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 CONSTRUCTION
ENTREPRENEURSHIP

Prof. Vihang Pathare

Civil & Environmental Engineering Department, VJTI
 ENTREPRENEUR
 Richard Cantillon- An agent who buys factors of production, at certain prices in order
to combine them into a product with a view to selling it at uncertain prices in future
 Jean Baptiste Say- An Entrepreneur is one who combines the land of one, the labour
of another and the capital of yet another, and thus, produces a product.
 Joseph A. Schumpeter-
 Introduction of a new product
 Introduction of a new method of production
 Opening of a new market
 Discovery of a new source of supply of raw materials
 Carrying out of the new form of organization of any industry
 QUALITIES OF ENTREPRENEUR
 Hard work- Willingness to work hard
 Desire for high achievement- Strong desire to achieve high goals in business
 Highly optimistic- Positive approach towards things. Do not get disturbed by the
present problems and optimistic for the future.
 Independence- Do not like to be guided by others and to follow their rules.
 Foresight- Good foresight to know about future business environment.
 Good organizer- Bring together all required resources for setting up an enterprise and
then produce goods.
 Innovative- Initiate research and innovative activities
 QUALITIES OF ENTREPRENEUR
 Perseverance- Patience and never give up attitude
 Team Spirit- Bringing people together is beginning, keeping people together is
progress, and working with people is success
 DIFFERENCE BETWEEN WAGE EMPLOYMENT &
SELF EMPLOYMENT

Basics of Difference Wage Employment Self Employment

Nature Self-Saturation Self-actualization
Scope Limited Unlimited
Tendency Routine or status quo Imaginative, creative, innovative
Earning Fixed Generating, flexible
Through converting one’s
Satisfaction Through compliance of rules, procedures
creativity into reality
Status Employee Employer
 NEED FOR ENTREPRENEURS
 Entrepreneurs promote capital formation by mobilizing the idle savings of the people
 They create immediate employment by establishing small-scale enterprises
 They promote balanced regional development by establishing small scale enterprises
in rural, remote and less developed regions
 Effective resource mobilization of capital and skills
 Promote country’s export business
 TYPES OF ENTREPRENEURS
Entrepreneurs can be classified into five categories:

 Based on the type of business

 Based on the use of technology
 Based on ownership
 Based on genders
 Based on the size of enterprise
 TYPES OF ENTREPRENEURS
 Based on the type of business
1. Trading Entrepreneur- The trading entrepreneur undertakes the trading activities.
They procure the finished products from the manufacturers & sell them to the
customers directly or through retailers.
Example- wholesalers, dealers, retailers
2. Manufacturing Entrepreneur- The manufacturing entrepreneurs manufacture
products. They convert the raw materials into finished goods.
3. Agricultural Entrepreneur- Agricultural entrepreneurs covers a wide spectrum of
agricultural activities like cultivation, marketing, irrigation, mechanization and
technology.
 TYPES OF ENTREPRENEURS
Based on the use of technology
1. Technical Entrepreneur- The entrepreneurs who establish & run science & technology
based industries are called technical entrepreneurs
2. Non technical Entrepreneur- These entrepreneurs try to use alternative and imitative
methods of marketing & distribution strategies to make their business survive
Based on ownership
1. Private Entrepreneur- A private entrepreneur is one who as an individual sets up a
business enterprise. He/she is the sole owner of the enterprise & bears the entire risk
involved in it
 TYPES OF ENTREPRENEURS
Based on ownership
2. State Entrepreneur- When the trading or industrial venture is undertaken by the State or
the Government, it is called “State entrepreneur”
3. Joint Entrepreneur- When a private entrepreneur & the government jointly run a business
enterprise, it is called “joint entrepreneur”
Based on Gender
1. Men Entrepreneur- When business enterprises are owned, managed & controlled by
men, these are called “men entrepreneurs”
2. Women Entrepreneurs- The enterprises owned, managed & controlled by a woman or
women having 51% of the capital & giving at least 51% of employment generated in the
enterprises to women
 TYPES OF ENTREPRENEURS
Based on the size of enterprise
1. Small scale entrepreneur- An entrepreneur who has made investment in plant &
machinery up to र 1.00 crore is called “small scale entrepreneur”
2. Medium scale entrepreneur- An entrepreneur who has made investment in plant &
machinery above र 1.00 crore but below र 5.00 crore is called “medium scale
entrepreneur”
3. Large scale entrepreneur- An entrepreneur who has made investment in plant &
machinery above र 5.00 crore is called “large scale entrepreneur”
THANK YOU !
Prof. Vihang Pathare
Civil & Environmental Engineering Department, VJTI
 THANK YOU !

Contact No: +917887597614 Email id: vpathare@ci.vjti.ac.in

CONSTRUCTION ECONOMICS

Prof. Vihang Pathare

Civil & Environmental Engineering Department, VJTI
THANK YOU!

Contact No: +917887597614 Email id: vpathare@ci.vjti.ac.in

 Financial Analysis

Financial analysis is classified as:

A) Non-Discounted Cash Flow Techniques
i. Payback Period (PB) method
ii. Accounting Rate of Return (ARR) method

B) Discounted Cash Flow Techniques

i. Net Present Value Method
ii. Profitability Index Method
iii. Internal Rate of Return Method
iv. Benefit Cost Ratio Method

Payback Period Method

• Payback period is defined as the length of time required to recover the original
investment on the project, through cash flows earned.
• The cash flows include operating profit, less income tax payable, plus depreciation.
Example:
The likely investment in a project is ₹ 14,00,000.00. It is expected to take 2 years for
implementation of the project & the project is expected to earn profits from the third year
onwards. The estimated profits, tax, depreciation is as under:
3rd Year 4th Year 5th Year 6th Year 7th Year
Operating Profit
1,50,000.00 1,75,000.00 2,00,000.00 2,25,000.00 2,00,000.00
(₹)
Tax (₹) 50,000.00 60,000.00 68,000.00 75,000.00 68,000.00
Depreciation (₹) 3,30,000.00 2,21,000.00 1,48,000.00 99,000.00 67,000.00
Solution:

