adapting the payment terms to ensure that the customers the quality of work is guaranteed through the achievement of the possible outcome. Customers will only be convinced to give in more money in to the problem when the quality assurance of the project can be ascertained. In case the construction manager is not making use of cash flow forecasting software to take control of the inflows ad expenses of the project and the implications of this in the future, it is important to start soon and protect from negative situations in coming months. It could be also necessary to spread out the costs to ensure that the required outflows are spread out to leave more money to be invested into the next phases of the construction. Giving the clients and incentive is also another timeless method for avoiding getting into negative cash flow as the incentive allows the clients a discount if they pay early allowing cash inflows to be given in quickly. The construction manager selected for the job also has to be skilled and competent in order to quickly identify any problems that may occur with cash flow early to guarantee the provision of a stellar project management in the team(Cui, Hastak, and
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Cash flows and Quality17 Halpin, 2010, p.364). It is also important to consider different vendors and subcontractors before commencing work to ensure that only the best quality work is contracted for the least possible market price to free up tied monies. With regard to paying the vendors, labor and subcontractors, the construction manager should settle for the options with the longest credit serve time in order to free up money to be invested into the construction process. The fact that the relationship is sold and based on agreements of payment delays by 30 days guarantees a better commitment foundation for delivery of quality work at a good price. In the event that the project has any requests to alter any initial requirements, the changes should be quickly processed in order to cut down the time the project costs thus reducing the cost and scope constraints. Ensuring that the billings of any payment stage are neither over nor under billed guarantees that the cash flow remains stable as only what has been completed can be paid for(McInnis and Collins, 2011, p. 228). These are the most effective methods of turning around a negative cash flow situation. Cash flows discussion For this project the negative cash flows were not able to be completely avoided, as they were identified within the first three months of the project. This can be attributed to smaller amounts of payments that were deposited in the first three payment stages, in comparison to the magnitude of the deposits made to in the final stages of the project. The construction manager will be able to utilize the information identified in the cash flow to manage expenditures on site to ensure that the daily activities of the project in this phase were activated. Further, the outflows of the project were budgeted at a fixed price monthly to ensure that all costs were catered for and more was left to cover the project in the event of any risks. The fixed rate explains why the graphs had a constant line when considering the dependencies of the project.
Cash flows and Quality18 0123456789 0 20000 40000 60000 80000 100000 120000 140000S-Curve of Outflows Dates Outflows The S-curve of the outflows shows that the outflows incurred take a general tendency to increase as the project progresses to a peak and then start decreasing toward the end as the most work continues to be completed and less activities are left to pay for. The peak shows that during the middle months of the project many activities are handled at the time increasing the number of services and utilities to pay for thus the high number or amount of outflows. Program Management The construction program management is intended to help the construction manager to properly manage the different activities that ought to be carried out during the project. It also accounts for time constraints in terms of shielding the project against any possible internal and external risks that could impact the constraint of time. The project program will allow for sequencing of the construction activities experts so that project activities will continue to run smoothly to promote trade continuity in the construction program. The construction Program The design of a cash flow forecast however required the consideration of the construction program and then a synchronization of the two timelines to provide insights to the construction manager on how to
Cash flows and Quality19 manage the batch of money present until the next expected batch according to the agreement(Chen, Wang, and Lin, 2009, p. 681). After the consideration of all this aspects the following figure is a demonstration of the construction program that factors in the inflows and the outflows given their sizing and timing and how they might impact the progress of the of construction(Van Tendeloo and Vanstraelen, 2008, p.453).The project program lists down all the activities that will be carried out and the timelines taken to complete the individual activities, indicating the starting and completing dates for the individual activities.
