Ced 206 Handout Construction Management PDF

INTEGRATED POLYTECHNIC REGIONAL COLLEGE GISHARI
ADVANCED DIPLOMA PROGRAM
CIVIL ENGINEERING DEPARTMENT
OPTION: CONSTRUCTION TECHNOLOGY
YEAR OF STUDY: YEAR II
SEMESTER ONE
HANDOUT OF THE MODULE:
CSTCM701: CONSTRUCTION PROJECT

MANAGEMENT
Academic Year: 2022-2023
CONSTRUCTION PROJECT MANAGEMENT CED 206, Compiled By Chief instructor,

Emmanuel HAKIZIMANA;engineerarch2023@gmail.com /IPRC GISHARI Page 1
TABLE OF CONTENTS
CHAPTER1 INTRODUCTION ........................................................................................................ 6
1.1 TheNeedforProjectManagement .......................................................................................... 6

1.2 TheConstructionProject ....................................................................................................... 7
1.3 TheProjectScopeandGoals ................................................................................................... 8
1.4 TheProjectLife-Cycle ........................................................................................................ 11
1.4.1 Preconstructionphase .................................................................................................... 13
1.4.2 Procurementphase(Biddingandawardphase) ................................................................ 14
1.4.3 Constructionphase ......................................................................................................... 15
1.4.4 Closeoutphase ................................................................................................................ 15
1.5 MajorTypesofConstructionProjects ................................................................................... 15
1.5.1 ResidentialHousingConstruction ................................................................................... 16
1.5.2 InstitutionalandCommercialBuildingConstruction ....................................................... 16
1.5.3 SpecializedIndustrialConstruction ................................................................................ 17
1.5.4 InfrastructureandHeavyConstruction ............................................................................ 17
1.6 ConstructionProjectsParticipants ....................................................................................... 18
1.6.1 TheOwner(TheClient) .................................................................................................... 18
1.6.2 TheDesignProfessionals ................................................................................................ 18
1.6.3 TheConstructionProfessionals ....................................................................................... 19
1.6.4 TheProjectManager ....................................................................................................... 21
LU I:CARROUT PROJECT PLANNING .................................................................................... 25
1.1 Introduction ............................................................................................................................. 25
2.2 ProjectPlanningSteps ............................................................................................................... 26
2.2.1 WorkBreakdownStructure(WBS) ................................................................................... 27
2.2.2 ProjectActivities ............................................................................................................ 32
2.2.3 ActivitiesRelationships................................................................................................... 34
2.2.4 DrawingProjectNetwork ................................................................................................ 40
2.3 E s t i m a t i n g ActivityDuration and Direct Cost .................................................................... 46
CHAPTER 3 PROJECTSCHEDULING ....................................................................................... 54
3.1 TheCriticalPathMethod ..................................................................................................... 56
3.2 CalculationsfortheCriticalPathMethod .............................................................................. 56
3.2.1 Activity-On-ArrowNetworksCalculations...................................................................... 57

3.2.2 PrecedenceDiagramMethod(PDM)............................................................................... 63
3.3 SchedulePresentation ......................................................................................................... 66
3.4 CriticismstoNetworkTechniques ....................................................................................... 68
CHAPTER 4 RESOURCES MANAGEMENT ............................................................................ 77
4.1 Resource Definition ................................................................................................................. 77
4.2 Resource Management ............................................................................................................. 78
4.3 Resource Allocation................................................................................................................. 79
4.4 Resource Aggregation (Loading)............................................................................................. 80
4.5 Resource Leveling (Smoothing) .............................................................................................. 81
4.5.1 Method of Moments for Resource Smoothing...................................................................... 82
4.5.2 Heuristic Procedure for Resource Smoothing....................................................................... 84
4.6 Scheduling with Limited Resource .......................................................................................... 92
4.7 Case Study ............................................................................................................................... ….
CHAPTER 5 PROJECT TIME-COST TRADE-OFF ................................................................... 97
5.1 Time-Cost Trade-Off ............................................................................................................... 97
5.2 Activity Time-Cost Relationship ............................................................................................. 98
5.3 Project Time-Cost Relationship ............................................................................................. 102
5.4 Shortening Project Duration .................................................................................................. 103
CHAPTER 6 PROJECT FINANCE AND CONTRACT PRICING ........................................... 115
6.1 Contract Cash Flow ............................................................................................................... 115
6.1.1 Construction Project Costs.................................................................................................. 116
6.1.2 The S-Curve ........................................................................................................................ 119
6.1.3 Project Income (Cash-in) .................................................................................................... 121
6.1.4 Calculating Contract Cash Flow ......................................................................................... 123
6.1.5 Minimizing Contractor Negative Cash Flow ...................................................................... 127
6.1.6 Cost of Borrowing (Return on Investment) ........................................................................ 128
6.1.7 Project Cash Flow ............................................................................................................... 128
6.2 Discounted Cash Flow ........................................................................................................... 130
6.2.1 Present Value ...................................................................................................................... 130
6.2.2 Net Present Value (NPV) .................................................................................................... 130
6.2.3 Internal Rate of Return (IRR) ............................................................................................. 131
6.3 Finalizing a Tender Price ....................................................................................................... 131
6.3.1 Estimating Profit Margin .................................................................................................... 132
6.3.2 Risk Management ............................................................................................................... 132
6.4 Pricing Policy......................................................................................................................... 138

6.4.1 Balanced bid (straight forward method) ............................................................................. 139
6.4.2 Unbalanced bid (Loading of Rates) ................................................................................ 139
6.4.3 Method Related Charge .................................................................................................. 142
6.5 Exercises.................................................................................. Error! Bookmark not defined.
CHAPTER 7 PROJECT CONTROL .......................................................................................... 146
7.1 Problems that may arise During Construction ....................................................................... 146
7.2 Schedule Updating ................................................................................................................. 146
7.3 Delays Analysis ..................................................................................................................... 150
7.3.1 Types of Delays .................................................................................................................. 150
7.3.2 The As-Built Schedule ........................................................................................................ 152
7.3.3 Analysis of Concurrent Delays ........................................................................................... 153
7.4 Earned Value Management .................................................................................................... 156
7.5 Exercises ............................................................................................................................ 160
CHAPTER8 CONTRACTSTRATEGY ...................................................................................... 162
8.1 WhatisaContract? .................................................................................................................. 162
8.2 Sel ect i o n ofContractType ................................................................................................... 163
8.2.1 Projectobjectives ............................................................................................................... 164
8.2.2 Projectconstraints .............................................................................................................. 165
8.3 ProjectDeliveryMethods ........................................................................................................ 166
8.3.1 Traditionalapproach .......................................................................................................... 166
8.3.2 Directlabor ........................................................................................................................ 167
8.3.3 Design-build ...................................................................................................................... 167
8.3.4 Turnkey .............................................................................................................................. 168
8.3.5 Build-operate-transfer(BOT) ............................................................................................. 168
8.3.6 Professionalconstructionmanagement(PCM) .................................................................... 168
8.3.7 Contractualrelationships ................................................................................................... 169
8.4 T y p e s ofContracts ................................................................................................................ 170
8.4.1 Lump-sumcontract ............................................................................................................. 170
8.4.2 Admeasurementcontract .................................................................................................... 171
8.4.3 Cost-reimbursablecontract(cost-pluscontract) ................................................................. 172
8.4.4 Targetcostcontract ............................................................................................................. 172
8.4.5 Timeandmaterial(T&M)contracts ...................................................................................... 173
8.5ContractAdministration .......................................................................................................... 173
8.5.1 Contractdocuments ............................................................................................................ 173
8.5.2 Conditionsofcontract .......................................................................................................... 175

8.5.3 Thestandard(general)forms ofconditions ofcontract ......................................................... 176
8.5.4 Specialconditionsofcontract .............................................................................................. 177
8.5.5 Constructionclaims ............................................................................................................ 178
8.6 S e l e c t i n g theContractor ...................................................................................................... 179
8.7 Sub-Contracting ..................................................................................................................... 179
Chapter 9 Safety & health management and quality control ...................................................... 162
9.1 Safety & health management ............................................................................................ 183
9.2 QUALITY MANAGEMENT ....................................................................................................... 197

CHAPTER1 INTRODUCTION
1.0. LEARNING OBJECTIVES

At the end of this chapter students will be able to:
 Differentiate clearly the characteristics of construction industry from

manufacturing industry.
 Explain well project’s characteristics and project life cycle
 Identify the roles played by stakeholders (project participants) in a given
construction project
1.1 The Need for Project Management

The construction industry is the largest industry in the world. It is more of a
service than a manufacturing industry. Growth in this industry in fact is an
indicator of the economic conditions of a country. This is because the
construction industry consumes a wide employment circle of labor. While the
manufacturing industry exhibit high-quality products, timelines of service
delivery, reasonable cost of service, and low failure rates, the construction
industry, on the other hand, is generally the opposite. Most projects exhibit
cost overruns [also known as a cost increase or budget overrun, involves
unexpected incurred costs], time extensions, and conflicts among parties.
Figure 1.1 is an example of a complicated project. Table 1.1, also, exhibits
some magnificent projects that suffered from huge cost overruns.
Figure 1.1: Example of a complicated project
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Table 1.1: Magnificent projects with huge cost overruns
Project Cost overruns (USD) (%)
Suez Canal 1,900
Sydney Opera House 1,400
Concorde Supersonic Aeroplane 1,100
Panama Canal 200
Brooklyn Bridge 100
(Source: Mette K. Skamris, 'Economic Appraisal of Large-Scale Transport
Infrastructure Investments', Ph.D dissertation, Aalborg University, 2000).
In general, the construction industry is more challenging than other industries
due to: its unique nature; every project is one-of a kind; many conflicting parties
are involved; projects are constrained by time, money and quality; and high risk.
1.2 The Construction Project

Definition: Construction Project is the organized process of constructing,
renovating,refurbishing/redecorate,etc.,a building structure or infrastructure.
The project process typically starts with an overarching requirement which is
developed through the creation of a brief, feasibility studies, option
studies, design, financing and construction.
A project is defined, whether it is in construction or not, by the following
characteristics:
 A defined goal or objective.
 Specific tasks to be performed.
 A defined beginning and end.
 Resources being consumed.
The goal of construction project is to build something. What differentiate the
construction industry from other industries is that its projects are large, built
on-site, and generally unique. Time, money, labor, equipment, and, materials
are all examples of the kinds of resources that are consumed by the project.
Projects begin with a stated goal established by the owner and accomplished
by the project team. As the team begins to design, estimate, and plan out
the project, the members learn more about the project than was known
when the goal was first established. This often leads to a redefinition of the
stated project goals.
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1.3 The Project Scope and Goals
Four project goals
Projects Should Be Completed:
1. on schedule 2. within budget
3. Of acceptable quality 4. With zero accident
1.3 .1 Project Goal Setting
You can’t hit a target if you don’t know what it looks like. Similarly, you can’t
possibly reach your project’s goal if you don’t know what it is. When you
understand how your project fits in with the broader company direction, it’s time
to really pin down your goal. “But,” you say, “I know exactly what my goal is,
because my boss told me.” However, a set of deliverables isn’t necessarily a
goal. On first consideration, you might say the goal of expanding the railroad
westward in the United States was to enable a train to go from coast to coast.
But was it? Perhaps the goal of those railroad barons was not to get a train to go
cross country, but to open up opportunities for commerce in the West. It’s time
to put the same kind of thought to your project’s goal.
Getting your goal straight

Say your project involves training new employees in a new software system.
Your goal in training them on this software could be to:
 Make employees more productive in their jobs.
 Enable employees to better serve customers.
 Create a prototype program with reduced training costs that can be used to
reduce overall training costs across the company.
 Increase employee retention by providing useful on-the-job skills. These
goals suggest different priorities as well as different measurements for
gauging the degree to which your project has succeeded in meeting its goal.
How, exactly, do you go about determining your goal? First, go back to the
person who asked you to take on the project and grill him or her about what’s
expected of this project. Should the training have a measurable impact on job
performance, customer satisfaction, employee retention, or cost of delivery? The
answer you get might be that the project should do all of these things. But think
about whether that’s realistic and whether one of these goals should be
paramount in guiding you and your project team. If overall training program cost
reduction is the biggest goal factor, for example, employee productivity might
have to take a back seat when you’re making choices along the way. If customer
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satisfaction is the real goal, training costs might have to be adjusted accordingly.
Writing a goal statement
After you get more specifics about your project’s goal, it’s a good idea to put your
goal in writing in a goal statement. A goal statement outlines why you’re doing
this project and what you hope to accomplish at the end. You don’t get down
to specific deliverables and parameters in a goal statement. For now focus on the
why and the desired result.
Here are a few sample goal statements:
 The goal of the project is to upgrade the shopping cart feature on our Web
site to be easier to use so we can increase online sales by 25 percent.
 Our goal is to reduce human resource workload by 10 percent by
offering self- service information on job benefits on the company intranet.
Using the example of a training project, consider for a moment what such a
project might involve. Are you supposed to write new training materials, hire
staff to deliver classes, analyze the training’s effectiveness, update training
materials as needed, and promote the training internally? In that case, the scope
of your project involves managing the entire creation, delivery, and
maintenance of a training program. Or is your goal to simply create the training
materials? Or should your focus be limited to launching the new training,
including promoting it to management and staff? These goals indicate very
different projects, each with its own set of deliverables, tasks, resources,
schedule, and costs. Writing a goal statement helps you focus on such a project
from the outset.
Project scope
When you understand your goal, you can begin to define the specific parameters
of the project. This is often referred to as a project’s scope. It is necessary to
know that a scope is not a goal. Take a look again at this goal statement from
the previous section: The goal of the project is to upgrade the shopping cart
feature Web site to be easier to use to increase online sales by 25 percent. A
scope statement for this project might read: This project will involve all the
steps to design and implement a new shopping cart feature (but does not include
maintaining or refining it once launched). The cost of the project will not
exceed $25,000 and implementation must be completed before October 1 to
accommodate holiday sales traffic. The new shopping cart feature should help to
increase sales by allowing customers more options to review their orders, give
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them more frequent opportunities to shop for more items after they have added
a product to the cart, and allow them to save their cart contents and come back
to complete the sale at a future date. The new feature must function on our existing
Web technology infrastructure.
Writing a scope statement
Scope statements define both what a project will involve and what it will not
involve. In our example, the scope statement specifies that the maintenance of
the shopping cart, once launched, will be handled by other project team. You
typically get into specifics about the project budget, timeframe, and deliverables
in a scope statement. You shouldn’t include every single detail, but you should
have enough information that a project team can understand the most important
parameters of the project. Together, a goal statement and a scope statement are
two valuable tools for focusing yourself and your team and keeping you on
track as you proceed. If you take the next logical step in pinning down your
project at the outset, at this point you would create what’s called a project
charter. This would include specifying a project name, getting authorization in
writing to begin the project as of a certain date and to draw on a specified
budget, creating a list of responsibilities, and having those with an interest in
the project (called stakeholders) sign off giving you authority to run the project.
You can use your goal and scope statements to help you obtain the various pieces
of your project charter.
Breaking Your Project into Phases
How does all this goal and scope analysis relate to Project? When you start a new
project schedule, one of the first things you will do is to enter individual tasks.
Knowing your goal and scope helps you to identify the steps you should be
performing to accomplish them. Before you create your first task, you should
probably begin to think beyond the scope of your project to more detailed
project parameters. These parameters help you determine what tasks to include
in your project. For example, you might consider:
 Deliverables: These are tangible products, services, or results that you’ll
produce during your project. Somewhere in your project should be tasks
that reflect the delivery of each deliverable.
 Key Dates: In addition to the project end date, do you have to meet other
key dates along the way?
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 Completion Criteria: How will you know when you’re done? Do you start
up the new service and that’s it, or do you have to test it for a week before
your job is done? Knowing your completion criteria gives your team
something specific to aim for and helps you create the last phase of your
project.
 Expectations: Knowing what you expect from your team, management, and
yourself can help you identify some tasks. If you expect your team to hold
a quarterly debriefing meeting and submit a progress report, you might
include such a task in your project. If you expect management to sign off on
a prototype, a task such as Prototype Approval is logical.
 Potential Risks: Identifying potential problem areas can help you build in
some checks and balances to help avoid or minimize them. For example,
you may create tasks that contain terms such as Q&A, Testing, Review,
Debrief, and Revise to monitor or fix problems along the way.
1.4 The Project Life-Cycle
The project life cycle may be viewed as a process through which a

project is implemented from beginning to end. This process is often very
complex; however, it can be decomposed into several stages as indicated by the
general outline in Figure 1.2. The solutions at various stages are then integrated
to obtain the final outcome. Although each stage requires different expertise,
it usually includes both technical and managerial activities in the knowledge
domain of the specialist. The owner may choose to decompose the entire
process into more or less stages based on the size and nature of the project. All
stages from conceptual planning and feasibility studies to the acceptance of a
facility for occupancy may be broadly lumped together and referred to as the
Design/Construct process, while the procurement and construction alone are
traditionally regarded as the province of the construction industry.
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Market demand
or Perceived needs
Definition of project
and Scope
Conceptual
Planning and
Feasibility Study
Conceptual Plan or
Preliminary Design
Design and
Engineering
Construction Plans
and specifications
Procurement and
Construction
Completion of
Construction
Start up for
Occupancy
Acceptance of Facility
Operation and
Maintenance
Fulfillment of useful
life
Disposal of
Facility
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Figure 1.2: Project life cycle
There is no single best approach in organizing project management throughout a

project's life cycle. All organizational approaches have advantages and
disadvantages, depending on the knowledge of the owner in construction
management as well as the type, size and location of the project. Therefore, the
facility's operating management should also be considered as early as possible,
just as the construction process should be kept in mind at the early stages of
planning and programming.
 In summary the project phases can be summarized as follows:
1.4.1 Pre-construction phase.
The pre-construction phase of a project can be broken into conceptual
planning, schematic design, design development, and contract documents.
 Conceptual design:
 Very important for the owner.
 During this stage the owner hires key consultants including the designer
and project manager, selects the project site, and establish a conceptual
estimate, schedule, and program.
 The owner must gather as much information as possible about the project.
 The most important decision is to proceed with the project or not.
 Schematic design:
 During this phase, the project team investigates alternate design
solutions, materials and systems.
 Completion of this stage represents about 30% of the design completion
for the project.
 Design development:
 Designing the main systems and components of the project.
 Good communication between owner, designer, and construction manager
is critical during this stage because selections during this design stage
affect project appearance, construction and cost.
 This stage takes the project from 30% design to 60% design.
 Contract documents:
 Final preparation of the documents necessary for the bid package such
as the drawings, specifications, general conditions, and bill of
quantities.
 All documents need to be closely reviewed by the construction manager
and appropriate owner personnel to decrease conflicts, and changes.
 With the contract documents are almost complete; a detailed and complete
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cost estimate for the project can be done.
FIGURE 1.3 Three sequential stages (steps) of the design phase and the
important tasks accomplished in each stage.
Figure 1.4: Sequence of operations in design and construction phases and

General Contractor is selected only after the construction documents have
been completed by the design team.
1.4.2 Procurement phase (Bidding and award phase)

 The project formally transits from design into construction.
 This stage begins with a public advertisement for all interested bidders or
an invitation for specific bidders.
 In fast-track projects, this phase overlaps with the design phase.
 If the project is phased, each work package will be advertised and bid out
individually.
 It is very important stage to select highly qualified contractors. It is not wise
to select the under-bid contractors.
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1.4.3 Construction phase.
 The actual physical construction of the project stage.
 This stage takes the project from procurement through the final completion.
 It is the time where the bulk of the owner’s funds will be spent.
 It is the outcome of all previous stages (i.e., good preparation means smooth
construction).
 The consultant will be deployed for contract administration and construction
supervision.
 Changes during construction may hinder the progress of the project.
1.4.4 Closeout phase.
 Transition from design and construction to the actual use of the constructed
facility.
 In this stage, the management team must provide documentation, shop
drawings, as-built drawings, and operation manuals to the owner
organization.
 The as-built drawings are the original contract drawings adjusted to reflect
all the changes that occurred.
 Assessment of the project team’s performance is crucial in this stage for
avoiding mistakes in the future.
 Actual activity costs and durations should be recorded and compared with that
was planned. This updated costs and durations will serve as the basis for the
estimating and scheduling of future projects.
Figure 1.5 shows the increasing cumulative cost as the projects progresses
while the influence in the project cost and scope decreases.
1.5 Major Types of Construction Projects
In planning for various types of construction, the methods of procuring

professional services, awarding construction contracts, and financing the
constructed facility can be quite different. The broad spectrum of constructed
facilities may be classified into four major categories, each with its own
characteristics.
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1.5.1 Residential Housing Construction
Residential housing construction includes houses and high-rise apartments.