Profit - Tax +
Depreciation 4,30,000.00 3,36,000.00 2,80,000.00 2,49,000.00 1,99,000.00
(₹)

Year Cumulative Cash Inflow (₹)

3rd Year 4,30,000.00
4th Year 7,66,000.00
5th Year 10,46,000.00
6th Year 12,95,000.00
7th Year 14,94,000.00

The initial investment of ₹ 14,00,000.00/- is likely to be received after the 6th year, i.e., four
years after the project implementation.
Cumulative Profit (4 years after implementation) = ₹ 12,95,000.00
Cumulative Profit (5 years after implementation) = ₹ 14,94,000.00
Difference = ₹ 1,99,000.00

[12 𝑋 (14,00,000 −12,95,000)]

Payback Period = 4 𝑦𝑒𝑎𝑟𝑠 + 𝑚𝑜𝑛𝑡ℎ𝑠
1,99,000

= 4 years + 6.33 months

Say, 4 years 6 months
Annual Rate of Return (ARR) Method or Accounting Rate of Return Method)

𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

Average Rate of Return =
𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

• Profit after tax is the average annual after-tax benefit over the life of the
project.
• The entire life of the project is taken into account.
Example:
There are 3 projects, A, B & C, whose details are given below. Compare the
3 projects by ARR method select the most beneficial.
Profit after Tax
Life of the Project Project A Project B Project C
4 Years 5 Years 6 Years
1st Year ₹ 4,00,000.00 ₹ 3,00,000.00 ₹ 2,50,000.00
2nd Year ₹ 4,50,000.00 ₹ 4,50,000.00 ₹ 3,00,000.00
3rd Year ₹ 5,00,000.00 ₹ 5,00,000.00 ₹ 4,00,000.00
4th Year ₹ 4,50,000.00 ₹ 5,50,000.00 ₹ 5,00,000.00
5th Year - ₹ 5,00,000.00 ₹ 3,00,000.00
6th Year - - ₹ 2,50,000.00
₹ 18,00,000.00 ₹ 23,00,000.00 ₹ 20,00,000.00
 Book Value of Investment
Life of the Project
Project A Project B Project C
1st Year ₹ 15,00,000.00 ₹ 12,00,000.00 ₹ 10,00,000.00
2nd Year ₹ 13,50,000.00 ₹ 10,80,000.00 ₹ 9,00,000.00
3rd Year ₹ 12,15,000.00 ₹ 9,72,000.00 ₹ 8,10,000.00
4th Year ₹ 10,93,500.00 ₹ 8,74,800.00 ₹7,29,000.00
5th Year - ₹ 7,87,320.00 ₹ 6,56,100.00
6th Year - - ₹ 5,90,490.00
Solution:
Project A Project B Project C
Total Profit over the
₹ 18,00,000.00 ₹ 23,00,000.00 ₹ 20,00,000.00
life of the project

₹ 18,00,000.00 ÷ 4 ₹ 23,00,000.00 ÷ 5 ₹ 20,00,000.00 ÷ 6

Avg. Annual Profit
= ₹ 4,50,000.00 = ₹ 4,60,000.00 = ₹ 3,33,333.00

[10,000.00 +
[12,00,000.00 +
[15,00,000.00 + 9,00,000.00 +
10,80,000.00 +
13,50,000.00 + 8,10,000.00 +
9,72,000.00 +
Avg. Investment 12,15,000.00 + 7,29,000.00 +
8,74,800.00 +
10,93,500.00] ÷ 4 6,56,100.00 +
7,87,320.00] ÷ 5
= ₹ 12.89.625.00 5,90,490.00] ÷ 6
= ₹ 9,82,824.00
= ₹ 7,80,932.00

4,50,000 4,60,000 3,33,333

Return on Avg. = 𝑋 100 = 𝑋 100 = 𝑋 100
12,89,625 9,82,824 7,80,932
Investment
= 34.89 % = 46.80 % = 42 .68 %

• As per ARR method, Project B gives a higher return on investment than

Project A & C.
 Net Present Value Method

• This method recognizes the time value of money

Net Present Value (NPV) of Cash Flow,
= [Present value of all future cash inflows over the life of the project – Present
value of the cash outflow]

𝐶𝐹1 𝐶𝐹2 𝐶𝐹3 𝐶𝐹𝑛

NPV = [( +( + + ⋯……+ ( ]− 𝐶𝐹0
1+𝑟 )1 1+𝑟 )2 (1+𝑟 )3 1+𝑟 )𝑛

Where, CF1, CF2…. Future cash inflows occurring at the end of first year, second
year…. etc.
n = life of the project in years
r = discount rate (cost of capital)
CF0 = Present Cash Outflow

NPV = 0, it indicates that the present cash outflow & the present value of future
cash inflows are equal

NPV < 1, it indicates that the present value of future cash inflows is less than
the present cash outflow

NPV > 1, it indicates that the present value of future cash inflows is more than
the present cash outflow
Example:
Compare project A & B using NPV method.
Project A:
Investment on the project: ₹ 10,00,000.00
Life of the Project : 5 years
Cost of Capital : 15 %
Year 1 2 3 4 5
Cash
2,00,000.00 3,00,000.00 4,00,000.00 3,00,000.00 1,00,000.00
Inflow (₹)

Project B:
Investment on the project: ₹ 10,00,000.00
Life of the Project : 5 years
Cost of Capital : 13 %
Year 1 2 3 4 5
Cash
3,00,000.00 4,00,000.00 4,00,000.00 3,00,000.00 2,00,000.00
Inflow (₹)

Solution:
Project A
Present value of future cash inflows:
𝐶𝐹1 𝐶𝐹2 𝐶𝐹3 𝐶𝐹4 𝐶𝐹5
NPV = [( +( + +( +( ] − 𝐶𝐹0
1+𝑟 )1 1+𝑟 )2 (1+𝑟 )3 1+𝑟 )4 1+𝑟 )5
 2,00,000 3,00,000 4,00,000 3,00,000 1,00,000
= [( +( + +( +( ]
1+0.15)1 1+0.15)2 (1+0.15)3 1+0.15)4 1+0.15)5

− 10,00,000

= - ₹ 1,14,998.00
The NPV is negative & hence the project should not be taken up.