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Cash flows and Quality21 Before the amendments, the following was the construction program for this project followed by the construction program generated after improvements considering the costings
Cash flows and Quality22 The new construction program incorporates the stages in which the clients of the project will give installments for the payments of the completion of the order according to the agreements of the contract to ensure that all the stages of the project are funded well to guarantee that the time, cost and scope constraints are observed to the key. The new construction program also factors in the different project phases to ensure the constraints of time and costs are specifically reconsidered to ensure that these constraints are prioritized in order to guarantee quality in this project. This is because in domestic construction projects, quality is mainly determined by the constraints of cost and time, which have an impact of increasing the other constraints and thus making it hard to achieve the best outcome without exceeding the triple constraints. The new construction program manages both time and money resources to guarantee project quality. This construction program also factoirs in the periods of the progress payments in order to manage the financing of the construction activities scheduled in between the expected progress payments. It has for instance factored in any delays that could be brought about by the scheduling differences in the progress payments of the clients. The arrows in this construction program also signal the sequencing of the construction activities. The CPM for this new construction program is as follows NumberActivityCodeTime(Days)Predecessors 1Preparation WorksA3- 2Bringing Down the Existing StructureB6A 3Foundation ExerciseC9B 4Column Structures and PillarsD9C 5Working on the SloofE5C 6Wall and FramesF9E 7Roof WorksG9D 8Ceilings and TilesH13G 9Sanitary WorksI15F,H 10PlasteringJ19F,H 11FlooringK15I 12InstallationsL12F 13PaintingM23J,K
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Cash flows and Quality23 14FencingN8L 15Complementary WorksO6M,N This table details the sequencing of the construction activities and the scheduled number of days. The Critical Path Method refers to a scheduling technique used to ensure that all project activities are coordinated smoothly and nicely. The technique in this project was used to allow the individual stakeholders to understand the progress of the project in order to communicate and share information to perfectly conserve the constraints of time and costs. The CPM commenced by scheduling the different activities using the construction activity sequence for the domestic construction. The sequence was then demonstrated in a graphic form where the time taken between the individual construction activities was illustrated as demonstrated in the above diagram. 69 9 5 9 91315 15 19 12 23 8
Cash flows and Quality24 The CPM of the project found that the critical path of the construction was A-B-C- D-G-H-K-M-O. The critical path of the construction will thus take a total of 3+6+9+9+9+13+19+23+6= 97 This is 60% of the originally intended time showing the effectiveness of the critical path method to manage time resources on site. The interpretation of the diagram is that the preparation works will be the first activity to be taken up for the first three days of the project followed by the demolition processes that will be scheduled for 6 days. This will later be followed by the Foundation activities that is scheduled for 9 days. This process will be followed by the construction of columns and pillars for 9 days then the construction of the roof structures for a further 9 days. The walls and the frames will also be worked on at the same time with the installation of ceilings and tiles scheduled of abou13 days after the roofs have been installed. This will be effective in reducing construction downtime. The sanitary works can then be continued at simultaneous times with the plastering and flooring which is scheduled to take a further 15 days. The project will then be completed with the painting activity which is scheduled for 23days and the complementary works which will take up 6 days before commissioning the final product. In this manner the CPM ensures that the construction activities have been planned for in order to control the time and cost constraints while guaranteeing quality through ensuring that the project always flows in a logical manner. This is because 69 9 5 9 91315 15 19 12 23 8
Cash flows and Quality25 the CPM uses the estimates of time using normal time and thus leading to the creation of the normal path of the entire project. HIA, Building Act 1995, and the Australian Building Standards To guarantee that the scope of the building is in line with the country’s set legal and regulatory approval authorities, the construction building project was done in accordance with the stipulations of these three documents. The HIA contract documented detailed the procedures and details of the construction agreement to assist construction companies and their clients to ensure that the best construction outcome is achieved through the collaboration of these two new parties. In this manner, the HIA is able to achieve and maintain the building quality as it details the procedures that can be used to guarantee that both parties do their part to ensure the construction is complete successfully.In the event of a need for the project time to be extended the contract stipulates the conditions for these alterations according to the Building Act of 1995 which caters for construction contract legalities. This also applies for the conditions necessary to make changes for contractual aspects such as the progress payment amounts or timings, items that were to be incorporated in the scope like materials which would affect the project cost and quality. The Building Act of 1995 also covers for any contractual legalities that may be associated with other project conditions such as the latent conditions, variations or damages in the project scope thus affecting the project quality and how any issues of this nature can be liquidated.For this project, information detailing any variations from the original contract are not specifically included in the construction contract meaning that they will changed according to the stipulations of the Building Act of 1995. The Building Act of 1995 on the other hand guarantees the quality of the building since it stipulates all the responsibilities of the individuals involved in the building in order to hold the right person responsible incase a legal approval is not followed through. The building contract relates to the Domestic Building Contract of 1995 in that it dictates the deposits and defines the stages in which the progress payments are to be paid thus limiting the changes that can be made to the contract price. This contract is also related to the Building Act of 1995 in that it specifically dictates the path to follow given that the constraints of time is exceeded and the