During the development and construction of such projects, the developers usually
serve as surrogate owners and take charge, making necessary contractual
agreements for design and construction, and arranging the financing and sale of
the completed structures. Residential housing designs are usually performed by
architects and engineers, and the construction executed by builders who hire
subcontractors for the structural, mechanical, electrical and other specialty work.
Figure 1.5: Level of influence vs. project duration
The residential housing market is heavily affected by general economic

conditions. Often, a slight increase in total demand will cause a substantial
investment in construction, since many housing projects can be started at
different locations by different individuals and developers at the same time.
Because of the relative ease of entry, many new builders are attracted to the
residential housing construction. Hence, this market is highly competitive, with
potentially high risks as well as high rewards.
1.5.2 Institutional and Commercial Building Construction
Institutional and commercial building encompasses a great variety of project

types and sizes, such as schools and universities, medical centers and hospitals,
sports facilities, shopping centers, warehouses and light manufacturing plants,
and skyscrapers for offices and hotels. The owners of such buildings may or
may not be familiar with construction industry practices, but they usually are
able to select competent professional consultants and arrange the financing of the
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constructed facilities themselves. Specialty architects and engineers are often
engaged for designing a specific type of building, while the builders or general
contractors undertaking such projects may also be specialized in only that type
of building.
Because of the higher costs and greater sophistication of institutional and
commercial buildings in comparison with residential housing, this market
segment is shared by fewer competitors. Since the construction of some of these
buildings is a long process which once started will take some time to proceed
until completion, the demand is less sensitive to general economic conditions than
that for housing construction.
1.5.3 Specialized Industrial Construction
Specialized industrial construction usually involves very large scale projects

with a high degree o f technological complexity, such as oil refineries, steel
mills, chemical processing plants and coal-fired or nuclear power plants. The
owners usually are deeply involved in the development of a project, and prefer
to work with designers-builders such that the total time for the completion of the
project can be shortened. They also want to pick a team of designers and builders
with whom the owner has developed good working relations over the years.
Although the initiation of such projects is also affected by the state of the
economy, long range demand forecasting is the most important factor since
such projects are capital intensive and require considerable amount of
planning and construction time. Governmental regulation such as
environmental protection can also influence decisions on these projects.
1.5.4 Infrastructure and Heavy Construction
Infrastructure and heavy construction includes projects such as highways,

tunnels, bridges, pipelines, drainage systems and sewage treatment plants. Most
of these projects are publicly owned and therefore financed either through bonds
or taxes. This category of construction is characterized by a high degree of
mechanization, which has gradually replaced some labor intensive operations.
The engineers and builders engaged in infrastructure construction are usually
highly specialized since each segment of the market requires different types of
skills. However, demands for different segments of infrastructure and heavy
construction may shift with saturation in some segments. For example, as the
available highway construction projects are declining, some heavy construction
contractors quickly move their work force and equipment into the field of mining
where jobs are available.
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1.6 Construction Projects Participants
Buildings are the result of the need to provide an enclosed, secure space for
people’s activities. Building industry has developed separate but related
disciplines that employ people trained in building construction and technology.
1.6.1 The Owner (The Client)
A client with access to money and land (The owner owns and finances the
project) is one of the most important people in building project. When the client,
who may be a private individual or a comme r cial or pu bl ic organization
decides to build (who m a project is to be built under a contract).
In many countries, the government is the main client for building projects that
meets the basic needs of the people. Hospitals, schools and other public buildings
are typical projects of this type.
Depending on the owners’ capabilities, they may handle all or portions of
planning, project management, design, engineering, procurement, and
construction. The owner engages architects, engineering firms, and
contractors as necessary to accomplish the desired work.
Public owners are public bodies of some kind ranging from agencies from the
country level to the municipal level. Most public projects or facilities are built
for public use and not sold to others. Private owners may be individuals,
partnerships, corporations. Most private owners have facilities or projects built
for their own use or to be sold, operated, leased, or rented to others.
In order to achieve success on a project, owners need to define accurately the
projects objectives. They need to establish a reasonable and balanced scope,
budget, and schedule. They need to select qualified designers, consultants, and
contractors.
1.6.2 The Design Professionals/Design team.
Examples of design professionals are architects, engineers, and design
consultants. The design team is responsible for the overall layout and appearance
of a building. The major role of the design professional is to interpret or assist
the owner in developing the project’s scope, budget, and schedule and to
prepare construction documents. Depending on the size and sophistication of
the owner, the design professional can be part of the owner’s group or an
independent, hired for the project. In some cases design professional and
construction contractor together form a design-build company.
 Architect: An architect is an individual who plans and design buildings

and their associated landscaping. Architects may lead a design team and
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mostly rely on consulting engineers for structural, electrical, and mechanical
work. Together with the design team, an architect will produce: Design
drawings, Working drawings and perspectives.
 Engineers: The term engineer usually refers to an individual or a firm engaged
In the design or other work associated with the design or construction.in that
case We may have:
 Structural Engineer: is the one who makes sure that buildings are structurally
Stable. You may employ a structural engineer if the stresses and loads are greater
than those in a simple house. The engineer calculate the weight of the construction
Materials. The weight of people and equipment who will occupy the building and
maximum wind pressure on the building. Those calculations enable the engineer
to design:-Foundations,-Columns and Beams,-Roof Trusses,-Suspended
floors, and other structural elements of buildings. The structural engineer is
the one who Produce structural drawings and calculations.
Other engineers that may be consulted or employed are: civil Engineer, electrical
Mechanical Engineer.
 The Quantity Surveyor: the quantity surveyor prepare bills of quantities for
building projects so that contractors so that contractors can accurately price the
work. The quantity surveyor works out the size of the area and the volume of
required materials design team’s drawings and specifications.
 The Clerk of works: The clerk of works, who is usually employed by the
client, is an expert in how buildings should be constructed. The clerk of works
uses this knowledge to make sure that the contractor builds the building
correctly and safely.
 Engineering-Construction Firm: An engineering-construction firm is
a type of organization the combines both architect/engineering and
construction contracting. This type of company has the ability of executing a
complete design-build sequence.
1.6.3 The Construction Professionals /Construction team
The constructions Professional are the parties that responsible for
constructing the project(who put up the building).This team consist of these
people:
1: Main contractor: The main contractor enters into contract with the client to
build the building according to the design team’s drawings, specifications and
bills of quantities.
2. Subcontractors: Subcontractors, who are employed by the main contractors,
do specific parts of building project. They provide additional skills for the main
contractors, who may not have workforce that are competent in all the building
19
trades. Subcontractors run their own businesses and they have some
responsibilities for standards of work and safety issues as the main contractor.
3. Estimators: Estimator work out the cost of constructing the proposed building
shown on the drawing and specification. If there is a bill of quantity, the estimator
fills in the rate the rates and produces the total cost for the job. This becomes the
tender document which is offered to the client.
4. Surveyors: The surveyor lays out the shape of building on the ground before
construction starts. The surveyor also checks the ground levels.
5. Site agent/ Engineer: Is the contactor’s representative on site for large contracts
and his job is to manage the site on day-to –day basis.
6. General site foreman: Is always employed for on small contracts. The foreman
should have extensive knowledge of all aspects of building construction. This
includes knowing how to organize the workers, Materials and Schedules.
7. Trade foreman: are experienced at specific trades such as brickwork, carpentry
or plumbing.
8. Trade people: are the workers skilled and experienced in their chosen trades,
typically brick layers, carpenters, plumbers and electricians.
9. Apprentices: are building workers who are learning the basic skills of a trade.
Normally apprentices works with experienced people until they are capable of
working alone. An apprentice may attend classes and work for a certificate while
training for a specific trade.
9. Labourers: carried out the job on building sites that do not needs special skills.
These are usually physical tasks such as digging trenches and general carrying of
materials around the site. Some trades also require labourers. Bricklayers use
labourers to mix and carry motor and to bring bricks and blocks to the place where
they are working.
In traditional management where the owner, design professional, and

contractors are separate companies, the contractor would be termed a prime
contractor. The prime contractor is responsible for delivering a complete project
in accordance with the contract documents. In most cases, the prime contractor
divides the work among many specialty contractors called subcontractors as
shown in Figure 1.6.
20
Figure 1.6: Contractor hierarchy
1.6.4. Working together

The design and building teams are involved in a construction project on and off the
building site. Their work is to:
1. Complete details on drawings;
2. Make changes on sites when required;
3. Price the changes;
4. Inspect the building work;
5. Organize the right number and type of building workers.
6. Order equipment;
7. Order the building materials.
1.6.5 Construction Project Manager

Construction managers, also known as construction project managers, oversee
and allocate resources for various construction projects. A great construction
project manager is skilled in both the technical skills required for the job and in
leading and directing their team. Construction project manager responsibilities
are what guide a project to success. Projects can vary from residential,
commercial, and industrial buildings to bridges and skyscrapers.
Construction project managers oversee all aspects of the building process,

working closely with engineers and architects to develop plans, establish
timetables, and determine labor and material costs. They are responsible for
ensuring the project is completed on budget and within scope
21
Define what is Project management is “the application of knowledge, skills, tools,
and techniques to project activities in order to meet or exceed stakeholder needs
and expectations from a project” (PMI*, Project Management Body of Knowledge
(PMBOK Guide), 1996, p. 6)
 Management Functions
1. Planning where the organization wants to be in the future and how to get there.
2. Organizing:
 Follows planning and reflects how the organization tries to accomplish the plan.
 Involves the assignment of tasks, grouping of tasks into departments, and
allocation of resources.
3. Leading the use of influence to motivate employees to achieve the organization's
goals.
4. Creating a shared culture and values, communicating goals to employees
throughout the organization, and infusing employees to perform at a high level
5. Controlling -Monitoring employees' activities, determining if the organization
is on target toward its goals, and making corrections as necessary.
Define who is the project manager? Is the individual charged with the
overall coordination of the entire construction program for the owner. These
include planning, design, procurement, and construction.
Among his/her duties:
 Clear definitions of the goals of the project.

 Investigate alternative solutions for the problems.
 Develop a detailed plan to make the selected program reality.
 Implement the plan and control the project.
Construction Manager: The construction manager is a specialized firm or
organization which administrates the on-site erection activities and the
consulting services required by the owner from planning through design
and construction to commissioning. The construction manager is
responsible for design coordination, proper selection of materials and
methods of construction, contracts preparation for award, cost and
scheduling information and control.
22
1.6.6. END OF UNIT ONE REVIEW QUESTIONS
1. State if True (T) or False (F):
a. The amount of information that a project manager must consider increases as

a project moves towards completion.
b. Dams, bridges, and highways would be classified as commercial
building projects.
c. In the construction phase of the project, the owner needs to be heavily
involved. d. The construction project must have a defined goal or objective.
e. The construction project must have a defined beginning and end.
f. The main objective of the Owner is to win the job, finish it in a reasonable
time, with maximum profit and reasonable quality.
2. Select the right answer:
I. Site selection and financing would be the responsibility of which

project member.
a. Owner b. Designer
c. Construction project manager d. Subcontractor
II. This Category of projects is often funded by public pounds and is termed
“infrastructure”.
a. Residential b. Commercial building
c. Heavy engineering d. Industrial
III. Which of the following is not a characteristic of a project?
a. Having a specific goal b. Having a defined beginning and end c.

Resources being consumed d. usually being performed only once
e. Never being found outside the construction field
IV. The advertising for contractors and review of contractors’ bids occurs
during which project phase.
a. Procurement b. Design
c. Construction d. Conceptual planning
V. As-built drawings, warranties, and operation manuals are all provided to
the owner during which project phase.
23
a. Design b. Conceptual planning
c. Construction d. Project closeout
VI. As project moves on in time, the ability to change the

project becomes…………difficult and…………expensive.
a. more, less b. less, less c.
more, more d. less, more
3. What are the main types of construction?

4. Briefly describe the project life cycle.
5. “As the project progress, the ability of the change decreases while the cost
of the change increases”, comment on this statement and show your answer
using a schematic diagram.
6. List 10 subcontractors that can be engaged in building project.
24
CHAPTER 2 PROJECT PLANNING
 Prepare projects plans in terms of defining work breakdown structure,

activities, logical relations, durations and activities direct cost.
 Explain project network representation using different graphical
methods including activity on arrow and activity on node are presented.
2.1 Introduction
After the project has been defined and the project team has been appointed,
you are ready to enter the second phase in the project management life cycle: the
detailed project planning phase. Project planning is at the heart of the project
life cycle, and tells everyone involved where you’re going and how you’re
going to get there. The planning phase is when the project plans are
documented, the project deliverables and requirements are defined, and the
project schedule is created. It involves creating a set of plans to help guide your
team through the implementation and closure phases of the project. The plans
created during this phase will help you manage time, cost, quality, changes,
risk, and related issues. They will also help you control staff and external
suppliers to ensure that you deliver the project on time, within budget, and within
schedule.
Planning is a general term that sets a clear road map that should be followed
to reach a destination. The term, therefore, has been used at different levels
to mean different things. Planning involves the breakdown of the project into
definable, measurable, and identifiable tasks/activities, and then establishes
the logical interdependences among them. Generally, planning answers three
main questions:
 What is to be done?
 How to do it?
 Who does it?
In construction, for example, plans may exist at several levels: corporate
strategic plans, pre-tender plans, pre-contract plans, short-term
construction plans, and long-term construction plans. These plans are
different from each other; however, all these plans involve four main steps:
1. Performing breakdown of work items involved in the project into
activities.
2. Identifying the proper sequence by which the activities should be
executed.
3. Activities representation.
25
4. Estimating the resources, time, and cost of individual activities.
Detailed planning for tendering purposes and the preparation of construction

needs to be conducted through brainstorming sessions among the planning team.
The inputs and outputs of the planning process are shown in Figure 2.1
Contract information Activities
Drawings Relationships among activities
Specifications Method statement
OUTPUTS
INPUTS
Available resources Responsibility

Bills of quantities PLANNIN Reporting levels
Site reports G Project network diagram
Organizational data Activities duration
Construction methods Activities cost
Figure 2.1: Planning inputs and outputs

Planning requires a rigorous effort by the planning team. A planner should
know the different categories of work and be familiar with the terminology and
knowledge used in general practice. Also, the planning team should seek the
opinion of experts including actual construction experience. This helps produce
a realistic plan and avoids problems later on site.
2.2 Project Planning Steps
The following steps may be used as a guideline, or checklist to develop a

project plan:
1. Define the scope of work, method statement, and sequence of

work(specifying the in-scope requirements for the project to facilitate
creating the work breakdown structure)
2. Generate or prepare the work breakdown structure (WBS) to produce a
complete list of activities (spelling out the breakdown of the project into tasks
and sub-tasks).
3. Develop the organization breakdown structure (OBS) and link it
with work breakdown structure to identify responsibilities.
4. Determine the relationship between activities.
5. Estimate activities time duration, cost expenditure, and resource requirement.
6. Develop the project network.
26
2.2.1 Work Breakdown Structure (WBS)
The WBS is described as a hierarchical structure which is designed to

logically sub- divide all the work-elements of the project into a graphical
presentation. The full scope of work for the project is placed at the top of the
diagram, and then sub-divided smaller elements of work at each lower level of
the breakdown. At the lowest level of the WBS the elements of work is called
a work package. A list of project’s activities is developed from the work
packages.
Effective use of the WBS will outline the scope of the project and the
responsibility for each work package. There is not necessarily a right or wrong
structure because what may be an excellent fit for one discipline may be an
awkward burden for another. To visualize the WBS, consider Figure 2.2 which
shows a house construction project.
Figure 2.2: WBS and their description

As shown in Figure 2.2, level 1 represents the full scope of work for the house.
In level 2, the project is sub-divided into its three main trades, and in level 3
each trade is sub- divided to specific work packages. Figure 2.3 shows
another example for more detailed WBS, in which the project WBS is divided
into five levels:
Figure 2.3: Five levels WBS

Level 1: The entire project.
Level 2: Independent areas
Level 3: Physically identifiable sections fully contained in a level 2 area,
reflect construction strategy.
Level 4: Disciplines set up schedule.
Level 5: Master schedule activities, quantity, duration.
27
Example 2.1: The WBS for a warehouse is as follow
For more details, another two levels (third and fourth levels) can be added as shown
below:
Accordingly, a complete WBS for the warehouse project can be shown

as follow
(Figure 2.4):
Figure 2.4: Warehouse project WBS
28
2.2.2 WBS and organizational breakdown structure (OBS)
The W B S elements at various levels can be related to the contractor’s

organizational breakdown structure (OBS), which defines the different
responsibility levels and their appropriate reporting needs as shown in Figure
2.5. The figure, also, shows that work packages are tied to the company unified
code of accounts. The unified code of accounts allows cataloging, sorting, and
summarizing of all information. As such, the activity of installing columns
formwork of area 2, for example, which is the responsibility of the general
contractor’s formwork foreman, has a unique code that represents all its data.
WBS (Work elements)
Figure 2.5: WBS linked to the OBS
29
2.2.3 WBS coding
A project code system provides the framework for project planning and control
in which each work package in a WBS is given a unique code that is used in
project planning and control. The coding system provides a comprehensive
checklist of all items of work that can be found in a specific type of
construction. Also, it provides uniformity, transfer & comparison of
information among projects. An example of this coding system is the Master
Format (Figure 2.6) which was developed through a joint effort of 8 industry
& professional associations including: Construction Specifications Institute
(CSI); and Construction Specifications Canada (CSC). Figure 2.7 shows an
example of the coding system using a standardize system as the Master Format.
The Master format is divided into 16 divisions as follows:
1) General Requirements.
2) Site work.
3) Concrete.
4) Masonry.
5) Metals.
6) Woods & Plastics.
7) Thermal & Moisture Protection.
8) Doors & Windows.
9) Finishes.
10) Specialties.
11) Equipment
12) Furnishings.
13) Special Construction.
14) Conveying Systems.
15) Mechanical.
16) Electrical.
30
Figure 2.6: Master Format coding syste
31
2.2.4 Project Activities
The building block (the smallest unit) of a WBS is the activity, which is a unique
unit of the project that has a specified duration. An activity is defined as any
function or decision in the project that: consumes time, resources, and cost.
Activities are classified to three types:
 Production activities: activities that involve the use of resources such as labor,
equipment, material, or subcontractor. This type of activities can be easily
identified by reading the project’s drawings and specifications. Examples are:
excavation, formwork, reinforcement, concreting, etc. each production activity
can have a certain quantity of work, resource needs, costs, and duration.
 Procurement activities: activities that specify the time for procuring materials
or equipment that are needed for a production activity. Examples are: brick
procurement, boiler manufacturing and delivery, etc.
 Management activities: activities that are related to management decisions such
as approvals, vacations, etc.
An activity can be as small as “steel fixing of first floor columns” or as

large as “construct first floor columns”. This level of details depends on the
purpose of preparing the project plan. In the pre- construction stages, less detailed
activities can be utilized, however, in the construction stages, detailed activities are
required. Accordingly, level of details depends on: planning stage, size of the
project, complexity of the work, management expertise.
Figure 2.7 an example of activity coding system
32
Example 2.2:
Figure 2.8 shows a double-span bridge. Break the construction works of the
bridge into activities. The plan will be used for bidding purposes.
Figure 2.8: Double span bridge
A list of the double-span bridge activities is shown in Table 3.1
Table 2.1: Activities of the double-span bridge
33
2.2.5 Activities Relationships
In order to identify the relationships among activities, the planning team needs to
answer the following questions for each activity in the project:
 Which activities must be finished before the current one can start?
 What activity (ies) may be constructed concurrently with the current one?
 What activity (ies) must follow the current one?
A circle of activity precedence will result in an impossible plan. For example, if

activity A precedes activity B, activity B precedes activity C, and activity C
precedes activity A, then the project can never be started or completed. Figure 2.9
illustrates the resulting activity network.
Figure 2.9: Example of a circle of activity precedence
Example 2.3:
Suppose that a site preparation and concrete slab foundation construction project
consists of nine different activities:
A. Site clearing (of brush and minor debris),
B. Removal of trees,
C. General excavation,
D. Grading general area,
E. Excavation for utility trenches,
F. Placing formwork and reinforcement for
concrete,
G. Installing sewer lines,
H. Installing other utilities,
I. Pouring concrete.
Activities A (site clearing) and B (tree removal) do not have preceding activities
since they depend on none of the other activities. We assume that activities C
(general excavation) and D (general grading) are preceded by activity A (site
clearing). It might also be the case that the planner wished to delay any excavation
until trees were removed, so that B (tree removal) would be a precedent activity
34
to C (general excavation) and D (general grading). Activities E (trench
excavation) and F (concrete preparation) cannot begin until the completion
of general excavation and grading, since they involve subsequent excavation
and trench preparation. Activities G (install lines) and H (install utilities)
represents installation in the utility trenches and cannot be attempted until the
trenches are prepared, so that activity E (trench excavation) is a preceding
activity. We also assume that the utilities should not be installed until grading is
completed to avoid equipment conflicts, so activity D (general grading) is also
preceding activities G (install sewers) and H (install utilities).
Finally, activity I (pour concrete) cannot begin until the sewer line is installed
and formwork and reinforcement are ready, so activities F and G are preceding.
Other utilities may be routed over the slab foundation, so activity H (install utilities)
is not necessarily a preceding activity for activity I (pour concrete). The result of
our planning is the immediate precedence shown in Table 2.2.
Table 2.2: Precedence relations for Example 2.3
Example 3.4:
Determine the relationships between activities of the project studied in Example 2.2.
Table 2.3: Solution of Example 2.4
Activity Description predecessors
10 Set-up site --
14 Procure RFT --
16 Procure P.C. Beams --
20 Excavate left abutment 10
30 Excavate right abutment 10
35
40 Excavate central pier 10
50 Foundation left abutment 14,20
60 Foundation right abutment 14,30
70 Foundation central pier 14,40
80 Construct left abutment 50
90 Construct right abutment 60
100 Construct central pier 70
110 Erect left P.C. Beams 16, 80, 100
120 Erect right P.C. Beams 16, 90, 100
140 Fill left embankment 80
150 Fill right embankment 90
155 Construct deck slab 110, 120
160 Left road base 140
170 Right road base 150
180 Road surface 155, 160, 170
190 Bridge railing 155
200 Clear site 180, 190
Logical relationship considering resource constraints
For efficient use of resources or in case of constrained resources, it might be

beneficial to consider the resources when determining the logical relationship
among the activities that use the same resources. For example, consider the case
of construction a simple project consists of three units and each unit has three
sequential activities (logical relationship).
Table 2.4 shows the logical relationship among these activities assuming
unconstrained (resources are available with any quantities) and constrained
resources (only one resource unit is available from each resource type).
Table 2.4: Logical relationships considering constrained and unconstrained

resources
36
2.2.6 Overlap or lag
Overlap between activities (negative lag) is defined as how much a particular
activity must be completed before a succeeding activity may start. The absence of
overlap means that the first activity must finish before the second may start. A
negative overlap (lag) means a delay is required between the two activities (Figure
2.10)
+ve overlap (-ve lag) -ve overlap (+ve lag)
Figure 2.10: Overlap among activities
Example 2.5:
This case study is for a small 3 houses project. The main segments of a single
house, the responsibilities, and the logical relationship are identified as follows:
-11 work packages are involved: A and B (civil work, substructure), C, D, E, and F
(civil work , superstructure), G (electrical, interior), H (electrical, exterior), I
(mechanical, HVAC), J (mechanical, elevator), and K (mechanical, plumbing).
- Substructure is supervised by Ahmed (activity A), and Ali (activity B).
- Superstructure is supervised by Hossam (activities C and F) and Mona (activities
D and E).
- All electrical work is supervised by George.
37
- HVAC and plumbing are supervised by Adam; elevator work is supervised
by Samy.
- Activities E and F follow activity B.
- Activity C precedes activity G.
- Activity I follows the completion of activity E.
- The predecessors to activity K are activities H and I.
- Activity D follows activity A and precedes activity H.
- Activity J is preceded by activities F and G.
It is required to create a WBS and OBS chart.
Solution
From the available information, the relationship table, the network diagrams,
and the WBS linked to an OBS are formed as shown below (Table 2.5 and Figure
2.11).
Table 2.5: Logical relationships of Example 2.5
38
2.2.7 Types of activities relationships in Precedence Diagramming Method
The precedence diagram method (PDM) is a tool for scheduling activities in a

project plan. It is a method of constructing a project schedule network diagram that
uses boxes, referred to as nodes, to represent activities and connects them with arrows
that show the dependencies.
Four types of relationships among activities can be defined as described and

illustrated below (Figure 3.12). Typically, relationships are defined from the
predecessor to the successor activity.
a) Finish to start (FS). The successor activity can begin only when the current
activity completes.
b) Finish to finish (FF). The finish of the successor activity depends on the finish
of the current activity.
c) Start to start (SS). The start of the successor activity depends on the start of
the current activity.
d) Start to finish (SF). The successor activity cannot finish until the current activity
starts.
a b
c d
Figure 2.12: Types of relationships
39
2.2.8 DRAWING PROJECT NETWORK
Definition: A network is a graphical representation of the project activities and

their relationships. A project network is a set of arrows and nodes. Before
drawing the network, it is necessary to ensure that the project has a unified starting
and ending point. The need for this start activity arises when there is more than one
activity in the project that has no predecessors and the end activity is needed when
there is more than one activity that has no successors. Also, networks should be
continuous (i.e., each activity except the first and the last has both preceding
and succeeding activities).
There are two ways that are commonly used to draw a network diagram for a
project:
1. Activity on Arrow (AOA) Network Diagram.
2. Activity on Node (AON) Network Diagram.
2.2.8 .1 ACTIVITY ON ARROW NETWORK (AOA)
In this method, the arrows represent activities while the nodes represent the
start and the end of an activity (usually named as events) (Figure 2 .13). The
length of the arrow connecting the nodes has no significance and may be straight,
curved, or bent. When one activity depends upon another, both appear on the
diagram as two arrows having a common node.
Figure 2.13: Basic patterns of AOA diagrams