Project B
Present value of future cash inflows:
𝐶𝐹1 𝐶𝐹2 𝐶𝐹3 𝐶𝐹4 𝐶𝐹5
NPV = [( +( + +( +( ] − 𝐶𝐹0
1+𝑟 )1 1+𝑟 )2 (1+𝑟 )3 1+𝑟 )4 1+𝑟 )5

3,00,000 4,00,000 4,00,000 3,00,000 2,00,000

= [( +( + +( +( ]
1+0.13)1 1+0.13)2 (1+0.13)3 1+0.13)4 1+0.13)5

− 10,00,000
= ₹ 1,48,506.00

Since, the NPV for project B is far better than project A, project B shall be selected
for implementation.
 ROLE OF DEPRICIATION IN PAYBACK PERIOD
• All businesses need to consider depreciation within their accounting and forecasts, as
it will impact the value of goods over time.
• However, depreciation isn’t a loss of value in cash terms- you haven’t actually lost
physical money on that product you own.
• Therefore, when calculating cash flows for payback periods, we need to add
depreciation back into the equation.
Example- A laptop owned depreciates but we don’t lose physical money on that laptop.
Example- If a product costs Rs.1 Crore to build & make a profit of Rs.6,00,000 after
depreciation of 10% but before tax at 30%, the payback period would be;
Profit before tax = Rs.6,00,000 less tax = (600000*30%) = Rs.1,80,000
Profit after tax = Rs.4,20,000
Add depreciation = (1,00,00,000*10%) = Rs.10,00,000
Total cash flow = Rs.14,20,000
𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Payback Period = = 10000000/14,20,000 = 7.04 year approximately
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
RISK MANAGEMENT IN
CONSTRUCTION

Prof. Vihang Pathare

Civil & Environmental Engineering Department, VJTI
 RISK DEFINITION
› Risk is an abstract term. In a given situation, risk is viewed
differently by different people.
› Risk in general signifies an uncertain event, situation or
condition which may occur.
› BS 6079-3:2000 defines risk as the, ‘uncertainty inherent in
plans & the possibility of something happening that can
affect the prospects of achieving business or project
goals’.
› PMBOK Guide, Edition (2004) defines risk as, ‘an uncertain
event or condition that, if occurs, has a positive or
negative effect on the project objectives’.
2
 RISK DEFINITION
A risk has three elements:
› A unforeseen situation leading to an event, the
occurrence of which is likely to deviate from the
estimated or forecast value or planned path.
› The probability of occurrence of that event.
› Likely impact of that event, i.e., loss or gain.
› 𝑹𝒊𝒔𝒌 𝑬𝒙𝒑𝒐𝒔𝒖𝒓𝒆 =
𝑷𝒓𝒐𝒃𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝒐𝒇 𝒓𝒊𝒔𝒌 𝒐𝒄𝒄𝒖𝒓𝒓𝒆𝒏𝒄𝒆 𝑿 𝑭𝒊𝒏𝒂𝒏𝒄𝒊𝒂𝒍 𝑰𝒎𝒑𝒂𝒄𝒕 𝒐𝒏 𝒐𝒄𝒄𝒖𝒓𝒆𝒏𝒄𝒆 𝒐𝒇 𝒕𝒉𝒆 𝒓𝒊𝒔𝒌 𝒆𝒗𝒆𝒏𝒕
› 𝑹𝒊𝒔𝒌 𝑬𝒙𝒑𝒐𝒔𝒖𝒓𝒆 =
𝑷𝒓𝒐𝒃𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝒐𝒇 𝒓𝒊𝒔𝒌 𝒐𝒄𝒄𝒖𝒓𝒓𝒆𝒏𝒄𝒆 𝑿 𝑪𝒐𝒏𝒔𝒆𝒒𝒖𝒆𝒏𝒄𝒆𝒔 𝒐𝒇 𝑰𝒎𝒑𝒂𝒄𝒕 𝒊𝒏𝒄𝒍𝒖𝒅𝒊𝒏𝒈 𝒑𝒖𝒃𝒍𝒊𝒄 𝒑𝒆𝒓𝒄𝒆𝒑𝒕𝒊𝒐𝒏
›
3
 ELEMENTS OF RISK
› Risk can also be defined as the variability of return from
investment.
› If the probabilities of possible outcomes of a given
problem are known, we can conclude that the problem
contains risk, i.e., the problem is risky.
› If the probabilities of possible outcomes of a given
problem are not known, we can conclude that the
problem has an element of uncertainty, i.e., the outcome
cannot be predicted.

4
 PROJECT RISK SOURCES

External Environment
External Environment
Internal Environment Unknown
Predictable sources
Uncertainties

Scope Changes, Time Leadership &

Political & Legal Overrun & Cost Organizational Acts of God
Overrun Failures
Design &
Technology Change Resource Failures Ecological
Specification
Quality &
Financial & Economic Contractor Failures Safety & Health
Specifications Failure

5
PROJECT RISK BREAKDOWN STRUCTURE

6
 TYPES OF PROJECT RISK
› Project completion Risk
Completing the project in time & within the estimated cost
itself is a major achievement.
A project that is delayed will result in time overrun resulting
into cost overrun.
› Project Scope Risk
High complexity, ill-defined project scope, frequent
changes, no analysis of changes & problems in quality
control.