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Cash flows and Quality26 allocated time has to be changed due to some circumstances. This also applies in the case that there have been external risks impacting on the client’s ability to pay the progress payments. Variations in the initial contract about issues like the costs of the materials required and the provisional items, as well as defects, damages and the latent conditions of the project have to be made following the specifications of the Building Act of 1995. These changes ought to be done following this legislation as they have a negative impact on the triple constraints of the project requiring the contract to be redone considering the new conditions of the construction and its stakeholders as guided by the Building Act 1995. The Australian building standards are also considered in this construction to guarantee quality by stipulating the standard values for different parameters to ensure that consistent and reliable results are arrived at always as standard measurements and procedures are always followed thus guaranteeing quality according to ISO 9001 standards. The building standards will be guided by the National Construction Codes (NCC) which serves as the technical guide or standard that building design and construction works have to follow if they are to meet the legal construction requirements. The NCC codes have been published in three different volumes namely the Building Codes of Australia for class 1 and 10 buildings, for classes 2 to 9 buildings, and a national plumbing code. The BCA (Building Codes of Australia) for class 1 and 10 buildings guides the construction of houses and non-habitable structures while the BCA for classes 2 to 9 which guides the standards for the construction of residential, commercial, and public buildings. The Contract in Program and Financial Management The contract as is recommended by the Australian building standards and the Building Act of 1995 binds the client and the construction manager to work together to ensure quality is achieved in the project through allowing the stakeholders to corporate and share the resources of time and money. The contract for instance details the project cost estimate based on the expected market prices of the equipment, labor, and materials which entail the resource of the project. The contract also details the project sequencing in order to ensure that all stakeholders are aware of when their input is required for all of them to collectively produce quality through delivering the
Cash flows and Quality27 best possible outcome without exceeding the constraints of time and cost. The contract also guarantees that the scope of the project is achieved following the contract and that resources are divided equally to guarantee that the project does not stall. This is clearly brought out in the construction program and the cash flow forecast for the construction activities of this project. Risk Management Plan Risk management entails identifying the possible hazards and risks on site and taking action to prevent the possible damages that could result from it. Risk management in this exercise sought to identify the possible risks that could stall the progress of the project and thus further taking action to avoid any impacts of time and cost constraints that the risk may have on the project. For instance, cash flow forecasting is formulated to ensure the available amount of cash is able to do the most amount of daily construction activities on the site. This is due to the fact that there exist risks that could affect the clients progressive payments or those that could affect the normal functioning of the company in order to raise the cost that could be associated with this project or extend the time the project would take to completion. The risk of not having enough cash on hand to finance the remainder of the construction activities and the utilities associated with the project risks stalling the project and bringing it to a complete halt. The effect of this would be exceeding on the resources of time, cost and scope thus negatively impacting on the quality of the project.Thus the construction program and the cash flow forecast offer the stakeholders a visionary view of the project to ensure that all are aware of the role they play to guarantee they take action to prevent the impact of these risks on the outcome of the project. Cost Management After the cost plan was designed using the cash flow forecast of the project, the estimate amounts required for different parts of the construction process can be refined to better manage costs on the construction site on a daily basis. Cost management allows the construction manager to dynamically inform the decision making activities on the site to guarantee that the construction objectives are all achieved. The cost management plan was thus implemented through the active monitoring of how the monetary resources are spent on site in order to identify opportunities for
Cash flows and Quality28 savings and cut costing. This will guarantee that the expenditure on site is able to be exchanged for a valuable exercise or products in order to guarantee quality through resource management. Considering the complex risk factors that affect the contemporary construction industry guarantees a proactive cost management strategy that will enable the construction project to remain dynamic in the decision making processes that guide the cash flow forecast. Computer technologies can also be used to assist the implementation of the cost management process as they offer a chance for the processes to be innovatively automated to guarantee quality through a consistent cost management process. Summary This section discusses the importance of program management and financial management into guaranteeing the achievement of the best outcome in a construction project. The constraints of time and cost in this project and the roles that financial and program management play in guaranteeing the project is successfully completed in this project are managed using a cash flow forecast and a construction program. The section also brings out the responsibility of the construction manager in following the projections of these two tools to guarantee the presence of time and monetary resources to ensure the construction activities are followed according to the sequencing program to guarantee quality. The project also uses a CPM to aid the construction manager to integrate communication among all stakeholders to ensure all resources are availed in time for the timely and successfully completion of the project. Financial management and program management is enforced to ensure the project is run according to the program and sequencing expectations of the of the original contract. It also looks into how the contract is backed by legal and local authority approvals like the Building Act of 1995and the Australian Building Standards. This section also highlights how the individual financial and program management techniques used in this project and how these methods show their effectiveness. It also highlights how negative cash flows occur in the construction management plan and the different strategies that the project manager will employ to ensure that the negative cash flows are mitigated to prevent it from affecting the cost constraints of the project and its quality. This section also highlights how risk management ought to be considered in program and financial management in order to
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Cash flows and Quality29 guarantee that the different internal and external risks affecting the project do not impact on the delivery of the project with regard to cost and time. It also discusses the importance of cost management and how it contributes to ensuring that the triple constraints are not exceeded.