40
The following are some rules that need to be followed when constructing an AOA
network diagram:
 Each activity must have a unique i – j numbers, where i (the number at the
tail of the arrow) is smaller than j (the number at the head of the arrow).
 It is recommended to have a gap between numbers (i.e., 5, 10, 15, etc.).
This will allow for accommodation of missed activities.
 Avoid back arrows.
In some situations, when more than one arrow leaves the same node and arrive at
another node, dummy activities must be used. The dummy activity is an activity
with zero duration, consumes no resources, drawn as dashed lines, and used to
adjust the network diagram. A dummy activity is also used when one activity
depends upon two preceding activities and another activity depends only upon one
of these two preceding activities as shown in Figure 2.14.
2.2.8 .2 ACTIVITY ON NODE NETWORK (AON)
In this method, the nodes represent activities and the arrows represent logical
relationships among the activities. If the arrow starts from the end side of an
activity (activity A) and ends at the start side of another activity (activity B),
then A is a predecessor of B (Figure 2.15). AON representation allows the
overlap or lag representation on the relationship arrows connecting activities
Figure 2.14: Use of dummy activity
41
Figure 2.15: Basic patterns of AON diagrams
2.2.8 .3 Comparison between AOA and AON
While both networks can be used to represent a project network, there are
some differences between them:
 There is no need for the use of dummy activities in AON representation.
 AON is more easily to draw and to read.
 In AOA, an activity can only start when all its predecessors have finished.
 AON allows for overlap/lag representation.
 AON allows for the representation of the four types of relationships while AO
allows only for the finish to start relationship.
Example 2.6:
Construct an AOA and AON networks for the activities listed in Table 3.6.
Table 2.6: Data for Example 2.6
42
Forming an AOA network for this set of activities might begin be drawing activities
A, B and C as shown in Figure 3.16 (a). At this point, we note that two activities
(A and B) lie between the same two event nodes; for clarity, we insert a
dummy activity X and continue to place other activities as in Figure 3.16 (b).
Placing activity G in the figure presents a problem, however, since we wish
both activity D and activity E to be predecessors. Inserting an additional
dummy activity Y along with activity G completes the activity network, as shown
in Figure 3.16 (c).
Figure 2.16: AOA Network for Example 3.6
To understand the drawing of the AON, some ordering for the activities
may be necessary. This is done by placing the activities in a sequence step order.
A sequence step may be defined as the earliest logical position in the network that
an activity can occupy while maintaining the logical relationships. In this example,
as there are two activities (activities A and B) has no predecessor, then a start
activity is added to have one unified start activity (Start) for the project. Also, a
finish activity (Finish) is added as there are two activities without successors
(activities F and G).
Considering the data given in Table 2.6, sequence step 1 is assigned to the Start
activity. Then, we take all activities on the list one by one and look at
their immediate predecessors and then assign a sequence step that equals the
highest sequence step of all immediate predecessors plus one as given in Table
2.7. After all sequence step numbers have been assigned, the AON diagram can be
drawn.
43
Table 2.7: Determining the sequence steps
AON representation is shown in Figure 2.17, including project start and finish
nodes. Note that dummy activities are not required for expressing precedence
relationships in activity-on-node networks.
Sequence step 1
Figure 2.17: An AON Network

44
Example 2.7
Draw the AOA and AON networks for the project given bellow.
Activity Predecessor Solution

Activity The AOA is given in Figure 2.18 and the AON is
A - given in Figure 2.19 as shown below.
B -
C -
D A,B
E B
F B,C
Figure 2.18: AOA network
Figure 2.19: AON network
Example 2.8
Activity Predecessor Solution
Activity The AOA is given in Figure 2.18 and the AON is
given in Figure 2.19 as shown below.
A -
B A
C A
D B
E B,C
F C
G D,E,F
Figure 2.19: AOA network
45
Figure 2.20: AON network
2.3 E S T I MA T I NG ACTIVITY DURATION AND DIRECT COST

2 .3 .1 D e f i n i t i o n :
 Duration is defined as the entire time taken to complete an activity, based on the
resources allocated to the project. It stretches from when the task first began to the
day it ended and does not include time off like holidays or other non-working days.
It is also referred to as calendar time.
The duration can be expressed in Work Hours, Work Days, and Work Weeks.
2 .3 .2 E s t i ma t e Ac t i v i t y Du r a t i o n s :
Activity duration estimating involves assessing the work time likely to be needed to
complete each identified activity Duration for every activity is needed so that planning
of the project can be done with respect to time.
2.3.3 CONCEPT
1. Work Time (Duration): Work time is the business time required to complete an
activity. This does not include weekends, holidays, or other non-work time, but
includes provision for any anticipated interruptions.
2. Calendar Time (Duration): Calendar time is the total time required to complete
an activity considering the work as well as non-work periods, and including
provision for any anticipated interruptions.
For example, a client has an activity that requires him to send a document to a
government agency, where it would be reviewed, approved, and then returned. The
client has done this on several previous occasions, and it normally took about 10
business days before the document was back in client's office.
The government agency works for 5 days in a week and the client is sending the
document on Monday morning. Now:
a. What is the duration? The answer is 10 days.
b. What is the calendar time? The answer is 12 days (Mon-Fri, Sat, Sun, Mon-Fri).
2.3.4 ESTABLISHMENT OF ACTIVITY DURATION

Activity duration can be estimated with the aid of a computer (e.g., by using excel
spreadsheet or project management software) or with manual techniques.
46
Manual techniques are often more effective on smaller projects. Manual and
automated techniques may also be used in combination.
2.3.5 INPUTS TO ACTIVITY DURATION ESTIMATION
1. Quantity of Work: The amount of work that needs to be performed; e.g. 10,000
cum of excavation,2000 cum of concreting, 1000 sm of block masonry, etc. This
information is obtained from detailed BOQ or work estimates in conjunction with
construction drawings.
2. Execution Methodology: The execution methodology drives the resource
requirement on the activity. For example, the activity of placing concrete in the
foundation of a large building can be done in any of the following ways - manually,
using crane and bucket arrangement, pumping by concrete pumps or
transporting by a conveyor system. The time and cost for each of these methods will
differ considerably. The choice of the method of execution of an activity depends upon
the past experience, the market availability of appropriate resources, the resources
available with the contractor, the technological and methodological constraints, and
the cost-benefit analysis of the various methods of production. In short, it is the
method of production that dictates the resources required for accomplishment of
an activity.
3. Resource Requirement: What type of resources (manpower, equipment and
material) are required and in what quantity? Resource estimates are normally made
using the planning norms developed from:
 Organizational records of previous projects
 Project team knowledge and experience
 Commercially available databases (if any)
 Expert advice.
4. Resource Productivities: The capabilities of the humans and equipment resources

assigned to activities - e.g. if both are assigned full-time, a senior staff member can
generally be expected to complete a given activity in less time than a junior staff
member. Resource productivity is normally determined from:
 Organizational records of previous projects
 Project team knowledge and experience
 Commercially available databases (if any)
 Expert advice
 Field research
Note that lack of focus, temperature variation, untimely breaks, socializing,
coordination issues, rework due to errors, lack of supervision, etc. account for
reduced resource work input in a work day.
Average productivity is usually taken at 65-75% of maximum productivity.
5.Time Contingency: This includes any possible time variation that needs to be
incorporated for any anticipated and unanticipated interruptions, e.g. Interruptions
might include a phone call with a question to be answered, an equipment breakdown,
power interrupts, random events of nature, untimely delivery of material, bad weather
47
forecasts, absenteeism, strikes, etc. Few of these interruptions may be anticipated (e.g.
bad weather forecast, procession, strike etc.) while others may be unanticipated (e.g.
random event of nature).About one-third of the time is normally spent on
interruptions.
3.4. TECHNIQUES FOR ACTIVITY DURATION ESTIMATION

The following techniques or Methods can be used for initial planning estimates:
1. One-time estimate Method.
2. Three-times estimate Method.
1. One-time estimate Method: in most of the construction works, it is generally
possible to assess the duration of an activity with reasonable certainty by using
organizational planning data records, experience, commercially available databases,
or expert advice. The one-time estimate for activity durations is usually used for
Production activities.
𝐐𝐮𝐚𝐧𝐭𝐢𝐭𝐲 𝐨𝐟 𝐰𝐨𝐫𝐤
𝐃𝐮𝐫𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐚𝐧 𝐀𝐜𝐭𝐢𝐯𝐢𝐭𝐲 =
𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐄𝐟𝐟𝐨𝐫𝐭
Where,
Production Effort = Number of resource teams(𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐜𝐫𝐞𝐰𝐬 ) x productivity of
each resource team (𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭 𝐨𝐟 𝐭𝐢𝐦𝐞)
So the formula is becoming:
𝐀𝐜𝐭𝐢𝐯𝐢𝐭𝐲 𝐝𝐮𝐫𝐚𝐭𝐢𝐨𝐧 =
𝐐𝐮𝐚𝐧𝐭𝐢𝐭𝐲 𝐨𝐟 𝐰𝐨𝐫𝐤
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐫𝐞𝐬𝐨𝐮𝐫𝐜𝐞 𝐭𝐞𝐚𝐦𝐬(𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐜𝐫𝐞𝐰𝐬 )𝐱 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐯𝐢𝐭𝐲 𝐨𝐟 𝐞𝐚𝐜𝐡 𝐫𝐞𝐬𝐨𝐮𝐫𝐜𝐞 𝐭𝐞𝐚𝐦(𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭 𝐨𝐟 𝐭𝐢𝐦𝐞)
-Crews: A group of People who work closely together.
For example, suppose that the durations shown in Table 2.8 were estimated for
a project. The entire set of activities would then require at least 3 days, since the
activities follow one another directly and require a total of 1.0 + 0.5 + 0.5 + 1.0 =
3 days.
Table 2.8: Durations and predecessors for a four-activity project

Activity Predecessor Duration (Days)
Excavate trench --- 1.0
Place formwork Excavate trench 0.5
Place reinforcing Place formwork 0.5
Pour concrete Place reinforcing 1.0
Example 2
48
How many hours will be needed to excavate 10,000 cu-m with the provided data?
Excavator's Productivity = 1000 cu-m/hr. Number of Excavators = 2, Contingency

factor =0.2
Result/
10,000 cu m
 Duration of 𝐀𝐜𝐭𝐢𝐯𝐢𝐭𝐲 = =5 hours
1000 x 2 cum / hr
Now, adjust for contingency:
 Adjusted Duration = (5 hours x 0.2) + 5 hours = 6 hours
Example 3
Find the duration of an interior and exterior painting activities with quantities of 440
m 2 and 378 m2 respectively, using crews of 11 m 2 /hours and 14 m 2 /hours for the
interior and exterior painting activities respectively.
Solution
 Interior painting duration = 440 / 11 = 40 hours
 Exterior painting duration = 378 / 14 = 27 hours
 Total work hours = 40 hours +27 hours =67 hours
Typically, the quantity of work is determined from engineering drawings of a

specific project. The number of crews working is decided by the planner. In many
cases, the number or amount of resources applied to particular activities may be
modified in light of the resulting project plan and schedule. Some estimate of the
expected work productivity must be provided. Historical records in a firm can also
provide data for estimation of productivities.
Having defined an activity duration, it means that the planner have already defined
the number of resources that will be employed in a particular activity. Knowing
activity duration and resources employed, it is simple to estimate the activity direct
cost. Then, the three elements of an activity: duration, cost, and resources form
what is called construction method. Some activities can be performed using
different construction methods. Where, its method will have its own resources, cost
and duration.
49
3.5 BASIC PRINCIPLE FOR ESTIMATING LABOR COSTS
Labor costs in construction are determined by two factors: monetary and
productivity. The monetary factor is related to hourly wage rates, wage premiums,
insurance and taxes.
Estimating the components of the monetary factor is more difficult in construction

than in other industries. This is due to the variety of work involved in construction,
as well as the many types of trades involved. The problem is further complicated by
the presence of the unions with their craft structures and collective bargaining
processes. Although the computational process of this component seems complex and
tedious, it is only a matter of accounting as the needed numbers (such as wage rates,
fringe benefits, and insurance) are readily available.
The formula for computing the total cost of labor is quite simple. It requires the
knowledge of the total work hours or labor hours needed to perform all the tasks and
then applying the corresponding wage rates. The formula for calculating the total
cost of labor is shown below:
𝐓𝐨𝐭𝐚𝐥 𝐜𝐨𝐬𝐭 𝐨𝐟 𝐥𝐚𝐛𝐨𝐫 = 𝐓𝐨𝐭𝐚𝐥 𝐰𝐨𝐫𝐤 𝐡𝐨𝐮𝐫 𝐱 𝐰𝐚𝐠𝐞 𝐑𝐚𝐭𝐞
Definitions:
 Wage: a fixed regular payment earned for work or services, typically paid on a daily
or weekly basis.
 Wage rate. : The amount of base wage paid to a worker per unit of time (as per
hour or day) or per unit of output if on piecework.
Example 4
An ironworker works 10hr/day, 6 days/week. A base wage of LE20.97/hr is paid
for all straight-time work, 8 hr/day, 5 day/week. An overtime rate of one time and
one half is paid for all hours over 8 hr/day, Saturday through Wednesday, and double
time is paid for all Thursday work. The social security tax is 7.65% and the
unemployment tax is 3% of actual wages. The rate for worker’s compensation
insurance is LE12.5 per LE100 of base wage. Calculate the average hourly cost to
hire the ironworker.
Solution
 Actual hours Per week = 10 × 6 = 60 hr Pay hours = weekly straight time +
weekly overtime + Thursday overtime = 5 × 8 × 1 + 5 × 2 × 1.5 + 10 × 2 = 75 hr.
 Taxes are paid on actual wage and insurance is paid on base wage
 Average hourly pay = (75/60) × LE20.97 = LE 26.21/hr
50
 Social security tax = 26.21 × 0.0765 = 2.01
 Unemployment tax = 26.21 × 0.03 = 0.79
 Compensation = 12.5/100 × 20.97 = 2.62
 Then, the average hourly cost = LE 31.63/hr.
Example 5
Assume that a crew for a work item includes three bricklayers and two helpers. The
crew works for three days (8-hr/day) to complete the work package. The wage rate
for each bricklayer is LE28.55 and each helper is LE22.40. Find the total cost of the
crew.
Solution
In this instance, the total cost of crew is calculated as follows:
 Total cost = 3 × 3 × 8 × 28.55 + 2 × 3 × 8 × 22.4 = LE3131
Example 6
If the daily production rate for a crew that works in an activity is 175 units/day and
the total crew cost per day is LE 1800. The material needed for daily work is 4.5 units
at LE 100/unit.
A. Calculate the time and cost it takes the crew to finish 1400 units
B. Calculate the total unit cost. Consider an eight hour work day.
Solution
𝐐𝐮𝐚𝐧𝐭𝐢𝐭𝐲 𝐨𝐟 𝐰𝐨𝐫𝐤 𝟏𝟒𝟎𝟎 𝐔𝐍𝐈𝐓𝐒
A.𝐃𝐮𝐫𝐚𝐭𝐢𝐨𝐧 (units of time) = 𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭 𝐨𝐟 𝐭𝐢𝐦𝐞 𝐱 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐜𝐫𝐞𝐰𝐬 = 𝟏𝟕𝟓 𝐮𝐧𝐢𝐭𝐬/𝐝𝐚𝐲 𝐱 𝟏 = 𝟖 𝐝𝐚𝐲𝐬
 Cost (labor cost) = Duration (units of time) x crew cost per unit of time
= 8 days × LE 1800 / day = LE 14400
 Total direct cost = Le 14400 + 4.5 units of material × LE 100 / day × 8 days
= LE 18000
B. Unit cost = total cost / quantity = LE 18000 / 1400 = LE 12.86 / unit
N.B. LE: Egyptian pound=57.72 Rwf
Sometimes the productivity of a specific crew expressed in man-hours/unit not

units/day. For example, if the productivity is said to be 0.5 Man-hour/cubic meters,
this means how long it will take one labor to construct one unit. This way applied
to any crew formation and work hours.
Example 7:
What is the duration in days to install 6000 square meters of walls shuttering if:
A. Crew of 2 carpenters is used with output of 200 square meters /day
B. Productivity is measured as 0.008 man-hour/square meters. Number of
carpenters =3, and number of working hours/day = 8 hours
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Solution
A. Duration = 6000 / 200 = 3 days
B. Total man-hours needed = 6000 x 0.008 = 48 man-hours (if one man used)
 Duration = 48 / 8 = 6 days (if one man used)

 Duration using 3 men = 6 / 3 = 2 days
Example 8: (use of several resources)

What is the duration of an exaction activity with a quantity of 3000 m3 using an
excavation crew consists of an excavator with a production rate of 200 m3 /day, a
loader of 250 m3 /day and 3-trucks of 150 m3 /day? Comment on this crew formation.
Solution –
 Using the excavator: Duration = 3000 / 200 = 15 days
 Using the loader: duration = 3000 / 250 = 12 days
 Using the 3-trucks: duration = 3000 / 150 = 20 days
 Then, the activity duration is governed by the lowest production rate = 12 days.
This is unbalanced crew where the loader is not working with full capacity; the
production rate of this crew could be adjusted by increasing the number of trucks
to 4 of 5 trucks. Then, for a balanced mix of resources, use 1 loader, 1 excavator
and 4- trucks. Accordingly, the activity duration = 3000 / 200 = 15 days.
Example 9: (use of several resources)