7
 TYPES OF PROJECT RISK
› Design & Specification Risk
Inadequate design information, inclusion of new
construction technology, unrealistic specifications, poor
design, design changes.
› Quality Risk
No quality assurance plan, poor quality materials,
absence of quality testing laboratory, poor quality control,
problems in re-working of defects during construction.

8
 TYPES OF PROJECT RISK
› Time Overrun Risk
Inaccurate activity time estimates, unrealistic time
schedule, incomplete work breakdown structure, poor
resource allocation, incomplete assessment of project time,
inflexible project plans, inability to take timely corrective
action.
› Cost Overrun Risk
Inaccurate cost estimates, inadequate cost planning &
control, delay in project completion, unprecedented
changes.
9
 TYPES OF PROJECT RISK
› Leadership Risk
No project vision, no team building, poor motivation of
participants, limited authority/control of project manager,
poor industrial relations, unsafe working conditions, lack of
co-ordination.
› Organizational Risk
Inappropriate organization network, poor allocation of
tasks & responsibilities, lack of competent persons, no
project manual/documented procedures/processes.

10
 TYPES OF PROJECT RISK
› Resource & Utilization Risk
Inadequate & low quality procurement of resources, non-
availability of spare parts, transshipment delays, wastage.
Shortage of raw materials may lead to reduction in
capacity utilization & higher cost of production, which
results in profit estimates going wrong. Shortage of power,
fuel & skilled manpower will also affect the project.
› Technology Risk
Inadequate information on new technology, non-
replacement of old technology, non-availability of
competent & professional staff to use new technology, lack
of managerial skills. 11
 TYPES OF PROJECT RISK
› Contractual Risk
Non-standard & inconsistent conditions of contract, delay
in site possession, no credit worthy contractor, insufficient
insurance & surety, extra work variations.
› Force Majeure & Ecological Risk
Acts of God such as earthquakes, floods, land-slides,
ecological damages, epidemics, etc.
› Exchange Rate Risk
Exchange rate risk (currency risk) is the risk arising from
currency fluctuations. Volatile exchange rates reduce cost
& profitability advantages gained over years of hard work.12
 TYPES OF PROJECT RISK
› Political, Legal & Social Risk
Changes in government, policies, regulations, joint venture
rules, risks under criminal law, pollution & waste
management, bribe & corruption.
› Financial & Economic Risk
Investment risk, inflation, escalation of prices, local &
international taxes, cash flow problems.
› Safety & Health Risk
Unsafe working conditions, healthcare & environment
protection, absence of safety audit, accidents, strikes,
security, fire fighting capability & disaster preparedness.
13
 TYPES OF PROJECT RISK
› Funding Failure Risk
Lenders not comfortable with project viability, high interest
rate, partners conflict, revenue shortfalls.
› Communication & Network Failure Risk
Non-availability of antivirus software to safeguard office
computer system, data loss due to network breakdown, no
back-up data available, high fluctuations in electric supply,
internet servers breakdown, non-compatibilty of software
with the hardware purchased, ineffective management
information system
14
 RISK EXPOSURE EXAMPLE

Probability of Impact if Risk Event

Risk Event Risk Exposure
Occurrence Occurs

Failure to complete 40% chances of 2 Penalty Rs. 2,00,000 0.4*2*Rs.2,00,000=

project on time weeks delay per week Rs.1,60,000

New state
government may Redesigning may 0.2*Rs.1,00,000=
20%
change the cost Rs.1,00,000 Rs.20,000
regulatory policy

Material supply from

Additional Expenses 0.4*Rs.1,00,000=
present local vendor 40%
Rs.1,00,000 Rs.40,000
may fail

15
 RISK ASSESSMENT APPROACH
› Risk assessment involves overall ranking of risks using
qualitative assessment approach & quantifying the risk
exposures for mitigating high exposure risks for developing
risk exposure plan.
› Risk analysis approaches vary with the purpose & the
project.
› The choice of the techniques for risk analysis is dependent
on the nature of the problem being modelled, the
amount & reliability of available information & the nature
of the output required.
› The particular needs of the client & the type of decision to
be made will determine the nature of the output that is
required. 16
 RISK ASSESMENT TECHNIQUES
RISK PARAMETER RISK ASSESSMENT TECHNIQUES

Expected Monetary Value (EMV) estimation

Economic viability during project feasibility
Expected Net Present Value (NPV) estimation
studies
Sensitivity Analysis

Project Selection Risk Decision Tree & Decision Networks Analysis

PERT Network Analysis Technique

Completion Time Risk
Monte Carlo Simulation

Project Risk Contingency Estimation

Completion Cost Risk
Earned Value Analysis

17
 RISK MITIGATION
› Risk mitigation measures (steps) aim at minimizing the loss,
damage or disruption in a project due to unforeseen
events. The risk mitigation measures are:
1. Risk Transfer
2. Risk Deferred
3. Risk Reduction
4. Risk Acceptance
5. Risk Avoidance
6. Risk Sharing

18
 RISK MITIGATION
1. Risk Transferred
Project risks can be transferred to someone who is more
capable of dealing with such problems, such as specialized
sub-contractors, designers, material suppliers or passing the
risk to insurance firms. For example, the risk can be
transferred:
› To a contractor or designer by client
› To a sub-contractor by the contractor
› To insurance companies or banks by the client, contractor
or sub-contractor
19
 RISK MITIGATION
1. Risk Transferred
Some of the construction risk protection, which insurance
companies provide cover, include, but are not limited to
the following:
▪ Property Risk- Fire, explosions, dropping of loads by tower
cranes, impact damage & collapse of plant, theft, transit
risk.
▪ Performance related- Design, landslide, collapse,
vibrations, breakdown of construction equipment.
▪ Financial risk- Loss or Profit margin
20
 RISK MITIGATION
▪ Commercial Risk- Client not meeting obligations, delay in
settlement of claims, money & securities & performance
bond.
▪ Human Risk- Accidents, health & safety, workers
compensation, third party liability.
▪ Environment Related- Earthquakes, floods, wind, storms,
epidemics requiring personal safety & health care.
▪ Ground Related- Underground water courses, locations
with geological faults, proximity to roadways & railways,
piling processes.
▪ Professional Liability Risk- Professional errors & omissions
inclusive of defence cost from claims 21
 RISK MITIGATION
2. Risk Deferred
▪ Certain projects risks can be deferred by time.
▪ Activities can be moved to a later date in the project
when the adverse effects of events may be minimized or
reduced.
▪ Example- road bitumen paving scheduled during rainy
season can be postponed to a different season in the
year, when there is less moisture.