Cash flows and Quality30 Time, Scope and Cost in relation to Quality The factors of time scope and costs can thus be said to constrain the quality of the building according to the principle of the project management triangle which acts as is demonstrated below. These aspects represent the factors in the project that have to be carefully managed in order to guarantee that the project is successfully completed and commissioned. The constraint of time refers to the total amount of time that it takes to deliver a specified deliverable that contributes to the completion of the construction project. This time depends on the total number of activities that make part of the entire project (scope) as well as the amount of resources that have been set aside to guarantee the completion of the project (cost). The cost refers to the amount of monetary resources that have been set aside for the completion of the different activities in the project including the monies spent in conducting structural integrity tests, risk cover mitigation budgets, labor costs, as well as the bills of quantities set aside for the purchase of materials. Finally, the scope represents the functional requirements that make up the project specifications. Time Quality CostScope
Cash flows and Quality31 This relationship gives the construction manager a chance to prioritize the most important constraints in any given construction project and this in turn guarantees the quality of the expected completed project. This is because the triple constraints of time cost and scope tend to compete for dominance in the above named triangle. For instance, increasing the scope of work would require an increase in the allocated time and the estimated budget or else quality of the project is compromised. This applies interchangeably for all the three constraints. The main goal of construction management is to utilize tools that can enable the project team under the stewardship of the construction manager to complete the work without exceeding these constraints. This relationship would be extremely valuable in showing the relationships that exist between the different factors in a construction project, thereby bringing out the complexities of managing the cash flow in a construction project. This relationship can be effectively used by construction managers to run projects efficiently and effectively through the making of better choices and ensuring that the planning priorities resonate with all stakeholders of the construction(Dechow and Dichev, 2002, p. 46). Impact on organizational operations
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Cash flows and Quality32 The construction industry very much relies on the satisfaction of clients for the operations of the construction company to continue to be profitable. The satisfaction of these clients is further backed up by the achievement of quality results through delivering the best possible outcome without exceeding the project constraints. This quality is best achieved through prioritizing and managing the constraints of time and cost by utilizing cash flow forecasts and a construction program to keep an eye on the constraints. The only way that this construction company can manage to continue running their operations profitably on the site is if the construction program and the cash flow forecasts are factored in from the very beginning of the project all the way to the completion of the final activity before commissioning. Managing these factors guarantees that all expenses are taken care of in the right timing to allow the project to be profitable. This explains how the achievement of quality and its constant improvement will improve the profitability of the construction management company for this project. It will also create better opportunities to tender as a good record of customer satisfaction also aids to get more construction tenders improving the operation of the company both in the long term and in the short term(Kenley and Wilson, 2006, p. 217). Summary This section details the relationship between the constraints of time, cost, and scope and how these constraints contribute to the delivery of the best construction outcome in terms of good building quality. The section defines the constraints in details as well as the factors that contribute to the quality factors of the project. This exploration was important in specifying how the aspect of quality in the project can be controlled by varying the different triple constraints. It also looks into how the two tools used in this project were utilized to manage the constraints and ensure that quality was specifically prioritized in according to the construction contract signed at the very beginning.
Cash flows and Quality33 Conclusion The importance of the cash flow forecast and the construction program as well as how they relate to the building quality has been clearly brought out in this exercise. For this construction project, these two tools will be implemented to efficiently manage the constraints of time and cost while guided by the scope of the project in order to guarantee that the quality of the building is achieved through the delivery of the best possible outcome without exceeding these constraints. To ensure the quality continues to remain a key objective for the construction manager during the planning and the execution phases of the construction project, a quality management plan can be implemented into the project management plan. This will guarantee that quality becomes a key aspect in each and every activity through ensuring that the best construction outcome is achieved without exceeding the constraints of time, scope and cost. The emphasis on quality through a quality management plan will ensure that all the material brought to be used on site are of the best quality and that the services provided by the subcontractors and the laborers are the best possible outcomes as this will guarantee that the customer satisfaction is guaranteed through all the construction processes. Following the ISO9001 quality standards the project is to be implemented using standard practices that can be consistently and reliably reproduced in other projects of this nature. Quality assurance in every process guarantees that there no possible requests to do a rework on something following customer dissatisfaction or using substandard materials(Ogneva, 2012, p.1419). All the stakeholders should also be aware of the role they play in the scope of the project and how they can be optimally facilitated to guarantee the achievement of quality construction activities at all stages. Quality in the project can be constantly improve through regular meetings to discuss issues that may affect the achievement of the best possible outcome, conducting regular assessments of the productivity of the outflows with regard to having hard cash to finance the next project phases, and using different models to examine the progress of the project against the remaining triple constraints. Ensuring the sub-contractors of the project and the suppliers also submit a form for the claims of work on a weekly basis to ensure that any outflows from the project are exchanged for quality for both the materials from the supplies and the construction activities from the subcontractors.