The construction of a reinforced concrete wall involves placing 660 m3 concrete,
fixing 50 ton of steel, and 790 m2 of formwork. The following information belongs
to the jobs involved in this activity:
 A 6 man concrete crew can place 16 m3 of concrete/day
 A steel-fixer and assistant can fix 0.5 ton of reinforcement/day.
 A carpenter and assistant can fix and remove 16 m2 of shuttering/day.
Calculate the duration of the activity considering the steel-fixer as the critical
resource.
Solution
 using one steel-fixer: duration = 50 / 0.5 = 100 days
 using one carpenter: duration = 790 / 16 = 49.4 days
 Using one concreting crew: duration = 660 / 16 = 41.25 days.
Then, for a balanced mix of resources, use 2 steel-fixer crews, one carpenter
crew, and cone concreting crew. Accordingly, the activity duration = 50 / 0.5 x
2 = 50 days.
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2. three-time estimate Method.
For this method you are calling on the collective memory of professionals who have
worked on similar activities but for which there is no recorded history, or if there is a
recorded history, the current conditions are too different. Here activity duration is
considered a random variable, which means that if it were possible to repeat the
activity several times under identical circumstances, duration times would vary. That
variation may be tightly grouped around a central value, or it might be widely
dispersed.
To use three-time estimate technique, three estimates of activity duration:

optimistic, pessimistic, and most likely are needed.
 The optimistic time is defined as the shortest duration one has or might expect to
experience given that everything happens as expected or it is the fastest possible
time needed to complete the task.
 The pessimistic time is that duration that would be experienced (or has been
experienced) if everything that could go wrong did go wrong and yet the activity
was completed or it is the slowest time needed to complete the task.
 The most likely time: is that time usually experienced (most expected) or It is
the normal time.
The following relation is used to calculate the expected duration of such an
activity:
𝒂 + 𝟒𝒎 + 𝒃
Expected activity duration =
𝟔
Where,
a= optimistic time.
b = pessimistic time,
m = most likely time
The three-time estimate is usually used for some types of Procurement and
Administrative activities.
It can effectively be used in certain areas of construction projects where major

uncertainty in duration estimation exists.
Some of these are as follows:
 The sanctioning of a government project
 The necessary project approvals
 The feasibility stage of a project
 The closeout stage of a project
 Procurement of long-lead items
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Example1:
Consider the activity of sanctioning of a government project. It has to pass through

many channels and depends upon many factors. Assume that the sanction is most
likely to take 8 weeks, and if all goes well, the earliest it can happen is 6 weeks, but
in any case, it will certainly come through in 16 weeks. The expected duration of the
activity can then be calculated as follows:
𝟔+𝟒𝐗𝟖+𝟏𝟔
Expected activity duration = =9 weeks.
𝟔
Example 2
From the table below:
1. Calculate the expected duration of the activity?
54
CHAPTER 3 PROJECT SCHEDULING
 Evaluate the early and late times at which activities start and finish
 Perform correctly calculations in order to deduce total, free float for
activities
 Identify the group of critical activities so that special care is taken to make
sure they are not delayed
In chapter 2, the AOA and AON networks were presented, also the time and cost
of individual activities based were calculated. Yet, however, we do not know how
long the total project duration is. Also, we need to evaluate the early and late
times at which activities start and finish. In addition, since real-life projects
involve hundreds of activities, it is important to identify the group of critical
activities so that special care is taken to make sure they are not delayed. All
these statements are the basic objectives of the scheduling process, which adds a
time dimension to the planning process. In other words, we can briefly state that:
Scheduling = Planning + Time
 Scheduling is the determination of the timing of the activities comprising the

project to enable managers to execute the project in a timely manner. The project
scheduling ii used for:
 Knowing the activities timing and the project completion time.
 Having resources available on site in the correct time.
 Making correction actions if schedule shows that the plan will result in
late completion.
 Assessing the value of penalties on project late completion.
 Determining the project cash flow.
 Evaluating the effect of change orders on the project completion time.
 Determining the value of project delay and the responsible parties.
3.1 METHODS USED IN PROJECT SCHEDULING.
The most common project scheduling techniques and methods used for creating
work schedules are:
1. The Critical Path Method
2. Gantt Charts Method
One or all of these techniques can be used based on the requirements and the
complexity of the project.
55
3.1 The Critical Path Method
The most widely used scheduling technique is the critical path method
(CPM) for scheduling. This method calculates the minimum completion time
for a project along with the possible start and finish times for the project activities.
Many texts and managers regard critical path scheduling as the only usable and
practical scheduling procedure. Computer programs and algorithms for critical
path scheduling are widely available and can efficiently handle projects with
thousands of activities.
 The critical path itself represents the set or sequence of activities which
will take the longest time to complete. The duration of the critical path is the
sum of the activities' durations along the path. Thus, the critical path can be
defined as the longest possible path through the "network" of project activities.
The duration of the critical path represents the minimum time required to
complete a project. Any delays along the critical path would imply that additional
time would be required to complete the project.
There may be more than one critical path among all the project activities, so
completion of the entire project could be delayed by delaying activities along any
one of the critical paths. For example, a project consisting of two activities
performed in parallel that each requires three days would have each activity critical
for a completion in three days. Formally, critical path scheduling assumes that a
project has been divided into activities of fixed duration and well defined
predecessor relationships. A predecessor relationship implies that one activity must
come before another in the schedule.
N.B The CPM is a systematic scheduling method for a project network and
involves four main steps:
1. A forward path to determine activities early-start times;
2. A backward path to determine activities late-finish times;
3. Float calculations; and
4. Identifying critical activities.
3.2 Calculations for the Critical Path Method
The inputs to network scheduling of any project are simply the AOA or the
AON networks with the individual activity duration defined. The network
scheduling process for AOA and AON networks, however, is different. To
demonstrate these two techniques, let’s consider a simple 5-activity project, with
56
activity A at the start, followed by three parallel activities B, C, and D; which are
then succeeded by activity E. The AOA or the AON networks of this example are
presented in Figure 3.1. Detailed analysis of theses AOA or the AON networks are
presented in the following subsections. It is noted that the example at hand involves
only simple finish-to-start relationships among activities.
Figure 3.1: Network example
3.2.1 Activity-On-Arrow Networks Calculations
The objective of arrow network analysis is to compute for each event in the
network its early and late timings. These times are defined as:
 Early event time (ET) is the earliest time at which an event can occur,
considering the duration of preceding activities.
 Late event time (LT) is the latest time at which an event can occur if the
project is to be completed on schedule.
57
Forward Path
The forward path determines the early-start times of activities. The forward path
proceeds from the most left node in the network (node 1 – Figure 3.2) and moves
to the right, putting the calculations inside the shaded boxes to the left.
Each node in the network, in fact, is a point at which some activities end (head
arrows coming into the node), as shown in Figure 3.3. That node is also a point
at which some activities start (tail arrows of successor activities). Certainly, all
successor activities can start only after the latest predecessor is finished.
Therefore, for the forward path to determine the early-start (ES) time of an
activity, we have to look at the head arrows coming into the start node of the
activity. We then have to set the activity ES time as the latest finish time of all
predecessors.
Figure 4.2: Preparation for the forward path
Figure 3.3: A node in an AOA network

In this example, the forward path calculations are as follows:
 Start at node 1, the first node of the project, and assign it an early-start time
of zero.
Here, all activity times use an end-of-day notation. Therefore, the ES of activity
A is zero means that activity starts at end of day zero, or the beginning of day
58
1 in the project.
 Then, move to node 3. This node receives one head arrow, and as such, it has
one predecessor, activity A. Since the predecessor started on time zero and
has 3 days duration, then, it ends early at time 3 (Early-Finish (EF) = Early-
Start (ES) + d). Accordingly, the ES time of all successor activities to node 3
(activities B, C, and D) is time 3. This value is therefore, put in the shaded box
on top of node 3, as shown in Figure 3.4.
Figure 4.4: Forward path calculations in AOA networks
- Now, move forward to successor nodes 5, 7, and 9. However, since node 9 is

linked to nodes 5 and 9 by dummy activities, we begin with nodes 5 and 7. Node
5 receives one head arrow from its predecessor activity B, we evaluate the EF
time of B as 6 (ES (3) + d (3)). Successor activities to node 5, therefore, can
have an ES time of 6. Similarly, the ES time at node 7 is calculated as time 9.
- Moving to node 9, the EF times of its 3 predecessors (d1, C, and d2) are time
6, 7, and 9, respectively. Accordingly, the ES time of successor activities is
the largest value 9. Notice that only the largest EF value of predecessor
activities is used to calculate the ES of successor activities and all other values
not used. As such, only ES values can be directly read from the calculations in
Figure 3.4. EF values, on the other hand can be calculated as EF = ES + d.
- The last node (11) receives one head arrow, activity E which has an ES value
of 9.
The EF time of activity E, therefore =9 + 5 = time 14. Since node 11 is the last
node, the EF of this node becomes the end of the project, reaching total project
duration of 14 days.
Generally, for any activity x connecting between nodes i and j as shown in Figure
59
3.5, the calculations as follows:
Figure 3.5: Activity times

ETj = ETi + dx
In case of more than one arrow terminating at node j, then consider the largest
value.
Accordingly, ESx = ETi
EFx = ESx +dx
Backward Path
The backward path determines the late-finish (LF) times of activities by

proceeding backward from the end node to the starting node of the AOA
network. We put the LF values in the right side boxes adjacent to the nodes, as
shown in Figure 3.6. For the example at hand, we do the following:
Figure 3.6: Backward path calculations in AOA

networks
- Start from the last node of the network (node 11) and we transfer the early-
finish value from the left box to be the late-finish (LF) value at the right-side
box.
- Then, move backward to node 9 which has only one tail arrow of activity E.
With the LF time of E being time 14, its LS time becomes LS = LF - d = 14 –
5 = time 9. At node 9, therefore, time 9 becomes the LF time of the predecessor
activities of this node.
- Moving backward to predecessor nodes 5, and 7. Node 5 has one tail arrow
of the dummy activity d1, and as such, the LF time value to be used at node 5
becomes 9. Similarly, the LF time value of node 7 becomes 9.
60
- Moving to node 3, we evaluate the LS time of its 3 successor activities B, C,
and D as 6, 5, and 3, respectively. The LF time at node 3, therefore, becomes the
smallest value 3. With other LS values not used, the values in the calculation
boxes, as such, directly show the LF times of activities. LS times can be calculated
as LS = LF – d.
- Now, proceed to the first node in the network (node 1). It connects to one tail
arrow of activity A. The LS time of A, therefore, is LS = LF– d = 3 – 3 = 0,
a necessary check to ensure the correctness of the calculation.
Having Figure 4.5 again in mind and to generalize the calculations, for any
activity x connecting between nodes i and j, the calculations as follows:
LTi = LTj – dx
Case of more than one arrow leaving node i, and then consider the smallest value.
Accordingly, LFx = LTj
LSx = LFx –dx
Float Calculations
Once forward path and backward path calculations are complete, it is possible to
analyze the activity times. First, let's tabulate the information we have as shown in
Table 3.1. One important aspect is Total-Float (TF) calculations, which determine
the flexibility of an activity to be delayed. Notice in Table 3.1 that some activities
such as activity A has ES time = LS time, and its EF time = LF time, indicating no
slack time for the activity. Other activities such as B can start early at time 3 and late
at time 6, indicating a 3-day of total float. Float calculations can be illustrated as
shown in Figure 3.7 for any activity
Table 3.1: CPM results
Activity Duration Early Late Late Early Total Critical

Start Finish Start Finish Float Activity
(ES) (LF) (LS) (EF) (TF)
A 3 0 3 0 3 0 Yes
B 3 3 9 6 6 3 No
C 4 3 9 5 7 2 No
DE 6 3 9 3 9 0 Yes
E 5 9 14 9 14 0 Yes
5 9 1 9 14 0
4
61
Figure 3.7 shows two ways of scheduling each activity using its activity times.
One way is to schedule it as early as possible (using its ES time). The other
way is as late as possible (using its LS time). The activity float can, therefore,
be represented by the following relationships:
Total Float (TF) = LF – EF= LS – ES
Also, with the ES and LF times directly read from the boxes used in forward
and backward path calculations, the total float can also be calculated as; TF = LF
– ES – d. Using these relationships, activities total floats are calculated as shown in
Table 4.1.
Another type of float often used in network analysis is the Free Float, which can
be calculated as:
Free Float (FF) = ETj – ETi – d or
FF = smallest ES (of succeeding activities) – EF (of current activity)

The free float defines the amount of time that an activity can be delayed without
affecting any succeeding activity. With free float available for an activity, a project
manager knows that the float can be used without changes the status of any non-
critical activity to become critical.
Identifying the Critical Activities
Activities with zero total floats mean that they have to be constructed right at
their schedule times, without delays. These activities are considered to be critical.
They deserve the special attention of the project manager because any delay
in critical activities causes a delay in the project duration.
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One interesting observation in the results of CPM analysis is that critical activities
form a continuous path of the critical activities that spans from the beginning to the
end of the network. In our example, activities A, D, and E (excluding dummy
activities) are critical and the critical path is indicated by bold lines on Figure 3.6.
Notice that among the 3 paths in this example (A-B-E; A-C-E; and A-D-e), the
critical path is the longest one, an important characteristic of the critical path. In
real-life projects with many activities, it is possible that more than one critical path
are formed. By definition, the length of these critical paths is the same.
3.2.2 Precedence Diagramming Method (PDM)
Precedence Diagramming Method (PDM) is the CPM scheduling method used for
AON networks and it follows the same four steps of the CPM for AOA method.
Forward Path
Forward path can proceed from one activity to the other; the process is as follow
(Figure3.8):
 At activity A. It is the first activity in the network. We give it an early-start
(ES) of 0 in the left top box. Adding the activity duration, we determine the
EF time of the activity and we put it in the top right box.
Figure 3.8: Forward Path in PDM Analysis

 Then, move forward to the succeeding activities B, C, and D. These three
activities have only A as a predecessor with time 3 as its EF. As such, all the
three activities can start as early as time 3 (ES = 3). Each activity, accordingly,
has its own EF time based on its duration.
 Moving forward to activity E. This activity has 3 predecessors (3 head arrows)
of activities B, C, and D with their largest EF time being 9. The ES of activity
E, thus, with becomes time 9. Adding its duration, the EF becomes time 14.
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To generalize the calculations consider Figure 3.9, of two activities i and
j with relationship finish to start and overlap between them. Overlaps will have a
positive sign, while lags will have a negative sign. The forward path calculations
are as follows:
Figure 3.9: Activities times in PDM Analysis

ESj = EFi – overlapij
In case of more than one activity precedes activity j then consider the maximum.
Then, apply Equation 4.3 to calculate the early finish times.
Backward Path
Once the forward path is finished, the backward path can start, moving from the
last activity to the first, putting the calculations in the bottom two boxes of each
activity, as shown in Figure 3.10. The process is as follows:
Figure 3.10: Backward path in PDM analysis

 Start at the last activity E and we transfer the early-finish value to become
the activity's late-finish (LF) time. Then, subtracting the activity's own duration,
the late- start (LS) time is calculated as time 9 and put in the bottom left box of
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the activity.
 Moving backward to activities B, C, and D all have one successor (activity E)
with LS time of 9. The LF of all these activities becomes time 9. Each activity
then has its own LS time, as shown in Figure 3.10.
 Moving to activity A. The activity is linked to 3 tail arrows (i.e., has 3 successors)
of activities B, C, and D. The LF of activity A, thus, is the smallest of its
successors' LS times, or time 3. Activity A then has LS equals zero.
Considering Figure 3.9 again, the backward path calculations are as follows
LFi = LSj + overlapij
In case of more than one activity succeeds activity j then consider the minimum.
Then, apply Equation 4.6 to calculate the late start times.
Notice that by the end of the backward path, all activity times can be read directly
from the boxes of information on the activity, without additional calculations. This
also, makes it simple to calculate the total float of each activity using the same
relationships used in the AOA analysis.
Identifying Critical Activities.
Critical activities can also be easily determined as the ones having zero float
times, activities A, D, and E. The critical path is then shown in bold as Figure
3.10. The PDM analysis, as explained, is a straight forward process in which each
activity is considered as an entity that stores its own information.
The activities are represented as arrows that drawn to scale to reflect the activity
duration it represents. The horizontal dashed lines represent total float for groups of
activities and free float for the immediate activity to the left of the dashed line. The
precedence of an activity is the immediate activities before it or that linked to it
through vertical dashed lines. The name and the duration of an activity are written
above and below the arrow representing it respectively (Figure 3.11). The ES, EF,
and FF times of the activities can be easily read directly from the diagram. The TF
for an activity is the smallest sum of succeeding FF on all paths. Accordingly, the
LS and LF times can be easily calculated as follows:
LSi = ESi + TFi

LFi = LSi + Di
The critical path can be easily determined as the continuous lines from the
beginning to the end of the network with any dashed lines. The main advantage of
this diagram is its simple representation and it can be used directly for
determining resources need. However, its disadvantage is that it needs a great effort
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to be modified or updated. Also, it cannot be used to represent overlapping
activities. Figure 3.11 shows the time-scaled diagram for the same 5-activities
project solved previously using AOA and AON networks.
Figure 3.11: Time-scaled diagram

The TF for activity A equals the smallest of the sum of the floats along all paths
from the end of activity A to the end of the project. The float on path ABE = 3,
path ACE = 2 and path ADE = 0, then the TF of activity A = 0. The calculations
are shown in Table 3.2.
Table 3.2 Time-scaled diagram calculations (d = duration in the table)
Activity ES EF FF TF LF=EF+TF LS=LF-d

A 0 3 0 0 3 0
B 3 6 3 3 9 6
C 3 7 2 2 9 5
D 3 9 0 0 9 3
E 9 140 0 0 14 9
3.3 Schedule Presentation

After the AOA and AON calculations are made, it is important to present their results
in a format that is clear and understandable to all the parties involved in the project.
The simplest form is the Bar chart or Gantt chart, named after the person who first
used it. A bar chart is a time versus activity chart in which activities are plotted
using their early or late times, as shown in Figures 3.12 a and b. Early bar chart is
drawn using the ES times of activities, while the late bar chart is drawn using the LS
times.
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Figure 3.12: a) Early bar chat b) Late bar chart
The bar chart representation, in fact, shows various details. Float times of
activities, critical activities can be shown in a different color, or bold borders, as
shown in Figure3.12. The bar chart can also be used for accumulating total daily
resources and / or costs, as shown at the bottom part of Figure 3.13. In this figure,
the numbers on each activity represent the number of labors needed.
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Figure 3.13: Using bar chart to accumulate
resources
One additional benefit of the bar chart is its use on site to plot and compare the
actual progress in the various activities to their scheduled times. An example is
shown on Figure3.13, showing actual bars plotted at the bottom of the original bars
of the schedule.
3.4 Criticisms to Network Techniques
The CPM and PDM analyses for network scheduling provide very important
information that can be used to bring the project to success. Both methods,
however, share some drawbacks that require special attention from the project
manager. These drawbacks are:
 Assume all required resources are available: The CPM calculations do not
incorporate resources into their formulation. Also, as they deal with activity
durations only, it can result in large resource fluctuations. Dealing with
limited resources and resource leveling, therefore, has to be done separately
after the analysis;
 Ignore project deadline: The formulations of CPM and PDM methods
do not incorporate a deadline duration to constrain project duration;
 Ignore project costs: Since CPM and PDM methods deal mainly with
activities durations, they do not deal with any aspects related to minimize
project cost;
 Use deterministic durations: The basic assumption in CPM and PDM
formulations is that activity durations are deterministic. In reality, however,
activity durations take certain probability distribution that reflect the effect of
project conditions on resource productivity and the level of uncertainty
involved in the project.
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3.5 Solved Examples
3.5.1 Example 1
Construction project is characterized by the following information
tabulated below?
Activity Description Immediate Duration

Activity Predecessors (weeks)
A Excavate ------- 2 weeks
B Lay the foundation A 4 weeks
C Put up the rough wall B 10 weeks
D Put up the roof C 6 weeks
E Install the exterior plumbing C 4 weeks
F Install the interior plumbing E 5 weeks
G Put up the exterior siding D 7 weeks
H Do the exterior painting E,G 9 weeks
I Do the electrical work C 7 weeks
J Put up the wallboard F,I 8 weeks
K Install the flooring J 4 weeks
L Do the interior painting J 5 weeks
M Install the exterior fixtures H 2 weeks
N Install the interior fixtures K,L 6 weeks
1. Represent activity on node network (AON) of this project.

Result/ 33 38
16 23 25 33 L (5)
Legend J (8) 33 38
I (7)
18 25 25 33 38 38
N (6)
20 25
33 37 33 38
F (5)
20 25 K (4)
2 6 6 16 16 20 34 38
0 2
A (2) B(4) C (10) E (4)
0 2 2 6 6 16 16 20 44 44
29 38
Start H (9) Finish
38 40 44 44
33 42
M (2)
22 29 42 44
16 22
D (6) G (7)
20 26 26 33
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2. How many paths represented on the project network?
Result/: -Path(1)- A B C D G H M Finish
-Path(2)- A B C E F J K N Finish
- Path(3)- A B C E F J L N Finish
- Path(4)- A B C I J L N Finish
- Path(5)- A B C E H M Finish
- Path(6)- A B C I J K N Finish
3. Which are the critical Paths where any delays must be avoided to
prevent delaying project completion? /3 marks
Result/
-Path(2)- A B C E F J K N Finish
- Path(3)- A B C E F J L N Finish
4. Graphically represent the critical path of the project network.

Result/ The critical path is Graphically represented by using Blue
color.
5. What is the total time required to complete the project if no delays
occur?
Result/ the total time required to complete the project if no delays
occur is equal to 44 weeks.
6. Calculate early and late times and total float values for all activities of
the project.
TOTAL FLOAT VALUES FOR ALL ACTIVITIES.
Activity Activity Description Immediate Duration ES EF LS LF TOTAL CRITICAL
Predecessors (weeks) FLOAT ACTIVITY
A Excavate ------- 2 weeks 0 2 0 2 0 Yes
B Lay the foundation A 4 weeks 2 6 2 6 0 Yes
C Put up the rough wall B 10 weeks 6 16 6 16 0 Yes
D Put up the roof C 6 weeks 16 22 20 26 4 Not
Install the exterior 16 20 16 20 0 Yes
E plumbing C 4 weeks
Install the interior 20 25 20 25 0 Yes
F plumbing E 5 weeks
Put up the exterior 22 29 26 33 4 Not
G siding D 7 weeks
H Do the exterior painting E,G 9 weeks 29 38 33 42 4 Not
I Do the electrical work C 7 weeks 16 23 18 25 2 Not
J Put up the wallboard F,I 8 weeks 25 33 25 33 0 Yes
K Install the flooring J 4 weeks 33 37 33 37 0 Yes
L Do the interior painting J 5 weeks 33 38 33 38 0 Yes
Install the exterior 38 40 42 44 4 Not
M fixtures H 2 weeks
Install the interior 44 44 44 44 0 Yes
N fixtures K,L 6 weeks
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3.5.2 Example 2
For the project data in Table 3.3, answer the following questions:
a) Draw an AOA network of the project?
b) Perform forward path and backward path calculations?
c) What is the effect of delaying activity D by 3 days?
Table 3.3: Data for Example 1
Activity Duration Immediate predecessor
A 2 -AABB
BC 6 C, D E, F
DE 3
FG 1
6
3
2
Solution
c) Total float of activity D = LF – ES – d = 11 – 8 – 1 = 2.