22
 RISK MITIGATION
3. Risk Reduction
▪ Project risk reduction aims to reduce either the probability
of risk occurrence or the adverse impact on the project or
a combination of both.
▪ Example- a client may cover the risk of unknown
underground soil conditions by suitably wording the
contract

23
 RISK MITIGATION
4. Risk Acceptance
▪ Once the risks have been identified & their adverse
effects assessed, a contingency plan to encounter them
has to be organized, developed & implemented.
▪ Risk acceptance may arise due to, no alternative
available, cost to transfer risk is high, risk occurrence
probability is low etc.
▪ Unidentified risks fall in the category or risks accepted by
the client.

24
 RISK MITIGATION
5. Risk Avoidance
▪ Risks can be avoided in some cases, by taking
appropriate action such as changing designs, materials,
technology & construction methods that may involve
additional costs.
6. Risk Sharing
▪ A risk may be taken when it is impractical for one party to
control the risk.
▪ In such cases, a risk can be managed by two or more
parties.
▪ The client can also retain a part of the risk. 25
RISK REGISTER

26
 BENEFITS OF MANAGING PROJECT RISK
› The risk response development process gives an insight
into the project management process.
› A pre-planned contingency plan provides clear definition
of the specific risks associated with a project.
› A fully documented risk management process, builds up a
profile of past risk to allow better modelling for future
projects.
› Risk response decisions are supported by a thorough
analysis of available data.
› It encourages problem solving & provides innovative
solutions to the risk problems in a project.
› A risk reporting framework avoids risk shocks 27
THANK YOU!

28
BIDDING IN CONSTRUCTION

Prof. Vihang Pathare

Civil & Environmental Engineering Department, VJTI
 THANK YOU!

Contact No: +917887597614 Email id: vpathare@ci.vjti.ac.in

 SAFETY IN
CONSTRUCTION PROJECTS

Prof. Vihang Pathare

Civil & Environmental Engineering Department, VJTI
 SAFETY IN CONSTRUCTION
• Construction sector is one of the major industries of the world & safety is
an important aspect which is correlated with increased project cost, delays
along with personal injuries, equipment & property damage and even
fatalities.

• Occupational health hazard is any material, processes, activities or

situations that can result in accidents or diseases at the workplace.

• Accidents are defined as an undesirable or unfortunate happening that

occurs unintentionally and usually results in harm, injury, damage, or loss;
casualty; mishap unless otherwise the ‘Act of God’.
 SAFETY IN CONSTRUCTION
Accidents:
• Any occurrence that interferes with the orderly progress of activity or an
unforeseen event which causes personal injury or property damage.

• Direct losses are the losses which are paid to the workers for compensation
& paid for medical expenses incurred on the workers.

• Indirect losses are:

1. Loss of time of injured person.
2. Loss of time of his fellow workers, who stop work at the time of accident
to help or to show sympathy or for curiosity.
 SAFETY IN CONSTRUCTION
Accidents:
• Any occurrence that interferes with the orderly progress of activity or an
unforeseen event which causes personal injury or property damage.

• Direct losses are the losses which are paid to the workers for compensation
& paid for medical expenses incurred on the workers.

• Indirect losses are:

1. Loss of time of injured person.
2. Loss of time of his fellow workers, who stop work at the time of accident
to help or to show sympathy or for curiosity.
 SAFETY IN CONSTRUCTION
3. Loss of time of supervisors:
a) In assisting injured worker
b) In investigation & preparing a report of accident
c) In making alternative arrangements
d) In selecting & training the new worker to fill the vacancy if death or
permanent disability occurs from an accident.

4. Loss due to damage caused to the machine or to the property.

5. Loss due to reduction in the efficiency of the workers when he returns

after recovery.
 SAFETY IN CONSTRUCTION
6) Loss due to reduction in efficiency of fellow workers due to fall in their
morale.

7) Loss to the injured worker, who suffers the following losses:

a) Loss to his income
b) Loss on medical treatment
c) Pain/agony felt by the worker which cannot be compensated.
 CAUSES OF ACCIDENTS
• Lack of training

• Breach of rules & regulations including non implementation & slackness

• Overwork/overtime by workers

• Negligence/not alertness

• Act of God
 PREVENTIVE MEASURES OF SAFETY

• Safety guards- By providing proper safeguards to the machines, accidents

can be prevented. Some guards are built into a permanent casing, while
some are attached afterwards.

• Fencing- Machines or their parts should be fenced when it is not possible

to provide safeguards.

• Physical Conditions- Scientific illumination & ventilation should be

provided. Floor should be free from oil and should be clean.
 PREVENTIVE MEASURES OF SAFETY

• Fire Hazard- Inflammable materials should be stored away from general

storage at a safe distance (minimum 50 ft. or 15.25m), fire extinguishers
should be provided at suitable places.

• Preventing Electric Accidents- Electrical insulation should be provided to

all electrical wires and equipment.

• Safety education & Training

• Safety Audit

• Safety Programme
 PROJECT SAFETY MANUAL
• Project Safety Manual include a set of minimum safety standards &
guidelines to be followed for any project.