Cash flows and Quality34 Summary This section explores how quality management in the construction progress is important for achieving customer satisfaction and reliable and consistent solutions according to the ISO 9001 standards. It highlights on the importance of stakeholder participation and achievement in quality assurance through explaining the roles and responsibility of every stakeholder to ensure there is no need for a rework to be conducted. In this manner, quality management guarantees that the project stakeholders are all satisfied with the result through the client’s customer satisfaction and the company’s success and profitability in the long and short term basis. This is because client satisfaction is guaranteed through ensuring that the construction burden on the client is minimized to the very minimum, through the management of the construction constraints using the cash flow forecast and the construction program of the project. It also mentions on the quality improvement approach of the project as conducting regular assessment of the cash flows.
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Cash flows and Quality35 Critical Reflection This exercise has been an eye opening experience in that it has brought out the practicality in the relationship between the triple constraints and the quality of the project. It has clearly highlighted the game of numbers that construction managers and their financial counterparts in the project have to adopt in order to guarantee the successful and quality completion of the project. In a construction project, time has been found to mean the total amount of time taken to deliver a specified deliverable that contributes to the completion of the construction project. This time depends on the total number of activities that make part of the entire project (scope) as well as the amount of resources that have been set aside to guarantee the completion of the project (cost). Quality is said to be achieved when the best possible construction outcome is achieved without exceeding the constraints of time, scope and cost which calls for different program and financial management techniques to be employed to guarantee the quality of the project. The role of cash flow management and program management was demonstrated in guaranteeing the smooth running of project activities was also brought out in this exercise and how this factor contributes to guaranteeing project quality. The cash flow forecast and the construction program were effectively used to ensure that the client needs and the resource allocation remain optimized at all times. This ensures that there is enough money left to finance the daily activities of the site, despite the financial inflows coming in at specific times and phases of the project. The main objective of this exercise was to break down the concept of building quality in terms of what quality means to the client and to the construction company. For the client, quality would be defined by the achievement of the best possible construction outcome without exceeding any of the project constraints while for the company, quality would be guaranteed by the profitability of the exercise and even referrals for more projects. To achieve quality on both of these scales the importance of the constraint of cost in terms of the cash flow that the manager has to finance the daily activities of the site cannot be underplayed. This is because the cash flow on the site determines the pace the project will move at and the aspects of the scope that will be completed. Thus cash flow and program management played a key role in quality assurance in construction management because it impacts the triple constraints which determine the
Cash flows and Quality36 achievement quality(Mohanram, 2014, p.1159). This implies that with the knowledge and skills that I have gained from taking part in this exercise, I can guarantee quality in a project is achieved through the designing a construction program and a cash flow forecast. This will ensure that the financial and budgetary resources of the project are monitored to guarantee the delivery of the best possible outcome. Summary This section details the individual lessons and take-homes that I have gained from participating in this exercise about how quality is affected by the constraints of cost and time and why they need to be managed aptly. The section provides a summary of my understanding of the individual constraints and how they contribute to the building quality. The section also accredits my skills in cash flow forecasting and construction programing as these were the tools used to ensure an optimized resource allocation to guarantee building quality. This allowed me to relate the meaning of quality for the main stakeholders of the project that is the client and the construction company. This section also further explain the definition of the building quality for both the client and the company as the two stakeholders are on contending sides.
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Cash flows and Quality38 Sommerville, J. and Robertson, H.W., 2000. A scorecard approach to benchmarking for total quality construction.International Journal of Quality & Reliability Management,17(4/5), pp.453-466. Van Tendeloo, B. and Vanstraelen, A., 2008. Earnings management and audit quality in Europe: Evidence from the private client segment market.European accounting review,17(3), pp.447- 469.