Then delaying activity D by 1 day more than its total float will cause a net delay in
the whole project by 1 day to become 17 days.
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3.5.3 Example 3
Perform PDM calculations for the small project below and determine activity
times. Durations are shown on the activities.
Solution
3.5.4 Example 4
For the activities listed in the table below, draw the time-scaled diagram and
mark the critical path. Determine the completion time for the project. Tabulate
activities times and floats
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Solution
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3.5.5 Example 5
Perform PDM calculations for the small AoN network shown here. Pay special
attention to the different relationships and the lag times shown on them.
Solution
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3.6 GANTT CHART METHOD
Gantt Charts are also known as bar charts. Activities are represented as bars and the
length of each bar represents the activity duration. The beginning of the bar shows
the start date and the end of the bar shows the end date of the activity. Depending
on the project execution plan and resource availability, these bars may be sequential or
run in parallel. Gantt Charts are simple tools, therefore, project management teams and
stakeholders can easily understand it and manage their projects by the help of it.
Gantt chart is the most frequently used scheduling technique because of its simplicity.
However, without using software it is difficult to update activities, activity
relationships and manage changes as the project progresses.
Gantt charts provide this project information visually. They demonstrate all the
activities involved in a project and their dates. Advanced versions of Gantt Charts
involve activity dependencies, resources, and costs.
Due to their structure, Gantt charts offer clear overview of the activities’
 Type of activities
 Start and end date of the project
 Start and finish dates for each task
 Tasks dependent on each other
 Duration each task will take to complete
 List of tasks involved
 Possible conflicts (“overlapping” activities)
 The whole project’s start and end date
3.6.1. END OF UNIT CHAPTER THREE REVIEW QUESTIONS

I. The elements of construction project planning are:
a. Time b. Resources
c. Cost d. All
II. Which of the following is not a typical activity category?
a. Production b. Procurement
c. Administrative d. None of the above
2. In developing the WBS for a project, level of details depends on:

…..,……,……..
3. List four main differences between AOA and AON networks.
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4. A small single-story commercial building is to be constructed on the site
of an existing old structure. The exterior and interior walls are of concrete
blocks. The roof is erected from steel members covered with rigid insulation
and build-up roofing. The ceiling is of suspended tile. The floor is a concrete
slab on grade with an asphalt tile finish. Interior finish on all walls is paint.
The project has been broken down into 18 steps with construction time
estimate has been made for each step. These steps are not given in any
particular order. Specify the predecessors of each activity.
- Underground services (water and sewage services), 1 day.
- Exterior walls, 6 days. - Foundations, 3 days.
- Demolition, 2 days. - Roof steel, 2 days.
- Interior walls, 3 days. - Roof finishing, 2 days.
- Floor slab, 3 days. - Floor finishing, 2 days.
- Rough plumbing, 3 days. - Finish plumbing, 4 days.
- Rough electrical, 3 days. - Finish electrical, 3 days.
- Rough carpentry, 2 days. - Finish carpentry, 4 days.
- Ceiling, 3 days. - Windows, 1day.
- Painting, 1day.
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CHAPTER 4 RESOURCES MANAGEMENT

 Explain correctly the types of resources incurred in the construction project

 Perform project scheduling in terms of available resources and time allocated
to a project
 Perform resource leveling, allocation, aggregation bar charts and histograms
As we have seen in network scheduling, the basic inputs to critical-path analysis are
the individual project activities, their durations, and their dependency relationships.
Accordingly, the forward-path and backward-path calculations determine the start and
finish times of the activities. The CPM algorithm, therefore, is duration-driven.
Activities’ durations here are function of the resources that are required (rather than
available) to complete each activity. The CPM formulation, therefore, assumes that
all the resources needed for the schedule are available. This assumption, however, is
not always true for construction projects. Under resource constraints, the schedule
becomes impractical, cost and time are not accurate, and resources may not be
available when needed. In order to deal with such issue, a proper management of
available resources is required to adjust the schedule accordingly.
When a project plan is first devised it is likely that the plan will identify peaks of
resource requirements. However, given the finite nature of resource availability, it
may be impractical to meet such peak resource needs. Ideally, there should be an even
demand for resources over the entire project duration, with a smooth increase at the
beginning of a project and a smooth decrease at the end. Given the limited nature of
resources, consideration should be given to the project resource requirements; the
project plan should be refined when necessary so that it is practical.
4.1 Resource Definition
The first step in resource management is to decide exactly what resources are
considered important enough to be managed. While the most resource used is people
or workers (such as welders or carpenters), it may also include other resources such
as machines (such as an excavator or loader), space on a project where space is
restricted and where this restriction limits the amount of other resources which can be
deployed at any one time, financial resources (money) that are needed to perform the
required work, or materials needed to accomplish different activities. Generally, a
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resource can be defined as anything (labor, equipment, material, money, etc.) that is
needed to have the work done.
Often resources are specified in terms of the number of units of resource required,
e.g., 5 welders or 3 computer programmers. Alternatively, resources may be specified
in terms of the hours or days that a specific resource is required, e.g., 40 welder-hours
or 24 man- days.
Resources may be considered as consumable, such as materials that may be used once
and once only, or non-consumable, such as people, which may be used again and
again. The way in which consumable resources are used is not critical as long as they
are used efficiently. However, the way in which non-consumable resources are used
can have a significant impact on the project. Resource management is therefore mainly
concerned with non-consumable resources.
Also, resources may be classified according to their importance to key resources,

secondary resources and general resources. Key resources are the most important,
expensive and non-available resources in the project such as skilled labors, or
equipment. These types of resources will have a great attention in the resource
scheduling process. Secondary resources are those resources which have no
constraints on their availability, such as normal labor. General resources are defined
as those resources that are used by all or most of the activities on the project such as
site overheads. General resources will not be included in the resource management
described later.
4.2 Resource Management
The most important resources that project managers have to plan and manage on day-
today basis are people, machines, materials, and money. Obviously, if these
resources are available in abundance then the project could be accelerated to achieve
shorter project duration. On the other hand, if these resources are severely limited,
then the result more likely will be a delay in the project completion time. In general,
from a scheduling perspective, projects can be classified as either time constrained or
resource constrained.
Resource leveling (smoothing)
A project is classified as time constrained in situations where the project completion

time cannot be delayed even if additional resources are required. However, the
additional resource usage should be no more than what is absolutely necessary.
Accordingly, the primary focus, for purposes of scheduling, in time constrained
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projects is to improve resource utilization. This process is called resource leveling or
smoothing. It applies when it is desired to reduce the hiring and firing of resources
and to smooth the fluctuation in the daily demand of a resource, as shown in Figure
5.1. In this case, resources are not limited and project duration is not allowed to be
delayed. The objective in this case is to shift non-critical activities of the original
schedule, within their float times so that a better resource profile is achieved.
- Project time: constrained

- Resources: unconstrained
- Objective: even resources usage
Figure 4.1: Resource leveling (smoothing)
Resource scheduling
On the other hand, a project is resource constrained if the level of resource availability
cannot be exceeded. In those situations where resources are inadequate, project delay
is acceptable, but the delay should be minimal. The focus of scheduling in these
situations is to prioritize and allocate resources in such a manner that there is minimal
project delay. However, it is also important to ensure that the resource limit is not
exceeded and the technical relationships in the project network are respected.
4.3 Resource Allocation
Resource allocation, also called resource loading, is concerned with assigning the
required number of resources identified for each activity in the plan. More than
one type of resource may be assigned to a specific activity. For example, fixing steel
plates on a bridge deck may require different types of resources such as: welders,
laborers and a certain type of welding machine. From a practical view, resource
allocation does not have to follow a constant pattern; some activities may initially
require fewer resources but may require more of the same resources during the later
stages of the project.
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4.4 Resource Aggregation (Loading)
After each activity has been assigned its resources, the next step is to aggregate the
resources used by all activities. Resource aggregation is simply the summation, on
a period-by-period basis, of the resources required to complete all activities
based on the resource allocation carried out previously. The results are usually
shown graphically as a histogram. Such aggregation may be done on an hourly, daily,
or weekly basis, depending on the time unit used to allocate resources. When a bar
chart is used, the resource aggregation is fairly simple and straightforward. For a given
bar chart, a resource aggregation chart can be drawn underneath the bar chart.
However, a separate graph will be required for each resource type.
An example is shown in Figure 4.2, where, for a particular resource, the required
resource units for each time period are written on the bar chart. The total number of
resource units for each time period can then be summed and a resource aggregation or
load chart can be produced as presented underneath the bar chart. Thus, having a
project scheduling is necessary to facilitate the bar chart drawing.
Figure 4.2: Resource aggregation
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Figure 4.3: Resource aggregation chart showing resource requirements associated
with earliest and latest times along with highlighted resource requirements for
critical activities
The non-critical activities, activities which are not on the critical path, do not have
fixed starting and finishing times but are constrained by the earliest and latest starting
and finishing times. This situation offers the planner chance for adjusting the demand
for resources. Figure 4.3 illustrates such situation, which shows the resource
aggregation when the activities scheduled on their early times and late times. It can be
seen that the resource requirements that arise when both earliest and latest start times
are considered are different. The shaded area represents the resources required by the
critical activities, as these activities have a fixed position because their early times
equal their late time. Figure 4.3 shows, also, the accumulation of resources at the
beginning of the project when the activities scheduled on their early time. On the other
hand, the resources accumulate at the end of the project when the activities scheduled
on their late times.
4.5 Resource Leveling (Smoothing)
As shown in Figure 4.3, the problem of resource fluctuation appears after the initial
scheduling of the project without considering the resources. The peaks and valleys in
the resource profile indicate high day-to-day variation in the resource demand.
Resource smoothing is the process that attempts to determine a resource
requirement that is "smooth" and where peaks and valleys are eliminated.
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For example, even if 7 units of a given resource are available at any one time, utilizing
5 of these units each week is preferable than using 4 units for the first week, 7 the
next, 2 the next and so on. Even if there is no limit to the amount of any one resource
available, it is still desirable that resource usage is as smooth as possible. Given that
the resource requirements of those activities on the critical path are fixed, some order
or priority needs to be established for selecting which activity and which particular
resource associated with this activity should be given priority in the smoothing
process.
Resource leveling heuristics shift non-critical activities within their float times so as
to move resources from the peak periods (high usage) to the valley periods (low
usage), without delaying the project (i.e., area underneath the resource profile remains
constant). Usually, project managers may prefer having a desired resource profile in
which the resource usage starts with low values and then the resources are build up
till its maximum values and starts to decrease as the project approaches its end as
shown in Figure 4.4.
Figure 4.4: Preferred resource usage
4.5.1 Method of Moments for Resource Smoothing
The method of minimum moment is well known heuristic algorithm for smoothing
resource profiles. The Minimum Moment Algorithm has been used as a heuristic
approach to calculate a measure of the fluctuations in daily resource demands. This
is represented in Figure 4.5, where Histogram 1 and Histogram 2 are two alternative
resource histograms, both having a total area of 40 resource days (i.e., equal total
resource demands). Histogram 1 is an ideal one with a constant daily demand of 4
resource units, no day-to-day resource fluctuations, and the resource will be released
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after day 10. Histogram 2, on the other hand, exhibits high resource fluctuation with
daily demand in the range of 2 to 6 resource units, and the resource will not be
released until the end of day 12. The moment (Mx) of both histograms around the
horizontal axis (days) are 160 and 166, respectively, representing a better resource
leveling of Histogram 1.
The moment Mx is calculated by summing the daily moments, as follows:
Where, n is the working-day number of the project’s finish date. Or, for comparison
reasons, equation (1) becomes:
Figure 4.5: Moment calculations of resource histogram
Having the moment calculations defined, a project manager may use them as to
minimize the Mx to reduce daily resource fluctuations.
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4.5.2 Heuristic Procedure for Resource Smoothing
This section describes another way to smooth resource profile using some heuristic
rules. This method can be summarized in the following steps:
 Prepare a complete activity schedule.

 Draw a bar chart of the project under study based on ES timing of the activities.
 Critical activities to be drawn first (as these activities will not be moved).
 Write the resource usage above each bar of the related activity.
 Draw the FF as dashed line beside the upper side of the bar and the TF beside
the lower side.
 Aggregate (determine the resource sum) the resources in each time period.
 Calculate the total usage of resources = ∑ unit period usage.
 Calculate the average resource usage = ∑ usage / utilization period.
 Shift non-critical activities within their FF first, then their TF to decrease the
peaks and raise the valleys.
 Revise activities floats.
 Aggregate resources in each time period after shifting any activity.
 When shifting activities, it is preferred to start with the activities that have no
successors, as shifting these activities will not affect other activities. Also, by
shifting these activities, a float will be created for its predecessors.
 Shift activities only that will enhance the resource profile.
Example 4.1
The activities involved in the construction of a certain project are given in Table 4.1.
One resource type will be used during the contract. Determine minimum level of the
resource required to complete the project.
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Solution
The project network is shown in Figure 4.6 with the activity timings and project
completion time of 20 weeks. Table 5.2 shows the activities timings and floats.
Figure 4.6: Precedence network of Example 4.1

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Figure 4.7 shows the bar chart and the resource histogram of the project and the
weekly usage of the resources and the total usage of 90 resource units. As shown in
the resource histogram, the peak resource usage is 13 units and the minimum usage
is 2 units. The total resource usage equals 90 units with utilization period of 18
weeks. Then, the average resource usage equals 5 units (=90/18=5).
Table 4.2: Activities times and floats of Example 4.1
The resource demand on weeks 9, 10, and 11 is high, while it is low in weeks 13
through 18. Accordingly, the solution process will try to sift the resources from that
peak period to the period of low usage. The following activities will be shifted:
- Activity M has a free float of 7 weeks. Shifting activity M by 7 weeks will reduce
the peak usage of the resource on weeks 10 and 11 and increase the usage on weeks
17 and 18. Also, shifting activity M will give chance for preceding activities to be
shifted.
- Activity J can be shifted by 6, however it has 8 weeks free float. By shifting

activity J, the free float of both activities E and F are changed.
- Shift activity L by 2 weeks to optimize the resource usage. The free float of activity
will be changed to 2 weeks.
- Next, shift activity E by 10 weeks to improve the resource usage.
- Shift Activity H by 2 weeks.
- Finally, shift activity F by 1 week.
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Figure 4.7: Bar chart and resource histogram before leveling of Example 4.1
The heuristic procedure for leveling project resource is shown in Figure 7.8. In each
step, the resources are aggregated to ensure that shifting an activity improves the
resource utilization. The resource histogram for the leveled project is shown in
Figure 5.9.
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Figure 4.8: Applying heuristic procedure for resource leveling
Figure 4.9: Resource histogram
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Example 4.2
The activities involved in the construction of a small project are given in Table 5.3.
The resource usage for each activity is shown in Table 2.3. Smooth the resource so
that a preferred resource usage is obtained.
Solution
The precedence network of the project is shown in Figure 5.10 with the activity
timings and project completion time of 18 weeks.
To achieve a resource profile with less resource load at the beginning and build up
towards the middle of the project and decreases towards the end, the following
activities will be shifted:
- Shift activity K by 11 weeks, this activity has a free float 11 weeks.
- Shift activity H by 11 weeks (it has 11 weeks free float).
- Activity A will be shifted by one week, accordingly, activity D will be shifted by

one week. This is because activity A has no free float.
- Shift activity F by 3 weeks and accordingly, activity J will be shifted 3 weeks

because activity F has no free float.
- Finally, shift activity G by 3 weeks.
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Figure 4.10: Precedence network of Example4.2
Figure 5.11 shows the bar chart and the resource histogram of the project and the
weekly usage of the resources.
Figure 4.11: Bar chart and resource aggregation of Example 3.2

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The heuristic procedure for leveling project resource is shown in Figure 5.12. In
each step, the resources are aggregated to ensure that shifting an activity improves
the resource utilization. The resource histogram for the leveled project is shown in
Figure 4.13.
Figure 5.11: Solution of Example 5.2
Figure 4.12: Resource histogram after leveling of Example 4.2

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4.6 Scheduling with Limited Resource
Shortage of resources is a major challenge for construction projects. Often, the

number of skilled labor is limited, related equipment has to be returned as soon as
possible, and / or a limited require our special consideration. Scheduling under these
resource constraints becomes a complex problem, particularly when more than one
resource is limited.
Figure 5.13: Resource needed exceed resource limit
The technique that deals with limited resources has been referred to as "resource-
scheduling" or "resource-constrained scheduling”. The problem of resource-
constrained scheduling appears after the initial network analysis is conducted and a
bar chart is drawn. A resource conflict occurs when at any point in the schedule several
activities are in parallel and the total amount of required resource(s) exceeds the
availability limit, for any of the resources required in these parallel activities. The
situation is illustrated in Figure 5.13 with activities A, B, and C that, at time period 3,
require 5, while 4 are only available per day.
The simple solution to that situation is that we can prioritizing the parallel activities,
given the resource to higher priority activities and delay the others until the earliest
time the resource become available again. Notice that if we delay an activity at time
period 3, to solve the situation, we may end up with another resource conflict later in
time. Continuing with identifying next conflict points and resolving them, determines
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the new schedule and the new project duration. Accordingly, the objective in such
situation is to delay some activities so that the resource conflict is resolved and the
project delay is minimized.
Various models were developed in an attempt to answer this question, and thus
optimize resource-scheduling decisions. Early efforts used mathematical
optimization, dynamic programming, and linear programming. These models,
however, were applicable only to very small size problems. On the other hand,
heuristic solutions for this problem have been developed. Heuristic solutions, in
general, use simple rules of thumb to provide approximate but good solutions that are
usable for large scale problems. An example of these rules of thumb is that the
resource can be assigned to activity (ies) having smaller total float values than others
(indicating a desire not to delay the critical and close-to- critical activities). Figure
7.14 show an example where priority was assigned to the activities having least total
float when conflict arises.
Figure 4.14: Resource scheduling using least TF rule
These heuristic rules are based mainly on activity characteristics. The two most
effective and commonly used heuristic rules are the least total-float (LTF) and the
earliest late-start (ELS). These two rules have been proven to provide identical results,
with the ELS rule being advantageous compared to the LTF rule. This is because the
value of the late-start derived from the original CPM calculations, unlike the total-
float; need not to be changed every time an activity is rescheduled due to insufficient
resource availability. As such, the ELS rule can be applied with much less
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computational effort than the LTF rule, and accordingly has been used as a basis for
the resource scheduling.
The resource scheduling procedure using the ELS is outlined in Figure 4.15. It starts
from the project start time and goes through cycles of identifying eligible activities
according to the network logic.
4.8. END OF CHAPTER FOUR REVIEW QUESTIONS
1. Estimates and schedules when initially prepared assume unlimited resources:

a. True b. False
2. Float is a useful tool for project management to use in order to level resources:
a. True b. False
3. Which would not be considered a scheduling resource?
a. People c. Equipment b. Money d. Laydown space
4. A Precedence network for a project has the logic given in the following table. The
resource rates for each activity are also given. It is required to:
a- Level resource I and then draw resource histogram before and after leveling on
the same diagram.
b- Level resource II and then draw resource histogram before and after leveling on
the same diagram.
c- Level resources I and II simultaneously, and plot the histograms for both
resources. Compare the results with those obtained form (a) and (b).
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5. The following project consisting of 10 activities is considered for multi-resource
scheduling: a) Develop a resource schedule assuming that the availability of
resources is limited as below.
Resource A: 7
Resource B: 7
Resource C: 6
b) If the project completion time is limited to 14 weeks. Estimate the minimum

resource level required for each resource type. Also, draw the resource histograms
before and after leveling.
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6. Consider the following project.
Assume eleven plumbers and nine labors are available for the project. Both
resources must work at the same time when assigned to the same activity. Prepare an
activity schedule which satisfies the resources constraints.
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CHAPTER 5 PROJECT TIME-COST TRADE-OFF

 Explain logically the impact of the time and cost tradeoffs for project activities
 Reduce both construction projects’ cost and time in today’s market-driven
economy
In the previous chapters, duration of activities discussed as either fixed or random
numbers with known characteristics. However, activity durations can often vary
depending upon the type and amount of resources that are applied. Assigning more
workers to a particular activity will normally result in a shorter duration. Greater speed
may result in higher costs and lower quality, however. In this section, we shall
consider the impacts of time and cost trade-offs in activities.
Reducing both construction projects’ cost and time is critical in today’s market-driven
economy. This relationship between construction projects’ time and cost is called
time- cost trade-off decisions, which has been investigated extensively in the
construction management literature. Time-cost trade-off decisions are complex and
require selection of appropriate construction method for each project task. Time-cost
trade-off, in fact, is an important management tool for overcoming one of the critical
path method limitations of being unable to bring the project schedule to a specified
duration.
5.1 Time-Cost Trade-Off

The objective of the time-cost trade-off analysis is to reduce the original project
duration, determined form the critical path analysis, to meet a specific deadline, with
the least cost. In addition to that it might be necessary to finish the project in a specific
time to:
 Finish the project in a predefined deadline date.

 Recover early delays.
 Avoid liquidated damages.
 Free key resources early for other projects.
 Avoid adverse weather conditions that might affect productivity.
 Receive an early completion-bonus.
 Improve project cash flow
Reducing project duration can be done by adjusting overlaps between activities or by

reducing activities’ duration. What is the reason for an increase in direct cost as the
activity duration is reduced? A simple case arises in the use of overtime work. By
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scheduling weekend or evening work, the completion time for an activity as measured
in calendar days will be reduced. However, extra wages must be paid for such
overtime work, so the cost will increase. Also, overtime work is more prone to
accidents and quality problems that must be corrected, so costs may increase. The
activity duration can be reduced by one of the following actions:
 Applying multiple-shifts work.