• The manual includes the mandatory use of personal protection equipment,

safety awareness training programme, fire protection, first-aid, safety
signages, accident reporting procedure.
 PROJECT SAFETY MANUAL
• The main objects of safety programme also known as accident prevention
programme are:

1. To reduce human life loss

2. To lessen the temporary & permanent injuries to workers
3. To reduce the time loss due to accident
4. To safeguard against loss or damage to equipment & properties
5. To control the expenses on workmen’s compensation
 PROJECT SAFETY MANUAL
• The following are the safety programme essentials:

1. Secure full support of top management

2. Designate one person in the organization to direct safety programme
3. Give publicity to the safety programme
4. Develop a safety programme for each job
5. Train new employees with safety programme
6. Promote good housekeeping
7. Maintain adequate first-aid facilities
8. Seek assistance from insurance companies
 ENGINEERING INSURANCE
• The engineering insurance covers may be Machinery Erection Insurance or
Machinery Breakdown insurance.

• Although breakdown losses might not be heavy in certain cases, the

production losses resulting there from would normally be very heavy.

• Insurers have framed loss of Profit Insurance following machinery

breakdown to cover the loss of gross profit due to reduction in production
following the breakdown of the insured machinery.
 ENGINEERING INSURANCE
• In order to decide the premium under machinery breakdown covers,
insurance engineer pays a visit for inspection of the plant & machinery
which would help the insurance engineer to see for himself & collect data
on the plant, preventive maintenance, repair facilities available at site,
essential spare parts held in stock, history of previous breakdown, &
general ability & technical competence of the technical staff in operating
the machine in efficient manner.

• The following are the relevant engineering insurance:

a) Contractors All Risk Insurance (CAR)
b) Machinery Breakdown Insurance
c) Loss of Profits Insurance following Machinery Breakdown
d) Contractor Plant & Machinery Insurance.
 CONTRACTORS ALL RISK INSURANCE (CAR)

• This insurance offers comprehensive & adequate protection against loss or

damage in respect of the contract works, as well as third party claims in
respect of the property damage or bodily injury arising in connection with
execution of civil engineering projects.

• This insurance provides insurance on all risks, i.e. on almost any sudden &
unforeseen loss or damage occurring to the property insured.

• This loss includes: fire, lightning & explosion, flood, rain, wind storm, snow
avalanche, earthquake, sand slide, rockslide, theft, burglary, bad
workmanship, lack of skill, human error.
 CONTRACTORS ALL RISK INSURANCE (CAR)

• This loss does not includes: loss or damage due to war, strike, riots, loss or
damage due to willful negligence, loss or damage due to nuclear reaction,
radiation, claims due to penalty losses, replacement, rectification or repair
due to deficency in work.
 MACHINERY BREAKDOWN INSURANCE
• Breakdown cover is offered on all type of installed machineries working in
fixed premises.

• The cover can, however, be extended in special cases to mobile

construction machineries.

• The cover can be extended to include damage to third party as well as

personal injuries arising out of any breakdown of the insured machinery.
 LOSS OF PROFITS INSURANCE FOLLOWING MACHINERY
BREAKDOWN OR MACHINERY LOSS OF PROFITS POLICY

• Sometimes when a small but vital part of a machine fails, entire work
comes to a stand still.

• In these circumstances this insurance policy covers the consequential losses

that may be suffered by the machine user following a breakdown.

• Sometimes repair takes a long time, in that case under machinery

breakdown policy he gets cost of repairs but he is left unprotected as to
the losses due to the breakdown of machinery, which is generally more
than that of repair cost.
 LOSS OF PROFITS INSURANCE FOLLOWING MACHINERY
BREAKDOWN OR MACHINERY LOSS OF PROFITS POLICY

• The policy may be for full machine or part thereof & it may be for a
period varying from 3 months to 12 months.

• This policy covers the actual losses suffered by the insured due to the
business interruption leading to:

1) Reduction in turnover
2) Increase in cost of working, resulting in loss of gross profit due to
breakdown.
 LOSS OF PROFITS INSURANCE FOLLOWING MACHINERY
BREAKDOWN OR MACHINERY LOSS OF PROFITS POLICY

• Premium rate under such policy depends upon:

1) Relative importance of the insured machinery

2) Standby machinery
3) Time exclusion (normally first 3 to 14 days of loss, depending upon type &
nature of industrial process, are excluded from the computation of the
loss payable under the policy)
 LOSS OF PROFITS INSURANCE FOLLOWING MACHINERY
BREAKDOWN OR MACHINERY LOSS OF PROFITS POLICY

• Exclusions:

1) Willful negligence on the part of insured

2) Spoilage or raw material
3) Alterations, improvement or overhauling made during the process of
repairing
4) War
5) Loss of goodwill & loss of customers
 CONTRACTOR’S PLANT & MACHINERY INSURANCE

• Construction machinery & equipment are now insured under the

contractor’s plant & machinery insurance, which is an annual policy,
providing insurance coverage against loss/damage due to:
1. Overturning
2. Acts of God
3. Riot, strike, and malicious damage
4. Theft

Breakdown losses can be covered with additional premium.

 CONTRACTOR’S PLANT & MACHINERY INSURANCE

• This insurance policy do not provide coverage against loss/damage due to:
1. Electrical or mechanical breakdown
2. Normal wear & tear
3. While being tested
4. War or nuclear reaction
5. Willful negligence

• The coverage under this policy can also be extended for; third part
liability, owners surrounding property.
 CONTRACTOR’S PLANT & MACHINERY INSURANCE

• The number of equipment under this policy can be increased or decreased

& premium will also be increased or decreased accordingly.

• While moving the equipment from one site to another, transit insurance
policy should be taken for covering losses/damages happening during
transit.
 THANK YOU!

• Contact No: +917887597614 Email id: vpathare@ci.vjti.ac.in

 1

CONSTRUCTION SITE
RESOURCES

Prof. Vihang Pathare

Civil & Environmental Engineering Department, VJTI
 SITE LAYOUT 2

► To aid in the smooth execution of the project, a site layout is prepared.

Prof. Vihang Pathare

► A site layout is a scaled drawing of the proposed construction site showing all the
relevant features such as the entry & exit points to the site, storage areas for
materials, contractor’s offices, areas for keeping equipment & machineries,
bar-bending area, washing facilities, labor housing, washrooms etc.

► It is also necessary that first aid kits are kept in the site engineer’s office.
 Prof. Vihang Pathare
3
SITE LAYOUT
 FACTORS AFFECTING SITE LAYOUT 4

Prof. Vihang Pathare

1. Nature of the project:
► If it is a multistoried building project, then it will require a centrally located scheme.
► If it’s a highway construction project, it will require a number of construction centres at suitable
location.

2. Construction Methods:
► The construction can be either cast-in-situ or by precast elements.
► If it’s to be of precast elements, then provision for a casting yard should be included in the job
layout.
 FACTORS AFFECTING SITE LAYOUT 5

Prof. Vihang Pathare

3. Availability of resources:
► If the labor is from outside the area, then the layout will have to take into account the food,
temporary housing, washing & other facilities required by them.

► Areas for keeping the needed plant & equipment are to be chosen such that they serve the entire
project.

► Material storage areas are to be provided such that cross movements are avoided & their lead time is
the shortest.

► They should be well protected from damage due to atmospheric & weathering effects.
 FACTORS AFFECTING SITE LAYOUT 6

4. Medical Facilities:

Prof. Vihang Pathare

► If it is a big & complex project, then it is desirable that a field medical facility is provided.

5. Contractor's/Site Engineer’s Offices:

► These should be located in a noise-free area for better co-ordination.

6. Temporary roads:
► To provide access from nearby road & to transport materials, manpower and machineries.

7. Other Facilities: Power Supply, Telephone connection, Drinking water, washroom etc.
 ADVANTAGES OF A GOOD SITE 7
LAYOUT

Prof. Vihang Pathare

► Smooth & economical working of the project.

► Reduces the completion time of the project.

► Provides more safety in the working of the project.

► Material wastage & deterioration are reduced.

► Material transactions becomes easy, speedy & economical.

► Increases the output from labor & machinery.

 ORGANIZATION SET-UP 8

Prof. Vihang Pathare

► The organizational set-up for project management at site is built-up & structured to meet site
requirements depending on the nature & scale of construction work.

► The client organization may need a small team for overall supervision & control, but the contractor,
who has been entrusted with the job of construction of project needs a larger team for controlling
labor, supervising work, timely supply & consumption of materials, co-ordination with client & local
authorities.

► The organization set-up for a construction project is temporary & ends after completion of the
project.
 ORGANIZATION SET-UP 9

Prof. Vihang Pathare

► It comes into existence at the start of planning stage, grows gradually, undergoes changes in various
stages of the project life cycle to meet the project needs, & towards the end it runs down & ends
after completion of project.

► The management team of the project is capable of handling the problems as they arise & its
members are experienced persons who responds speedily with changing situations & can take
immediate decisions.
 CONTROLLING CONSTRUCTION PROJECT 10

Prof. Vihang Pathare

Control is the continuing process of measuring actual results in relation to the results which were
planned.

► Control can be defined as management activity whereby the managers compare actual performance
against the planned one, find out the deviation & take corrective actions.

► A control system involve:

1. A predetermined goal, a plan, a standard, a policy, a norm, a criterion.
2. A means of measuring activity.
3. A mean of comparing activity.
4. A mechanism to correct the activity so as to achieve the desired result.
 CONTROLLING CONSTRUCTION PROJECT 11

Prof. Vihang Pathare

► Project control process involves organizing the control responsibility centres, designing monitoring
methodology, developing the information systems so that decisions can be made speedily & correctly.

► An efficient control system improves productivity of men & materials, economizes allocation of resources,
provides yard-sticks for measuring performance, generates information for updating resource planning &
costing norms.

► Project Control involves the following five functions:

1. Control over performance (to control over time)
2. Control over workmanship & quality
3. Control over movement & consumption of materials
4. Control over human activities
5. Control over costs.
 CONTROL TECHNIQUES 12

Prof. Vihang Pathare

1. Budget & Budgetory Control:
► Budget is a management tool for planning future activities including estimate of production,
expenditure, income etc.

► Budgetory control means application of control in relation to budgets.

► This is a process which keeps the actual standard as nearly as possible to the predetermined standard
by strict supervision & control.

► It involves continuous checking & evaluation of actual results with the budget goals, thus helping in
corrective action.
 CONTROL TECHNIQUES 13

Prof. Vihang Pathare

2. Cost Control:
► Cost control is a technique which involves the determination of standards in respect of each item of
cost & determining the actual cost of those items, detection of variations of actuals from the standard
laid down, analyzing these variances in order to find out the real cause & then taking necessary
corrective steps for the future.

3. Inventory Control:
► It is defined as the systematic location, storage & recording of goods in such a way that desired
degree of service can be made available at the minimum cost.

► The necessity of inventory control is to maintain a reserve (store) of goods that will ensure
production according to a production plan with the lowest possible ultimate cost.
 CONTROL TECHNIQUES 14

Prof. Vihang Pathare

► Inventory control is the means by which material of the correct quantity & quality is made available as and
when required with due regard to economy in storage
& ordering costs, and working capital.

► The systematic location, storage & recording of goods in such a way that desired degree of service can be
made to the operating shops (work centres) at minimum ultimate cost.

4. Quality Control:
► Quality control is defined as a management technique by means of which products of uniform acceptable
quality are produced.