 Working extended hours (over time).
 Offering incentive payments to increase the productivity.
 Working on weekends and holidays.
 Using additional resources.
 Using materials with faster installation methods.
 Using alternate construction methods or sequence.
5.2 Activity Time-Cost Relationship
In general, there is a trade-off between the time and the direct cost to complete an
activity; the less expensive the resources, the larger duration they take to complete an
activity. Shortening the duration on an activity will normally increase its direct cost
which comprises: the cost of labor, equipment, and material. It should never be
assumed that the quantity of resources deployed and the task duration are inversely
related. Thus one should never automatically assume that the work that can be done
by one man in 16 weeks can actually be done by 16 men in one week.
A simple representation of the possible relationship between the duration of an activity

and its direct costs appears in Figure 6.1. Considering only this activity in isolation
and without reference to the project completion deadline, a manager would choose a
duration which implies minimum direct cost, called the normal duration. At the other
extreme, a manager might choose to complete the activity in the minimum possible
time, called crashed duration, but at a maximum cost.
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Figure 5.1: Illustration of linear time/cost trade-off for an activity
The linear relationship shown in the Figure 5.1 between these two points implies that
any intermediate duration could also be chosen. It is possible that some intermediate
point may represent the ideal or optimal trade-off between time and cost for this
activity. The slope of the line connecting the normal point (lower point) and the crash
point (upper point) is called the cost slope of the activity. The slope of this line can be
calculated mathematically by knowing the coordinates of the normal and crash points.
𝐜𝐫𝐚𝐬𝐡 𝐜𝐨𝐬𝐭 – 𝐧𝐨𝐫𝐦𝐚𝐥 𝐜𝐨𝐬𝐭

𝐂𝐨𝐬𝐭 𝐬𝐥𝐨𝐩𝐞 =
𝐧𝐨𝐫𝐦𝐚𝐥 𝐝𝐮𝐫𝐚𝐭𝐢𝐨𝐧 – 𝐜𝐫𝐚𝐬𝐡 𝐝𝐮𝐫𝐚𝐭𝐢𝐨𝐧
As shown in Figures 5.1, 5.2, and 5.3, the least direct cost required to complete an
activity is called the normal cost (minimum cost), and the corresponding duration is
called the normal duration. The shortest possible duration required for completing the
activity is called the crash duration, and the corresponding cost is called the crash cost.
Normally, a planner start his/her estimation and scheduling process by assuming the
least costly option.
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Figure 5.2: Illustration of non-linear time/cost trade-off for an activity
Figure 5.3: Illustration of discrete time/cost trade-off for an activity
Example 5.1
A subcontractor has the task of erecting 8400 m2 of metal scaffolds. The contractor
can use several crews with various costs. It is expected that the production will vary
with the crew size as given below:
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Consider the following rates: Labor LE96/day; carpenter LE128/day; foreman
LE144/day and scaffolding LE60/day. Determine the direct cost of this activity
considering different crews formation.
Solution
The duration for installing the metal scaffold can be determined by dividing the total
quantity by the estimated daily production. The cost can be determined by summing
up the daily cost of each crew and then multiply it by the duration of using that crew.
The calculations are shown in the following table.
This example illustrates the options which the planner develops as he/she establishes
the normal duration for an activity by choosing the least cost alternative. The time-
cost relationship for this example is shown in Figure 5.4. The cost slop for this
activity can be calculates as follow:
𝟑𝟑𝟗𝟑𝟔 – 𝟑𝟑𝟐𝟓𝟐
𝐂𝐨𝐬𝐭 𝐬𝐥𝐨𝐩𝐞 𝟏 (𝐛𝐞𝐭𝐰𝐞𝐞𝐧 𝐩𝐨𝐢𝐧𝐭𝐬 𝟏 𝐚𝐧𝐝 𝟐) = = 𝟕𝟔. 𝟐𝟐 𝐋𝐄/𝐝𝐚𝐲
𝟓𝟏 – 𝟒𝟐
𝟑𝟒𝟔𝟑𝟐 – 𝟑𝟑𝟗𝟑𝟔
𝐂𝐨𝐬𝐭 𝐬𝐥𝐨𝐩𝐞 𝟐 (𝐛𝐞𝐭𝐰𝐞𝐞𝐧 𝐩𝐨𝐢𝐧𝐭𝐬 𝟐 𝐚𝐧𝐝 𝟑) = = 𝟏𝟑𝟗. 𝟐 𝐋𝐄/𝐝𝐚𝐲
𝟒𝟐 – 𝟑𝟕
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Figure 5.4: Time-cost relationship of Example 5.1
5.3 Project Time-Cost Relationship
Total project costs include both direct costs and indirect costs of performing the
activities of the project. Direct costs for the project include the costs of materials,
labor, equipment, and subcontractors. Indirect costs, on the other hand, are the
necessary costs of doing work which cannot be related to a particular activity,
and in some cases cannot be related to a specific project.
If each activity was scheduled for the duration that resulted in the minimum direct
cost in this way, the time to complete the entire project might be too long and
substantial penalties associated with the late project completion might be incurred.
Thus, planners perform what is called time-cost trade-off analysis to shorten the
project duration. This can be done by selecting some activities on the critical path to
shorten their duration.
As the direct cost for the project equals the sum of the direct costs of its activities,
then the project direct cost will increase by decreasing its duration. On the other
hand, the indirect cost will decrease by decreasing the project duration, as the
indirect cost are almost a linear function with the project duration. Figure 5.5
illustrates the direct and indirect cost relationships with the project duration.
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Figure 5.5: Project time-cost relationship
The project total time-cost relationship can be determined by adding up the direct
cost and indirect cost values together as shown in Figure 8.5. The optimum project
duration can be determined as the project duration that results in the least project
total cost.
5.4 Shortening Project Duration
The minimum time to complete a project is called the project-crash time. This
minimum completion time can be found by applying critical path scheduling with all
activity durations set to their minimum values. This minimum completion time for
the project can then be used to determine the project-crash cost. Since there are some
activities not on the critical path that can be assigned longer duration without
delaying the project, it is advantageous to change the all-crash schedule and thereby
reduce costs.
Heuristic approaches are used to solve the time/cost tradeoff problem such as the
cost-slope method used in this chapter. In particular, a simple approach is to first
apply critical path scheduling with all activity durations assumed to be at minimum
cost. Next, the planner can examine activities on the critical path and reduce the
scheduled duration of activities which have the lowest resulting increase in costs. In
essence, the planner develops a list of activities on the critical path ranked with their
cost slopes. The heuristic solution proceeds by shortening activities in the order of
their lowest cost slopes. As the duration of activities on the shortest path is
shortened, the project duration is also reduced. Eventually, another path becomes
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critical, and a new list of activities on the critical path must be prepared. Using this
way, good but not necessarily optimal schedules can be identified.
The procedure for shortening project duration can be summarized in the following
steps:
1. Draw the project network.
2. Perform CPM calculations and identify the critical path, use normal durations and
costs for all activities.
3. Compute the cost slope for each activity from the following equation: cost slope =
crash cost – normal cost / normal duration – crash duration
4. Start by shortening the activity duration on the critical path which has the least
cost slope and not been shortened to its crash duration.
5. Reduce the duration of the critical activities with least cost slope until its crash
duration is reached or until the critical path changes.
6. When multiple critical paths are involved, the activity(ies) to shorten is

determined by comparing the cost slope of the activity which lies on all critical paths
(if any), with the sum of cost slope for a group of activities, each one of them lies on
one of the critical paths.
7. Having shortened a critical path, you should adjust activities timings, and floats.
8. The cost increase due to activity shortening is calculated as the cost slope
multiplied by the time of time units shortened.
9. Continue until no further shortening is possible, and then the crash point is
reached.
10. The results may be represented graphically by plotting project completion time
against cumulative cost increase. This is the project direct-cost / time relationship.
By adding the project indirect cost to this curve to obtain the project time / cost
curve. This curve gives the optimum duration and the corresponding minimum cost.
Example 5.2
Assume the following project data given in Table 5.1. It is required to crash the
project duration from its original duration to a final duration of 110 days. Assume
daily indirect cost of LE 100.
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Solution
The cost slope of each activity is calculated. Both the crashability and the cost slope
are shown beneath each activity in the precedence diagram. The critical path is B-C-
D-E and the project duration in 140 days. Project total normal direct cost = sum of
normal direct costs of all activities = LE 48300.
1. The activity on the critical path with the lowest cost slope is of activity “D”, this
activity can be crashed by 10 days. Then adjust timing of the activities.
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 A new critical path will be formed, B-F-E.
 New Project duration is 130 days.
 The project direct cost is increased by 10 x 60 = LE 600.
 Project direct cost = 48300 + 600 = LE 48900
2. At this step activity “E” will be crashed, as this activity lies on both critical paths.
Activity “E” will be shortened by 10 days.
 Accordingly, all activities will be turn to critical activities.

 The project direct cost is increased by 10 x 120 = LE 1200.
3. In this step, it is difficult to decrease one activity’s duration and achieve

decreasing in the project duration. So, either to crash an activity on all critical paths
(if any), otherwise, choose several activities on different critical paths. As shown,
activities “A” and “B” can be crashed together which have the least cost slope (100
+ 200). Then, crash activities “A” and “B” by 5 days.
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 The project direct cost is increased by 5 x (100 + 200) = LE 1500.
4. In this final step, it is required to decrease the duration of an activity from each
path. The duration of activity ”A” will be crashed to 110 days, “C” to 35 days, and
“F” to 55 days. Thus,achieving decreasing project duration to 110 days. Also,
increase in the project direct cost by 5 x (100 + 600 + 300) = LE 5000
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Example 5.3
The durations and direct costs for each activity in the network of a small construction
contract under both normal and crash conditions are given in the following table.
Establish the least cost for expediting the contract. Determine the optimum duration
of the contract assuming the indirect cost is LE 125/day.
Solution
are shown beneath each activity in the precedence diagram. The critical path is A-C-
G-I and the contract duration in 59 days.
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Solution
are shown beneath each activity in the precedence diagram. The critical path is A-C-
G-I and the contract duration in 59 days.
1. The activity on the critical path with the lowest cost slope is “G”, this activity can
be crashed by 5 days, but if it is crashed by more than 2 days another critical path
will be generated. Therefore, activity “G” will be crashed by 2 days only. Then
adjust timing of the activities.
A
new critical path will be formed, A-C-F-H-I. New contract duration is 57 days and
the cost increase is 2 x 60 = LE 120.
2. At this step the activities that can be crashed are listed below:
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Either“A” at cost LE 100/day
Or “C” at cost LE 200/day
Or “I” at cost LE 75/day
Or “F & G” at cost LE 360/day
Or “H & G” at cost LE 100/ day
Activity “I” is chosen because it has the least cost slope, and it can be crashed by 2
days. Because it is last activity in the network, it has no effect on other activities.
New contract duration is 55 days and the cost increase is 2 x 75 = LE 150.

Cumulative cost increase = 120 + 150 = LE 270
3. Now, we could select “A” or both “H & G”, because they have the same cost
slope. Activity “A” is chosen to be crashed. This will change the timings for all
activities, but no new critical path will be formed.
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Accordingly, cumulative cost increase = 270 + 200 = LE 470
4. Now, activities “H & G” can be crashed by 2 days each. “A” new critical path A-
B-D-I will be formed.
New contract duration is 51 day and the cost increase is 2 x 100 = LE 200.
Accordingly, cumulative cost increase = 470 + 200 = LE 670
5. At this stage, the network has three critical paths. The activities that can be
crashed are listed below: Either C & B at cost LE 350/day or F, G & B at cost LE
510/day Activities C & B are chosen because they have the least cost slope.
Cumulative cost increase = 670 + 700 = LE 1370 Now, there is no further
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shortening is possible. The contract duration and the corresponding cost are given in
the table below.
5.5. END OF UNIT ONE REVIEW QUESTIONS
1. The following table gives the activities involved in a pipeline contract. The
duration and cost data are also given. The indirect cost for the contract is LE120/day.
Calculate the minimum cost of the work corresponding to contract duration of 102
days.
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2. Cost and schedule data for a small project are given below. Assume an indirect
cost of LE 200/day. Develop the time-cost curve for the project and determine the
minimum contract duration
3. Draw the precedence diagram for the following data.
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It is required to compress the schedule to a 65-day. How much more would the
project cost?
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CHAPTER 6 PROJECT FINANCE AND CONTRACT PRICING

 Explain terminologies in project finance and contract pricing

 Predict the actual flow of money during the contract duration
 Differentiate company's total income and its total expense over a period of
time
 Perform correctly cash flow of a project
In the previous chapters, techniques for project planning, scheduling, resources

management, and time-cost tradeoff have been introduced. This chapter will deal with
project cash flow to predict the actual flow of money during the contract duration.
Also, this chapter will introduce the means for finalizing a contract price. A project's
cash flow is basically the difference between the project's income and its expense. The
difference between a company's total income and its total expense over a period of
time is the company cash flow.
6.1 Contract Cash Flow
At the project level, a project’s cash flow is the difference between the project’s
expense and income. At the construction company level, the difference between
company’s total expense and its total income over a period of time is the company’s
cash flow.
Cash flow = Cash in – Cash out = Income – Expense
Forecasting cash flow is necessary for a construction company for the following
reasons:
-To ensure that sufficient cash is available to meet the demands.
-It shows the contractor the maximum amount of cash required and when it will
berequired. Thus, the contractor can made arrangements to secure the required cash.
-It provides a reliable indicator to lending institutions that loans made can be
repaidaccording to an agreed program.
-It ensures that cash resources are fully utilized to the benefit of the owner and
investors in the company.
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The three main ingredients in determination of cash flow are:
 Expenses (cash out) which represents the aggregate of the payments which the
contractor will make over a period of time for all resources used in the project such
as labor, equipment, material, and subcontractors.
 Income (cash in) that represents the receipts a contractor will receive over a period
of time for the work he/she has completed.
-Timing of payments: in cash flow analysis, we are interested in the timing of

payments related to the work done by the contractor.
6.1.1 Construction Project Costs
In preparing the cash flow for a project, it is necessary to compute the costs that must
be expended in executing the works using activities durations and their direct and
indirect costs. The principal components of a contractor's costs and expenses result
from the use of labors, materials, equipment, and subcontractors. Additional general
overhead cost components include taxes, premiums on bonds and insurance, and
interest on loans. The sum of a project's direct costs and its allocated indirect costs is
termed the project cost.
The costs that spent on a specific activity or project can be classified as;
 Fixed cost: costs that spent once at specific point of time (e.g., the cost of
purchasing equipment, etc.)
 Time-related cost: costs spent along the activity duration (e.g., labor wages,
equipment rental costs, etc.)
 Quantity-proportional cost: costs changes with the quantities (e.g., material
cost)
Project direct costs
The costs and expenses that are incurred for a specific activity are termed direct costs.
These costs are estimates based on detailed analysis of contract activities, the site
conditions, resources productivity data, and the method of construction being used for
each activity. A breakdown of direct costs includes labor costs, material costs,
equipment costs, and subcontractor costs. Activities’ direct costs are estimated as
presented previously in chapter 2.
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Project indirect costs
Other costs such as the overhead costs are termed indirect costs. Part of the company’s
indirect costs is allocated to each of the company's projects. The indirect costs always
classified to: project (site) overhead; and General (head-office) overhead.
Project overhead Project overhead are site-related costs and includes the cost of items
that cannot be directly charged to a specific work element and it can be a fixed or
time-related cost. These include the costs of site utilities, supervisors, housing and
feeding of project staff, parking facilities, offices, workshops, stores, and first aid
facility. Also, it includes plants required to support working crews in different
activities.
A detailed analysis of the particular elements of site-related costs is required to arrive

at an accurate estimate of these costs. However, companies used to develop their own
forms and checklists for estimating these costs. Site overhead costs are estimated to
be between 5% - 15% of project total direct cost.
General overhead
The costs that cannot be directly attributed a specific project called general overhead.
These are the costs that used to support the overall company activities. They represent
the cost of the head-office expenses, managers, directors, design engineers,
schedulers, etc. Continuous observations of the company expenses will give a good
idea of estimating reasonable values for the general overhead expenses. Generally, the
general overhead for a specific contract can be estimated to be between 2% - 5% of
the contract direct cost. The amount of the general overhead that should be allocated
to a specific project equals:
𝐏𝐫𝐨𝐣𝐞𝐜𝐭 𝐝𝐢𝐫𝐞𝐜𝐭 𝐜𝐨𝐬𝐭 𝐱 𝐠𝐞𝐧𝐞𝐫𝐚𝐥 𝐨𝐯𝐞𝐫𝐡𝐞𝐚𝐝 𝐨𝐟 𝐭𝐡𝐞 𝐜𝐨𝐦𝐩𝐚𝐧𝐲 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
𝐄𝐱𝐩𝐞𝐜𝐭𝐞𝐝 𝐬𝐮𝐦 𝐨𝐟 𝐝𝐢𝐫𝐞𝐜𝐭 𝐜𝐨𝐬𝐭𝐬 𝐨𝐟 𝐚𝐥𝐥 𝐩𝐫𝐨𝐣𝐞𝐜𝐭𝐬 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐲𝐞𝐚𝐫
Having identified the direct costs, indirect costs, then the project total cost equals the
sum of both direct and indirect costs.
When studying cash flow, it is very important to determine the actual dates when the
expenditures (costs) will take place. At that time, the expenditures will be renamed as
the expenses. Figure 6.1 illustrate the difference between the costs and the expenses.
As shown in the figure, they are the same except the expenses are shifted (delayed)
than the costs.
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Figure 6.1: Project cost and expense curves
Example 6.1
Consider the construction of 8-week foundation activity with operation cost of

LE8800. The operation cost is broken down into the following elements:
 Labor LE1600 paid weekly

 Plant LE4000 paid weekly after 4 weeks credit facility
 Materials LE800 paid weekly after 5 weeks credit facility
 Subcontractors LE2400 paid weekly after 3 weeks credit facility
 Determine the expenses (cash out) of this activity.
Solution
A time-scaled plan is developed for this activity for the payments for labor, plant,
material, and subcontractors. The cot will be plotted weekly with the delay specified
in Example 7.1.
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6.1.2 The S-Curve
The curve represents the cumulative expenditures of a project direct and indirect costs
over time is called the S-curve as it take the S-shape as shown in Figure 6.2. In many
contracts, the owner requires the contractor to provide an S-curve of his estimated
progress and costs across the life of the project. This S-shaped of the curve results
because early in the project, activities are mobilizing and the expenditure curve is
relatively flat. As many other activities come on-line, the level of expenditures
increases and the curve has a steeper middle section. Toward the end of a project,
activities are winding down and expenditures flatten again (Figure 6.2). The S-Curve
is one of the most commonly techniques to control the project costs.
Figure 6.2: A sample S-curve
An S-curve for a project can be developed using the following steps:
 Constructing a simple bar chart for all the tasks of the project.
 Assigning costs to each task using task duration.
 Plotting the cumulative amounts of expenditures versus time by smoothly
connecting the projected amounts of expenditures over time.
Example 6.2
Consider the project shown in Figure 6.3. The costs of activities are assumed as
shown in Table 6.1. The indirect costs of tasks are calculated considering a daily
cost of LE500. It is required to draw the S-curve of the total cost of the project.
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Figure 6.3: Project network of Example 6.2
Solution
The S-curve is calculated based on the project's bar chart and the expenditures of each
activity. As illustrated in Figure 6.3, the eleven activities of this project are scheduled
across a 32-day time span. A bar chart representation of these activities is drawn in
Figure 6.4 showing the total costs associated with each activity above each activity's
bar. The figure shows the total expenditures and the cumulative bi-daily expenditures
across the life of the project. The S-curve of the cumulative expenditures over time is
plotted in Figure 6.5.
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Figure 6.4: Project bar chart of Example 6.2
160
140
120
Cumulative cost (X LE 1000)
100
80
60
40
20
0
0 4 8 12 16 20 24 28 32 36 40
Time (days)
Figure 6.5: The S-Curve for the Example Project
6.1.3 Project Income (Cash-in)
The flow of money from the owner to the contractor is in the form of progress
payments. Estimates of work completed are made by the contractors periodically
(usually monthly), and are verified by the owner's representative. Depending on the
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type of contract (e.g., lump sum, unit price, etc.), these estimates are based on
evaluations of the percentage of total contract completion or actual field
measurements of quantities placed. Owners usually retain 10% of all validated
progress payment claims submitted by contractors.
The accumulated retainage payments are usually paid to the contractor with the last
payment. As opposed the expenses presented in Figure 6.1 with smooth profile, the
revenue will be a stepped curve. Also, when the contractor collects his/her money it
is named project income (cash in) as shown in Figure 6.6.
Figure 6.6: Project revenue and income curves
The time period shown in Figure 6.6 represents the time intervals at which changes in
income occur. When calculating contract income it is necessary to pay attention to the
retention and/or the advanced payment to the contractor if any.
Retention is the amount of money retained by the owner from every invoice, before a
payment is made to the contractor. This is to ensure that the contractor will continue
the work and that no problems will arise after completion. This retainage amount
ranges from 5% to 10% and hold by the owner from every invoice till the end of the
contract. The whole amount will be paid to the contractor at the end of the contract.
Advanced payment
This is amount of money paid to the contractor for mobilization purposes. Then, it is
deducted from contract progress payment. Applying this strategy improves the
contractor cash flow and prevents him/her from loading the prices at the beginning of
the contract. This strategy, however, may be used only in projects that require
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expensive site preparation, temporary facilities on site, and storage of expensive
materials at the beginning of the project.
6.1.4 Calculating Contract Cash Flow
Having determined the contract expenses and income as presented in the previous
section, it is possible to calculate the contract cash flow. If we plotted the contract
expense and income curves against each other, then the cash flow is the difference
between the points of both curves. Figure 6.7 shows the cash flow of a specific
contract. The hatched area represents the difference between the contractor’s expense
and income curves, i.e., the amount that the contractor will need to finance. The larger
this area, the more money to be financed and the more interest charges are expected
to cost the contractor.
Figure 6.7: Cash flow based on monthly payments
The contractor may request an advanced or mobilization payment from the owner.
This shifts the position of the income profile so that no overdraft occurs as shown in
Figure 9.8.
Figure 6.8: Effect of advanced payment on improving cash flow

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In case of less number of payments (two or three payments) along the contract period,
this will lead to increase the overdraft as shown in Figure 6.9. From the previous study,
the factors that affect the project finance (cash flow) should be considered when
calculating the cash flow:
 The project bar chart (project schedule).

 Activities’ direct and indirect cost.
 Contractor method of paying his/her expenses.
 Contractor’s markup (mainly the profit margin).
 Retention amount and its payback time.
 Time of payment delay by owner.
 Advanced or mobilization payment.
Figure 6.9: Effect of receiving two payments on cash flow
The cash flow calculations are made as described in the following steps:
 Perform project schedule and determine project and activities timing.

 Draw bar chart based on early or late timings.
 Calculate the cost per time period.
 Calculate the cumulative cost.
 Adjust the cost according the method of paying it to produce the expenses.
 Calculate the cumulative revenue (revenue = cost x (1 + markup)).
 Adjust the revenue based on the retention and delay of owner payment to
determine the income.
 Calculate the cash flow (cash flow = income – expense) at the contract different
times.
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Example 6.3
To illustrate the steps of cash flow calculations, consider the same project presented
in Figure 8.3. The total cost of the activities is presented in Table 6.1. In this project,
the markup equals 5% and the contractor will pay his expenses immediately. Retention
is 10% and will be paid back with the last payment. The calculations will be made
every 8 days, i.e., the contractor will receive his/her payment every 8-days (time
period). Owner’s payment is delayed one period, while the contractor will submit the
first invoice after the first period. No advanced payment is given to the contractor.
Solution
The project revenue of each activity is calculated as revenue = cost (1 + markup) as

shown in Table 6.2. The activities timing is presented in Example 6.2.
Table 6.2 Project cost and revenue
By summing up the activities cost and revenue, then the contract total cost equals LE
150,000 and the total revenue equals LE 157,500. By considering that both the cost
and the revenue are evenly distributed over the activities durations. The calculations
are presented as shown in Figure 6.10. The calculations will be made every 8-days
period.
As shown in Figure 6.10, the project duration is divided into four periods each one
equals 8 days. In addition, one period is added after project completion. Simple
calculations are then performed with the top four rows showing the project expenses.
The next five rows for income, and the last row for cash flow. As shown, after
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summing up the costs it became direct expenses to the contractor as there is no delay
in paying them.
The expected owner payments are then added up to from the project revenue. The
retention is subtracted from the owner payment and will be paid back to the contractor
with the last payment (row 7 in Figure 6.10). Then, the revenue is delayed by one
period to form the contractor income. The calculations in the last row are the
difference between the project income and project expense. Having two values in
some periods shows the sudden change of the cash flow as the contractor receives
more payments from the owner. For example, in the second period, just before the
contractor receive his/her payment the cash flow was (0 – 98,000 = - 98,000 LE). As
the contractor receives a payment of LE 43,470, the cash flow improves and becomes
-54,530 (43,470 – 98,000).
As seen from Figure 6.10, the maximum overdraft money (maximum cash) is LE
98,000 and will be needed at the 16th day of the project. Thus shows the importance
of studying the contract cash flow. Accordingly, the contractor can made his
arrangements to secure the availability of this fund on the specified time.
Figure 6.11 shows the contract expense and income curves. These curves will be
needed to calculate the contractor cost of borrowing or investment of the overdraft
money (area between expense and income). Figure 6.12 shows the contact net cash
flow.
Figure 6.10: Cash flow calculations of Example 6.3

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6.1.5 Minimizing Contractor Negative Cash Flow
It is very essential to the contractor to minimize his/her negative cash flow because
this may hinder him/her during performing the contract due to lack of financial
resources. Among the procedures the contractor may follow to minimize negative
cash flow is:
Figure 6.11: Expense and income curves for Example 6.3
Figure 6.12: The contact net cash flow
- Loading of rates, in which the contractor increases the prices of the earlier items in
the bill of quantities. This ensures more income at the early stages of the project.
However, this technique might represent a risk to the contractor or the owner.
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- Adjustment of work schedule to late start timing in order to delay payments. In this
case, the contractor should be aware that in this case in delay might happen will affect
the project completion time and may subject him/her to liquidated damages.
- Reduction of delays in receiving revenues.

- Asking for advanced or mobilization payment.
- Achievement of maximum production in the field to increase the monthly payments.
- Increasing the mark up and reducing the retention.
- Adjust the timing of delivery of large material orders to be with the submittal of the
monthly invoice.
- Delay in paying labor wages, equipment rentals, material suppliers and
subcontractors.
6.1.6 Cost of Borrowing (Return on Investment)
Cash requirements (negative cash flows) during a project result in a contractor either
having to borrow money to meet his/her obligation or using funds from the company
reserves, which may have been more profitably if employed elsewhere. Accordingly,
there should be a charge against the project for the use of these funds.
One of the methods to determine the amount of interest to be charged during a contract
is to calculate the area between the expenses and income curves. To simplify the
calculations, the area is calculated in terms of units of LE x time period (money x
time). The time may be in days, weeks, months, etc. The underneath the expense curve
is considered as negative area (negative cash), while the area above the expense curve
is considered positive area (positive cash). The total net number of area units is
calculated and multiplied by the value of the unit and the result is multiplied by the
interest rate or rate of investment.
Cost of borrowing = net area x interest rate
Note that, the interest rate should be calculated in the same time period as the time
period of the unit areas. For example, if the units’ areas are calculated in LE.month,
then the interest rate should be in months.
6.1.7 Project Cash Flow
The project cash flow deals with the whole life of the project not the construction
period only. Thus, project cash flow studies the project finance from the feasibility
studies phase till the operation phase. In this case, the time is much longer than that of
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the contract. At the early stage of a project, the project experience negative cash flow
as there is no income in these stages. In the operation stage, the revenue will increase
than the expenses. Atypical project cash flow is shown in Figure 6.15. When
comparing the economics of projects, the cumulative cash flow provides indicators
for such comparison as payback period, profit, and the maximum capital. These
indicators called the profitability indicators.
Figure 6.15: Typical project cash flow
6.1.7 Project Profitability Indicators
 Profit
It is the difference between total payments and total revenue without the effect of
time on the value of money. When comparing alternatives, the project with the
maximum profit is ranked the best.
 Maximum capital
It is the maximum demand of money, i.e., the summation of all negative cash
(expenditures). The project with minimum capital required is ranked the best.
 Payback period
It is the length of time that it takes for a capital budgeting project to recover its initial
cost, where the summation of both cash out and cash in equals zero. When comparing
alternatives, the project with the shortest payback period is ranked the best.
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6.2 Discounted Cash Flow
The value of money is dependent on the time at which it is received. A sum of money
on hand today is worth more than the same sum of money to be received in the future
because the money on hand today can be invested to earn interest to gain more than
the same money in the future. Thus, studying the present value of money (or the
discounted value) that will be received in the future is very important. This concept
will be demonstrated in the following subsections.
6.2.1 Present Value
Present value (PV) describes the process of determining what a cash flow to be
received in the future is worth in today's pounds. Therefore, the Present Value of a
future cash flow represents the amount of money today which, if invested at a
particular interest rate, will grow to the amount of the future cash flow at that time in
the future. The process of finding present values is called Discounting and the interest
rate used to calculate present values is called the discount rate.
To illustrate this concept, if you were to invest LE 100 today with an interest rate of
10% compounded annually, this investment will grow to LE 110 [100 x (1 + 0.1)] in
one year.
The investment earned LE 10. At the end of year two, the current balance LE 110 will
be invested and this investment will grow to LE 121 [110 x (1 + 0.1)]. Accordingly,
investing a current amount of money, P, for one year, with interest rate (r) will result
in a future amount, C using the following equation.
If P is invested for n years then the future amount C will equal.
6.2.2 Net Present Value (NPV)
Net present value (NPV) is the summation of all PV of cash flows of the project, where
expenses are considered negative and incomes are considered positive. A project will
be considered profitable and acceptable if it gives a positive NPV. When comparing
projects, the project with the largest (positive) NPV should be selected.
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6.2.3 Internal Rate of Return (IRR)
The internal rate of return (IRR) of a capital budgeting project is the discount rate (r)
at which the NPV of a project equals zero. The IRR decision rule specifies that a
project with an IRR greater than the minimum return on capital should be accepted.
When choosing among alternative projects, the project with the highest IRR should
be selected (as long as the IRR is greater than the minimum acceptable return of
capital). The IRR is assumed to be constant over the project life.
6.3 Finalizing a Tender Price

The total price of a tender comprises the cost and the markup. The cost includes direct
and indirect costs. The markup, on the other hand, includes profit margin, financial
charges (cost of borrowing), and a risk allowance margin (Figure 6.17). Estimating
activities direct costs presented previously in chapter 3. Estimating indirect costs
presented earlier in this chapter.
Figure 6.17: Components of a tender price
If you are much involved in the construction business, you must have experienced
how difficult it is to decide on a suitable margin to make your bid competitive against
other contractors. We need to decide on the markup percentage that makes the bid low
enough to win and, at the same time, high enough to make reasonable profit.
Generally, contractors often have to main methods of assessing a specific contract
markup:
- Estimating a single percentage markup to be added to the total cost. It is assumed

that this percentage will cover all the components of markup as shown in Figure 6.17;
and
- Detailed analysis of the risky components in the project and their impact on the
project in terms of increased time and cost. Also, cash flow analysis to estimate the
financial charge and estimating a reasonable profit margin.
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Calculations of the financial charges (cost of borrowing) were, also, presented
previously in this chapter based on the cash flow analysis of the contract. Estimating
profit and risk allowance margins will be presented in the next subsection.
6.3.1 Estimating Profit Margin
Profit is the reward the contractor expecting to gain form performing a specific
contract in return of his efforts and skills. Also, profit is the part of money that the
contractor will retain after paying everything including the taxes, the insurance, etc.
Estimating a value for the profit margin is usually depends on the market conditions.
However, the factors that might affect choosing a profit margin values are summarized
as follows:
- The contactors’ competition to win a project;

- A contractor’s desirability for work;
- Volume of work that the contractor has at a certain time;
- Size of the project and it complexity;
- Location of the project; and
- Identity of the client and the engineer.
6.3.2 Risk Management
Uncertainty and risks usually leads to project completion delays and cost overruns.
Uncertainty is the gap between the information required to estimate an outcome and
the information already possessed by the decision maker. Thus, the early assessment
of the risks and uncertainties which would affect the construction of a project may
improve the performance in terms of time and money. Risk management is a major
step in project planning; however, it is a complex process since the variables are
dynamic and dependent on variety of conditions such as: project size, project
complexity, location, time of the year, etc. In order to offset the effect of risks time
and/or cost contingencies should be added to cover unforeseen occurrences.
We need risk management to minimize management by crisis; minimize surprises and

problems; increase probability of project success; and better handle on true costs and
schedules by properly estimating contingencies.
Risk management is defined as the process for systematically identifying, analyzing,

and responding to risk events throughout the life of a project to obtain the optimum or
acceptable degree of risk elimination or control. Accordingly, the major steps of risk
management are:
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- Identification of risks;
- Responses to avoid, reduce, or transfer risk;
- Analysis and assessment of residual risks after the risk responses; and
- Adding time and /or cost contingency for residual risks in the project estimates.
In general, in risk allocation, the risk should be carried out by the party (client or
contractor) who is best able to make the assessment of the risk or uncertainty. If there
is any doubt, it should be carried out by the client. This is because, it is better for the
client to pay for what does happen rather than for what the contractor thought might
happen in these risks.
 Risk Identification
Construction risk is defined as the possibility of undesirable extra cost or delay due to
factors having uncertain future outcome. Or it the possibility of suffering loss and the
impact that loss has on the involved party. The purpose is to identify all risks to the
project/contract and provide a preliminary assessment of their consequences. Identify
every factor that may harm the project as potential risk. For example, one may state
“If the lay-down area is not optimized then productivity will be too low;” “segmental
liners may not be available prior to construction thus delaying project”. In identifying
risks, a number of approaches can be used including: standard checklists; comparison
to other projects; expert interviews; and brainstorming sessions.
Main categories of sources of risks are listed along with some examples of each
category as follow:
 Administrative:
Delay in possesses of site;
Limited working hours;
Limited access to the site; and
Troubles with public services
 Logistical:
Shortage or late supply of different resources;
Site remoteness problems; and
Difficulties in communications with different parties involved.
 Construction:
Limited work space;
Changes in soil condition than the soil report;
Construction method used;
Availability of skilled labor;
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Equipment breakdown; and Effect of varied weather and environmental conditions
on construction
 Physical:
Periods of high tides, temperature, etc;
Placing fill in dry season; and
Diverting water canals in time of low flow.
 Design:
Design incomplete;
Design changes; and
Design errors.
 Financial:
Inflation which results in reducing the purchasing power of the currency;
New restrictions applied on importing materials and equipment;
Exchange rate fluctuation;
Changes in taxes;
Availability of funds; and
Delay payments by client.
 Political:
Change of local laws and regulations;
Inflation which result in reducing the purchasing power of the currency;
Effect of wars and revolutions; and
Necessity to use local resources.
 Management:
Scheduling errors;
Space congestion;
Errors in bill of quantities; and
Estimating of cost and duration based on standard figures.
 Contractual:
Contract type and its suitability for undertaken work;
Co-ordination of work; and
Liability towards others
 Disasters:
Floods and storms;
Fires;
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Earthquakes;
Accidents;
Diseases; and
Other acts of GOD.
 Response to Risk and Uncertainties
Having identified a list of possible risks and uncertainties that a project may face,
management should develop responses to avoid, reduce or transfer these risks. The
following list of actions may be taken to reduce or transfer risks:
- Using construction methods which have high degree of success;
- Using extra resources to enhance the construction program to absorb possible delay;
- Securing alternative suppliers and advanced delivery dates for materials;
- Providing temporary roads to give flexibility of operations;
- Allowing free housing near construction site for labors to reduce problems arising
from remoteness of job site;
- Locating site facilities away of the working space to give sufficient area for
construction works;
- Assuming realistic reduced resources output;
- Maintaining good roads to provide assumed production rates for hauling equipment;
- Using equipment for which spare parts are easily available to reduce shortage of
spare parts;
- Providing facilities for mechanical maintenance of equipment; and
- Purchasing insurance to cover the risk of site injuries.
The previously mentioned items are some examples of the actions that may be taken
to reduce or transfer the effect of risks. However, some risks will not be eliminated.
To deal with residual risks, a detailed risk analysis may be required.
 Time contingency
In addition to the above-mentioned responses to risks, time contingency is one of the

contractor’s responses to risks and uncertainties. Time contingency is an extra time
that added to the contract time to offset the effect of some risks that are known to the
contractor in advance such as late delivery of materials. This extra time may be added
in two ways:
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- A general allowance is added to the overall contract duration when most the
activities will be affected by the risk. For example, effect of bad weather which will
affect all running activities.
- Allowance is added to a particular activity affected by the risk.
 Cost contingency
Also, the contractor has to assess the risks he/she is going to retain and include
appropriate cost contingency allowance to the contract estimate. This allowance can
be added as a fixed percentage of money from the direct cost based on the contractor
experience. However, this allowance might not be appropriate for the specific risks.
Also, it results in a single figure estimate. This method can be used when there is no
means for performing risk analysis. The second method is to make a detailed analysis
of risks as presented in the next subsection.
Example 6.4
In a specific, the following risks were identified.

- Client’s delays;
- Troubles encountered with public services;
- Late supply of materials; and
- Equipment breakdown.
As a contractor, give your views on the possible responses to deal with them.
Solution
Contractor’s response to the risks:
- Client’s delay: the contractor should supply an activity schedule to warn the client
and to be an evidence for the delay.
- Troubles encountered with public services: the contractor should use maps of new
tools to locate public services. Also, he may use trial pits.
- Late supply of materials: the contractor should secure advanced delivery dates and
alternative suppliers.
- Equipment breakdown: the contractor should supply the site with a complete
workshop for maintenance of equipment.
Risk Analysis
After applying the responses to risks mention in the previous section, there are still
some residual risks that need risk analysis to assess their impact on the project time
and cost.
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This risk analysis is the process which incorporates uncertainty in a quantitative
manner, using probability theory, to evaluate the potential impact of risk. The basic
steps of risk analysis are:
- Estimate range of risk variables;
- Choose the appropriate probability distribution which best fit risk variables;
- Define the affected activities by these risk variables; and
- Use a simulation model to evaluate the impact of risks (Monte Carlo Simulation).
This, risk analysis usually includes: sensitivity analysis; and probability analysis.
Sensitivity analysis
Sensitivity analysis is used to identify those variables which contribute most to the
risk of the contract (time and/or cost). The purpose of this analysis is to eliminate those
risk variables which have minor impact on the performance criteria and hence reduce
problem size and effort. The following procedure for risk sensitivity analysis will be
followed:
- Three values of each risk variables occurrence are to be specified: a most likely, an
optimistic, and a pessimistic;
- To assess the effect of each risk variable:
• Set all other risk variables at their most likely value;
• Determine a value (A) for the performance (cost and/or time) criteria when risk
variable under consideration is set at its optimistic value;
• Determine another value (B) for the performance criteria (cost and/or time) when
risk variable under consideration is set at its pessimistic value;
• The difference between the obtained two values (A – B) of the performance criteria
is checked (subjectively).
- Two cases can be encountered:

• The difference corresponding to a risk variable has a little effect on the performance
criteria (time and/or cost). Then, this risk variable can be eliminated from the
probability analysis;
• A significant difference is found, and consequently this risk variable should be
included in the probability analysis.
Probability analysis
The purpose of the probability analysis is to determine the effect of those risk variables
which have a significant impact on the performance criteria of the project.
The following procedure for risk probability analysis will be followed
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- Consider the risk variables as random variables;
- Specify the suitable probability distribution for each risk variable;
- Use a suitable simulation technique to determine the probability distribution of the
performance criteria (Monte Carlo Simulation);
- Cost contingency can be simply calculated after specifying the probability
distribution of the performance criteria (Cumulative Probability Distribution as shown
in Figure 6.18) as follows:
• Choose p; acceptable probability of project cost (time) overrun;
• Allocate p on the Cumulative Probability Distribution curve, and determine the
corresponding value (target cost); D
• Calculate the cost contingency (D- C), where C is the base contract estimate (time
and cost)
Figure 6.18 Cost contingency
6.4 Pricing Policy
Having all contract costs (direct and indirect), and markup components (profit margin,
risk allowance and financial charge), it is time to finalize the bid price. While, the
direct cost is associated directly to the contract activities, indirect cost and markup are
not associated with specific activities but with the whole contract. Accordingly,
pricing policy is the method by which the indirect costs and markup will be distributed
among the items of the bill of quantities, so that the bid price is ready to be submitted
to the client.
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6.4.1 Balanced bid (straight forward method)
𝑫𝒊𝒓𝒆𝒄𝒕 𝒄𝒐𝒔𝒕
The share of specific item= 𝒙(𝒕𝒐𝒕𝒂𝒍 𝒊𝒏𝒅𝒊𝒓𝒆𝒄𝒕 + 𝒎𝒂𝒓𝒌𝒖𝒑)
𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒏𝒕𝒓𝒂𝒄𝒕 𝒅𝒊𝒓𝒆𝒄𝒕 𝒄𝒐𝒔𝒕
In this method the indirect cost and the markup will be distributed among different
items based on their direct cost; i.e., the more the direct cost of an item, the more its
share from indirect cost and markup. The resulting bid price is called a balance d bid.
Example 6.5
Assume that the direct cost for an item (a) is LE 400,000 and that item is included in
a contract whose price is LE 3,500,000 and its total direct cost is LE 2,800,000.
Calculate the price for item (a) considering a balanced bid.
Solution
Bid price = direct cost + indirect cost + markup
Indirect cost + markup (for the whole contract) = Bid price - direct cost
= 3,500,000 - 2,800,000 = LE 700,000
𝟒𝟎,𝟎𝟎𝟎
Then, Indirect cost + markup for activity (a) = 𝒙𝟕𝟎𝟎. 𝟎𝟎𝟎 = 𝑳𝑬 𝟏𝟎𝟎, 𝟎𝟎𝟎
𝟐,𝟖𝟎𝟎,𝟎𝟎𝟎
Then, price of activity a = its direct cost + indirect cost
= 400,000 + 100,000 = LE 500,000
6.4.2 Unbalanced bid (Loading of Rates)
The contract price is said to be unbalanced if the contractor raises the prices on certain
bid items (usually the early items on the bill of quantities) and decreases the prices on
other items so that the tender price remain the same. This process is also called the
loading of rates. The contractor usually loads the prices of the first items to ensure
more cash at the beginning of the contract and to reduce the negative cash flow and
accordingly reduces borrowing of money.
Loading of rates may be risky to both the contractor and the owner. If the contractor
raised the price for an item and the quantity of this item increased than that was
estimated in the bill of quantities then, this situation is more risky to the owner as it
will cost the owner more money. On the other hand, if the contractor reduced the price
of a specific item and the quantity of that item increased, thus situation will be more
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risky to the contractor. So, it is better to follow a balanced way of distributing the
indirect costs and markup among contract items.
Example 6.5
Consider a small contract comprises of five sequential activities of equal duration. The
quantity of work in each activity, the direct cost rate, and total cost rate for balanced
and unbalanced bid are given in Table 6.6.
- Compare the cash flow curves for both balanced and unbalanced bids;
- Determine the effect of unbalanced bid on the contractors profit if:
• Quantity of activity (B) is increased by 50%.
• Quantity of activity (C) is increased by 50%.
Solution
Assume each activity with one time unit duration then, the cash flow will be as given
in Table 6.7. Also, cash flow curves for both balanced and unbalanced curves are
shown In Figure 6.19. It shows that in the unbalanced bid, the contractor will receive
more money in the early stages of the contract.
Table 6.7: Cash flow calculations
- Contract total direct cost = 100 (4 + 8 + 16 + 16 + 8) = 5200