► It is concerned with the making things right rather than discovering and rejecting those made wrong.
 FUNCTIONS OF INVENTORY CONTROL 15

Prof. Vihang Pathare

1. To run the stores effectively:
This includes layout of storing media, utilization of storage space, receiving and issuing procedures etc.
2. To ensure timely availability of material & avoid build-up of stock levels.
3. Technical responsibility for the state of material:
This includes methods of storing, maintenance procedures, studies of deterioration & obsolescence.
4. Stock control system:
Physical verification record keeping, ordering policies & procedures for the purchase of goods.
5. Maintenance of specified raw materials, general supplies, work in process.
6. Costing of all materials supplied to the shops so as to estimate materials cost.
 STEPS IN INVENTORY CONTROL 16

Prof. Vihang Pathare

1. The maximum stores:
This term is applied to designate the upper limit of the inventory & represents the largest quantity which
in the interest of economy should generally be kept in stores.

2. The minimum stores:

This term is applied to designate the lower limit of the inventory & represents reserve or margin of
safety to be used in case of emergency.

3. The standard order:

It is the quantity to be purchased at any time.
Repeat order for a given product are always for this quantity until the standard order is revised.
 STEPS IN INVENTORY CONTROL 17

Prof. Vihang Pathare

4. The ordering point:
This represents the quantity required to ensure against exhaustion of the supply during the interval
between the placement of an order and delivery.
When the balance falls to this level, it is an indication that a new purchase order must be placed.

5. Lead time:
It is the time which takes the stock to reach from Recorder Point to Maximum stock Level.
 STEPS IN INVENTORY CONTROL 18

Prof. Vihang Pathare

► In setting maximum, minimum & order quantities each item should be considered separately in
terms of the following factors:

1. Economic size of each purchase order

2. Increased lock-up in capital

3. Time required to receive the goods after requisitioning

4. The probable depreciation and obsolescence

 ADVANTAGES OF INVENTORY CONTROL 19

Prof. Vihang Pathare

1. It creates buffer between input & output

2. It ensures against delays in deliveries

3. It allows for a possible increase in output

4. It allows advantage of quantity discounts

5. It ensures against scarcity of materials in the market

6. It utilizes the benefit of price fluctuations.

 ECONOMIC ORDERING QUANTITY 20

Prof. Vihang Pathare

► The evaluation of the most economic quantity to be purchased involve calculation of the following two cost:
a) Procurement cost or buying cost
b) Inventory carrying cost or set-up cost.

Procurement Cost:
It includes,
1. Calling quotations
2. Processing quotations
3. Placing purchase orders
4. Receiving & inspecting
5. Verifying & payment of bills
6. Other incidental charges
 ECONOMIC ORDERING QUANTITY 21

Prof. Vihang Pathare

Inventory carrying cost or set-up cost.
It includes,
1. Insurance, pilferage and administrative costs
2. Storage & handling including cost of space
3. Obsolescence and depreciation
4. Deterioration
5. Taxes
6. Interest on capital invested

This cost varies between 10-20 % of the product cost

 ECONOMIC ORDERING QUANTITY 22

Prof. Vihang Pathare

►
 ECONOMIC ORDERING QUANTITY 23

Prof. Vihang Pathare

►
 ECONOMIC ORDERING QUANTITY 24

Prof. Vihang Pathare

►
THANK YOU ! 25
Prof. Vihang Pathare
Civil & Environmental Engineering Department, VJTI
▪ There are two general categories of disputed, contractor’s claims against the client & the
client’s claim against the contractor.
Contractor’s claim against the client:
1. Claim for extras
2. Claims for refund of amount wrongly recovered or deducted by the client.
3. Claims for compensation for extra expenditure incurred or losses suffered by the
contractor due to delays & hinderances caused by the client & extension of the
contract period.
4. Breach of contract conditions by the client.
5. Interest on delayed payments.
6. Interest on various claims amount.
Client’s claim against the Contractor:
1. Claims for damages due to delay caused by the contractor in completing the work.
2. Claims for defective work done by the contractor.
3. Claims for over payment done by the contractor.
4. In case of incomplete works, or abandoned work, claims for expenditure incurred by
the client for getting balance work completed through other agencies.
5. Interest on amount claimed by the client.
▪ The following are the different modes of dispute settlement used in construction
industry:
1. Settlement by direct negotiation between the client and the contractor.
2. Settlement through arbitration
3. Settlement through court action.
1. Settlement by direct negotiation between the client and the contractor.
▪ The easiest & the most advisable method of settlement is by direct negotiation between
the client and the contractor.
▪ Direct Negotiation means a dispute resolution process that involves an exchange of
offers and counteroffers by the par- ties or a discussion of the strengths and weaknesses
or the merits of the parties' positions, without the use of a 3rd person.
▪ Throughout direct negotiation, the parties collectively retain complete control over the
process and its outcome.
▪ Together the parties specify the ground rules and schedule, select the professional
neutral, and establish procedures for when and how they communicate, listen and
respond.
2. Settlement through arbitration:
▪ Arbitration is the settlement of dispute by the decision, not of a regular & ordinary court
of law, but of one or more persons chosen by the parties themselves who are called
arbitrators.
▪ Arbitrator is the person chosen by the parties themselves to whom the disputes &
differences are referred to, to act as a judge and give his judgement judicially.
Powers of Arbitrators:
1. To administer oath to the parties & witness appearing.
2. To state a special case for the opinion of the court or any questions of law involved, or
state the award wholly or in part, in the form of a special case of such questions for the
opinions of the court.
3. To make the award conditional or in the alternative.
4. To correct in an award any clerical mistake or error arising from the accidental slip or
omission.
5. To administer to any party to the arbitration, interrogatories as may, in the opinion of
the arbitrator or an umpire, is necessary.
3. Settlement through court action:
▪ Settlement through a court of law is the last resort and this usually takes number of years
and can be frustrating.
▪ Courts usually would like the party concerned to use all other administrative resources
for seeking redress (e.g. direct negotiation and arbitration) before hearing the case.
▪ Only if the contractor is extremely confident of his case and honestly believes that he has
been wronged at the negotiation and at the arbitration levels, must embark for court
action.
▪ Court will require engaging top legal minds (attorneys) who have some experience in
construction industry and ensuing long legal battle.
Contact No: +917887597614 Email id: vpathare@ci.vjti.ac.in