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- Contract price = 6500
- Contract markup and profit = 6500 – 5200 = 1300 = 25% of direct cost
Figure 6.19: Cash flow for balanced and unbalanced bids
- Table 6.8 shows the effect of tender price if the quantity of activity “B” increased
by 50%.
- The price of the unbalanced bid (7200) is greater than that of the balanced bid (7000)
which means more profit to the contractor and more risk to the owner.
In another way:
- Total direct cost = 5200 + 50 x 8 = 5600
- Indirect cost & markup for balanced bid = 7000 – 5600 = 1400 = 25% of direct cost
- Indirect cost & markup for unbalanced bid = 7200 – 5600 = 1600 = 29% of direct
cost
This increase means that the profit of the contractor has been increased and thus
represents risk to the owner.
Table 6.8: Effect of change in quantity of activity B
- Table 6.9 shows the effect of tender price if the quantity of activity “C” increased
by 50%.
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- The price of the unbalanced bid (7400) is less than that of the balanced bid (7500)
which means less profit and more risk to the contractor.
In another way:
- Total direct cost = 5200 + 50 x 16 = 6000
- Indirect cost & markup for balanced bid = 7500 – 6000 = 1500 = 25% of direct cost
- Indirect cost & markup for unbalanced bid = 7400 – 6000 = 1400 = 23% of direct
cost
This decrease means that the profit of the contractor has been decreased and thus
represents risk to the contractor.
Table 6.9: Effect of change in quantity of activity C
6.4.3 Method Related Charge
The prices entered in the conventional bill of quantities might not represent the real
cost of the work defined in the individual items. This is because not all costs are
directly related to the quantity of work completed. Therefore, adjustment of the price
due to a change in quantity of a particular item may not represent the real variation in
cost. This is usually produces unnecessary amount of uncertainty and financial
problems in many contracts.
For example, site overheads are mainly time related charge. In the conventional bill
of quantities, the cost of site overheads is recovered by spreading it over the quantity
proportional rates. If variations occur and the site facilities are required for a longer
period of time, there is no systematic way to adjust the contract price.
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If the time-related site overhead costs could be entered in the bills of quantities as a
time-related charge, then the cash flow pattern would be realistic and the price of this
item could be adjusted in case of any variations happened.
Thus, the method related charge is proposed to enable contractors to enter any
operation whose cost is time related and not directly linked to the quantities of work
being done. It allows the contractor to define fixed and time-related charges that cove
charges which are independent of the quantity of work completed. These charges are
called method-related charges. Table 9.10 gives an example of these items.
Table 6.10: Method related chare items example
The main advantages of using the method related charges are:

- Allows a system evaluation of changes.
- It realistically reflects the cost of construction which reduces the effect of inflation.
- No need for loading of rates (unbalanced bidding).
- Improves cash flow.
Figure 6.20 shows an actual bill of quantities for a project where safety and health
equipment, mobilization, and scaffolds used are listed as separate items in the bill of
quantities.
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SCHEDULE NO. 1 STEEL STRUCTURE, WALLS AND CONCRETE FLOOR
REMEDIATION
6.5. END OF UNIT ONE REVIEW QUESTIONS
1. The activities involved in the construction of a small building are given below. The price of the
work contained in each activity is listed in the table. The contractor undertaking this project would
like you to prepare graphs of cumulative expense and income to date against time for activities
starting as early as possible. The mark-up is 10% of tender value and retention is 5%. Measurement
is made monthly with a payment delay of one month. The retention is paid at the end of the contract.
To simplify the calculations you may assume that all costs must be met by the end of the month in
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which they are incurred. What is the maximum amount of cash the contractor needs to execute this
contract and when does he require this amount?
2. The following figure shows the Bar Chart for a small project, durations, schedule, Bid Prices,
and logical relationships among activities are all shown. Use the following additional information
to calculate the maximum amount of cash the contractor needs and when dose him/her requires this
amount.
 Indirect cost is $ 1000 per day

 Contractor markup is 5%
 Time period is 8 days with interest rate of 1% per period.
 Retainage amount is 10%, and all withheld retainage money will be paid back 2 periods after
the last payment
 Owner’s payment delay of any invoice is one period.
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CHAPTER 7 PROJECT CONTROL
At the end of this chapter students will be to:
 Identify types of delays in construction projects and their respective impacts

 Identify deviations from the project plan rather than to suggest possible
areas for cost savings
 Perform assessment on a given project progress by referring to budgeted
cost and scheduled time
The limited objective of project control deserves emphasis. Project control procedures
are primarily intended to identify deviations from the project plan rather than to
suggest possible areas for cost savings. This characteristic reflects the advanced stage
at which project control becomes important. The time at which major cost savings can
be achieved is during planning and design for the project. During the actual
construction, changes are likely to delay the project and lead to inordinate cost
increases. As a result, the focus of project control is on fulfilling the original design
plans or indicating deviations from these plans, rather than on searching for significant
improvements and cost savings. It is only when a rescue operation is required that
major changes will normally occurring in the construction plan.
7.1 Problems that may arise During Construction
In construction, no project, almost, is executed as planned. Control needs to be

carried- out due to the dynamic nature of the construction process. Controlling after
project finish is trivial and updates are usually done periodically. Controlling can be
done for project schedule and/or project cost. As the construction stage of project
starts, the project mostly will face delays and/or cost overruns.
The following is a list of the factors that may cause such problems:
 Change in activity durations and quantities.

 Sudden changes of the availability of resources.
 Change orders.
 Accidents.
 Procurement delays.
7.2 Schedule Updating
Construction typically involves a deadline for work completion, so contractual

agreements will force attention to schedules. More generally, delays in construction
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represent additional costs due to late facility occupancy or other factors. Just as costs
incurred are compared to budgeted costs, actual activity durations may be compared
to expected durations. In this process, forecasting the time to complete particular
activities may be required.
It is important to devise efficient and cost effective methods for gathering information
on actual project accomplishments. Generally, observations of work completed are
made by inspectors and project managers and then work completed is estimated. Once
estimates of work completed and time expended on particular activities are available,
deviations from the original duration estimate can be estimated.
For example, Figure 7.1 shows the originally scheduled project progress versus the
actual progress on a project. This figure is constructed by summing up the percentage
of each activity which is complete at different points in time; this summation can be
weighted by the magnitude of effort associated with each activity. In Figure 7.1, the
project was ahead of the original schedule for a period including point A, but is now
late at point B by an amount equal to the horizontal distance between the planned
progress and the actual progress observed to date.
In evaluating schedule progress, it is important to bear in mind that some activities

possess float, whereas delays in activities on the critical path will cause project delays.
In particular, the delay in planned progress at time t may be soaked up in activities'
float (thereby causing no overall delay in the project completion) or may cause a
project delay. As a result of this ambiguity, it is preferable to update the project
schedule to devise an accurate portrayal of the schedule adherence. After applying a
scheduling algorithm, a new project schedule can be obtained.
Figure 7.1: Planned versus actual progress over time on a project
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It is common that actual durations of activities differ from those estimated.
Furthermore, there may be additions or deletions to the scope of the contract that will
affect the time at which activities can be started or completed. Schedule updating is a
procedure for introducing the latest progress information into the schedule.
Data have to be collected on the actual progress of completed activities and those
under execution. A completely new estimate of the amount of work remaining to be
done should be made for each activity. The probable output of various resources
should be assessed. If the job is found to be behind schedule, corrective actions must
be made to retrieve position.
A procedure for manual schedule updating can be summarized in the following steps:
 Change the duration of all completed activities to zero.

 Identify all activities on which work is currently processing as Live Activities
 Put early start time of live activities equals the updating date and their
duration’s equal remaining duration.
 Change duration of future activities as given in the update report.
 Carry-out network analysis in the normal way and prepare a new activity
schedule.
To illustrate the above hand procedure for schedule updating, consider the following
example with the planning data given in Table 7.1. The corresponding precedence
network along with time analysis is shown in Figure 7.2. It is evident that initial
project duration is 20 weeks and the activities A, B, F, and K comprises the critical
path.
Table 7.1: Planning data of the example problem
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At the end of the 7th week, new filed data are collected and the project status
activities is as follows:
-Activities A, B, D, and F have been completed.

-Remaining Duration of activity C is one week.
-Remaining Duration of activity H is 4 weeks.
-Activity G will not start until beginning of week 10.
-Overlap between activities K and G is one week only
-Volume of work of activity L has been increased by 33%.
-Activity J has been omitted.
The updated precedence network and the corresponding updated schedule are shown
in Figure 7.3. It is shown that a new critical path is developed. The new project
completion time is 21 weeks which indicates that a delay of one week is encountered.
Corrective actions should be taken to improve project performance during the
remaining portion.
Figure 7.2: Scheduling data of the example problem
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Figure 7.3: Updated network of the example problem
7.3 Delays Analysis

Work changes mean changes in the volume and duration of work to be performed
from that envisaged at the start of the contract. Variation in the form of addition and
deduction result in more or less cost and time to execute the varied item. On the other
hand, omissions mean less cost but not necessarily less time.
It might result in wasting resources. For instance, if the quantity of work in a critical
activity is increased by x% then the duration of the activity will be extended by x%.
The direct cost of the activity should be increased by the same ratio while the indirect
cost of the contract might be increased for the extended period.
It is typical for construction contracts to be delayed. A delay that occurred on a non-

critical activity does not participate to the delaying completion date of the contract.
Therefore, delays on non-critical paths are not considered.
7.3.1 Types of Delays

Delays can be divided into the following categories:
- Those over which the client has control; compensable delays;

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- Those over which the contractor has control; non-excusable delays;
- Those over which the neither party has any control; excusable delays; and
- Concurrent delays.
A brief description of each category is given below.
Compensable delays
A delay is deemed compensable to the contractor when it’s within the control of, is
the fault of, or is due to the negligence of the client.
Examples include:
- Late possession of site;

- Faulty design;
- Incomplete drawings and specification;
- Changes in scope;
- Suspension of work;
- Differing site conditions;
-late delivery of client-supplied materials; and
- Client’s failure to disclose information vital to the contractor.
For this type of delays, the conditions of contract should allow the contractor to be
entitled to a time extension and to monetary recompense for extra costs associated
with the delay.
Non-excusable delays
In this category, the contractor’s own actions or inactions have caused the delay. The
contractor is entitled neither time extensions nor monetary recompense from the
client. He may pay liquidated damages according to the contract.
Excusable delays
These are occurrences over which neither the client nor the contractor has any
control. Example includes:
- Unforeseen future events which the contractor has not been aware;
- Impracticable things which the contractor can only do at an excessive cost;
- Events in which the contractor is blameless, such as material shortage beyond
what was expected at the time of bidding.
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The contractor should declare the excusable delays. The sole relife for these delays
is a time extension.
Concurrent delays
Concurrent delays are two or more delays that occur at the same time, either of
which, if it occurred alone, would have affected contract completion date. They can
be classified as follows:
- Excusable delays and non-excusable delays;

- Excusable delays and compensable delays;
- Excusable delays and compensable delays and non-excusable delays; and
- Compensable delays and non-excusable delays.
Concurrent delays with an excusable delay will generally be considered as excusable

delays. For these delays, the contractor is entitled to time extension if the delays are
on the critical path. This protects him from any resulting liquidated damages. For
concurrent compensable and non-excusable delays, the contractor is allowed a time
extension for completion with each party suffering its own losses. The terms of the
contract should declare the method of evaluation of such claims.
7.3.2 The As-Built Schedule
The as-planned schedule of a contract is its initial schedule. The as-built schedule will
show the time status of the contract and the causes of all the time changes that happen.
Both schedules will be drawn as time-scaled diagrams.
The as-built schedule provides a complete record of the work as-built. It shows all
delays encountered and the actual starting and finishing dates of every activity. When
compared with the initial schedule, it gives the date for the evaluation of each time
delays encountered during construction. The following legend will be used to draw
the as-built schedule; “o” to represent compensable delays; “c” to represent non-
excusable delays and “n” to represent excusable delays. This schedule will now
become the basis for analysis of the effect of different types of delays of the
contractor’s progress.
Analysis of the As-Built Schedule
If the as-built schedule contains more than one equally delayed critical path, each of
them will be examined in turn to determine its networking duration. This is the actual
time in which all the activities along a path could have been completed if there had
been no work changes or delays affecting the path. This can be found as follows:
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A path networking duration = its total duration – all delay times lying on it
The networking duration may be less than the estimated contract duration given by
the as-planned schedule. This means that the contractor has performed the contract
within the estimated time. On the other hand, it may exceed the contract duration.
Then the contractor’s original estimates were incorrect. Having examined all apparent
critical paths, the scheduler can determine the primary path(s) as that (those) with the
longest networking duration. The work could not have been completed in less time
than this, even if the delays has not occurred, other parallel apparent critical paths may
be classified as secondary as they do not control the contract duration. They have float
with respect to the primary path.
If the as-built schedule contains one primary critical path, then the overall effects of
all eventualities on the contract will be the difference between the path actual duration
and its networking duration. The responsibility of each party for the contract delayed
completion is then determined by inspection.
If the schedule contains more than one primary critical path with the same networking
duration, then it may have concurrent delays. A brief discussion of these delays is
provided next.
7.3.3 Analysis of Concurrent Delays

The difference between the as-planned schedule duration and the as-built primary
critical path duration can be portioned out as follows:
1. The number of days in which the contractor’s and the client’s delays are concurrent
are those days where the two type of delays occurred; one delay affected a primary
critical path and the other affected the other primary critical path on the same day(s).
2. The number of days of concurrent delays with an excusable delay is those days
where an excusable delay occurred on any primary critical path and a contractor’s
delay, a client’s delay, or both delays occurred on other primary critical path(s) on the
same day(s).
3. Excluding delays number 1 and 2 above, the number of days a contractor should be
assessed for liquidate damages is the smallest number of days of inexcusable delays
on all primary critical paths.
4. Excluding delays number 1 and 2 above, the number of days a contractor should be
reimbursed for additional overhead expense plus a time extension is the smallest
number of days of compensable delays on all primary critical paths.
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5. Finally, the number of days a contractor should be given a time extension is the
difference between the total delay duration and the summation of all the above four
delays duration.
Example 7.1
Consider the contract given in the Table 7.2. The delay report given in Table 10.3
was recorded for this contract. Determine how each party is responsible for the
contract delayed completion.
Table7.2: Data for example 8.1
Table 7.3: Recorded delays for Example 7.1
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Solution
The as-planned and as-built schedules are drawn in Fig. 7.4. Apparent critical paths
are B E H J and A C F I. Each of them has a networking duration = 41 – 18 = 23
days. So, the two apparent critical paths are primary critical paths. The total delay of
18 days can then be divided as follows:
1. Concurrent compensable 7 non-executable = 3 days
2. Concurrent with excusable = 2 days
3. Inexcusable = 1 day
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4. Compensable = 2 days
5. Excusable = 18 - (3 + 2 +1 +2) = 10 days
Accordingly, the contractor should be given a time extension of 17 days. He will pay
liquidated damages for 4 days and will be reimbursed for overheads of 5 days.
7.4 Earned Value Management

For cost control on a project, the construction plan and the associated cash flow
estimates can provide the baseline reference for subsequent project monitoring and
control. The final or detailed cost estimate provides a baseline for the assessment of
financial performance during the project. To the extent that costs are within the
detailed cost estimate, then the project is thought to be under financial control.
Overruns in particular cost categories signal the possibility of problems and give an
indication of exactly what problems are being encountered.
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The key to a profitable project is to keep construction costs within the budget and to
know when and where job costs are deviating. The budget determines the amount of
cash that will be required over the various periods of the project. Various techniques
are usually used for cost control such as S-curve method and earned value technique.
Because it is the most widely used method, only earned value technique will be
described next. Earned value technique involves a combination of three measures that
are needed for the analysis. These measures include:
 Budgeted Cost of Work Scheduled (BCWS)
BCWS measures what is planned in terms of budget cost of the work that should to
place (i.e., according to the baseline schedule of the project). BCWS curve can be
plotted by accumulating the budget cost of the initial schedule.
 Budgeted Cost of Work Performed (BCWP) (Earned value – EV)
BCWP measures what is done in terms of the budget cost of work that has actually
had been accomplished to date. BCWP curve can be plotted point by point after each
reporting period. Here we accumulate the budget cost on the schedule that shows the
actual percent complete.
 Actual Cost of Work Performed (ACWP)
ACWP measures what is paid in terms of the actual cost of work that has actually been
accomplished to date. BCWS curve can also be plotted point by point after each
reporting period. Here we accumulate the actual expenditures on the schedule that
shows the actual percent complete.
The significance of these three measures is that they directly indicate schedule and
cost performances of the project at different reporting periods. This illustrated as
shown in Figure 7.5. Using these three measures, different project performance
indicators can be calculated. Among these indicators are:
 Schedule Variance (SV)
It is the difference between the earned value (BCWP) and the planned budget cost
(BCWS).
SV = BCWP – BCWS; SV > 0 indicates ahead of schedule
 Cost Variance (CV)
It is the difference between the actual cost (ACWP) and the earned value or the budget
cost (BCWP). CV = BCWP – ACWP; CV > 0 indicates cost saving
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Figure 7.5: Earned value measures and indictors
These concepts are best illustrated by the example problem with the planning data
given in Table 7.1. The price of each activity is given Table 7.4.The schedule of the
example problem is given in Figure 7.2. At the end of week number 5, the project
status is recorded as given in Table 7.4. Actual costs are also recorded as given in
Table 7.5.
Table 7.4: Cost data of the example problem
Table 7.5: Actual cost at the end of week 5
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Figure 7.6 shows the project schedule in bar chart format. The planned expenditure of
each activity is assumed to be uniformly distributed over activity duration. The BCWP
are calculated as shown in Figure 7.7. The weekly budgets are plotted on a cumulative
basis as the BCWS are as shown in Figure 10.8. In Figure 7.8, BCWS as well as
BCWP and ACWP to the end of week 5 are plotted on the same graph. It now possible
to calculate schedule and cost control indicators as: SV = 262 – 294 = -ve which
indicates that the project is behind schedule. CV = 262 – 305 = -ve which indicates
that the cost is overrun
Example 8.2
A cost control report of a certain contract gives the following figures as percentages
of the contract a-completion budgeted cost: BCWP = 25% BCWS = 47% ACWP =
72%
Calculate, cost and schedule variances and comment on the status of the contract.
Solution
Cost variance (CV) = BCWP – ACWP = 25 – 72 = -47% Schedule variance (SV) =

BCWP – BCWS = 25 – 47 = -22% the contract is behind schedule with over cost.
Figure 7.6: Bar chart showing budgeted expenditures (BCWS)
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Figure 7.7: Bar chart updated at end of week 5 (BCWP)
Figure 7.8: Cost curves
7.5 Exercises
The activities involved in the construction of one kilometer of a pipeline are given
together with their estimated durations in the table below. Each of the activities will
be done using a separate gang. All of them are sequential except “Excavate trench”
and “String pipe” are done concurrently. The project consists of 3 similar kilometers.
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a. Prepare complete plan of the works and determine the activity schedule. Mark the
critical path.
b. Assume now that the project is being constructed according to ES timings

determined in “a” above. At the end of day 10, the following information is obtained
from the project site:
- Activities LC were completed on schedule.
- Duration of the first part of activity ET was prolonged by 1 day but that of the
second part will be the same as the original duration.
- Activities SP were completed although ES of the third part had been delayed by 3
days.
- Remaining duration of the first part of activity LP is 3 days.
- The first part of activity PT will not start until beginning of day 16.
Update your network and mark the critical path.
c. If the activities direct cost is listed as below:
The contract site overhead amounts to LE77.777/day and distributed among

activities according to their relative direct costs. If the actual cumulative cost at the
end of day 10 is LE9270, calculate schedule and cost performance ratios and
comment on the progress of the contract.
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CHAPTER 8 CONTRACT STRATEGY

 Explain the terms and objectives of a contract towards a project

 Identify correctly required contract/tender documents during bidding
process
 Set criteria for selecting a contractor/sub-contractor to be awarded the
contract
At the early stage of a project and once a project manager is selected, the main issue
that faces the owner is to decide on the contract strategy that best suits the project
objectives. Contract strategy means selecting organizational and contractual
policies required for the execution of a specific project. The development of the
contract strategy comprises a complete assessment of the choices available for
the management of design and construction to maximize the likelihood of
achieving project objectives. The scope of such contracts is very wide, from a
simple purchase of standard article to multi-million- pound projects. The size and
complexity of the contract matter vary accordingly.
A proper contract strategy for a project involves five key

decisions:
 Setting the project objectives and constraints
 Selecting a proper project delivery method
 Selecting a proper contract form / type
 Contract administration practices
8.1 What is a Contract?
A contract is defined as: "an agreement made between two or more parties
which is enforceable by law to provide something in return for something
else from a second party". Contracts can be very simple or they may be very
long and complicated legal documents. When a contract is properly set-up it is
legally binding upon. The two parties are expected to perform the various
obligations they have undertaken, as expressed in a mutually agreed set of contract
documents. A contract therefore, is necessary to protect both client and contractor.
According to its simple definition, a contract is an agreement enforceable at law,
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but not all agreements are contracts. Some elements must be present before an
agreement becomes a contract. These elements are:
 Competent Parties: For an agreement to be a contract there must be two or
more competent parties. In order to be considered competent, a part must have
a certain legal standing.
 Proper Subject Matter: For the subject matter of a contract to be proper, the
first requirement is that it was be clearly defined as to the rights and obligations
of each party. Second, the purpose of the contract must not violate the law.
 Consideration: There must be a lawful and valuable consideration given b
both parties. A consideration often called "Something for something." A
consideration must, also, be possible.
 Agreement: For valid contract, there must be a mutual agreement. An
agreement is considered to have been reached when an offer made by one party
is accepted by the second party. Both parties must wish and intend their bargain
to be enforceable by law.
 Proper Form: The terms of a contract must be written so that both parties
are very sure of what their rights and responsibilities are.
 Consent of the Parties: The agreement must be free from: Misrepresentation,
Duress Undue influence, etc.
The main steps to be taken before placing contract are presented in Fig.
2.1.
8.2 Selection of Contract Type
The selection of contract type to be used for a construction project is made by the
owner, acting upon the advice of his Engineer and his legal advisor. The selection
must meet the owner Objectives and takes into account the constraints that might
relate to the project. Consultants and contractors should be fully informed by
the project objectives and constraints. The scope and the nature of the project will
primarily affect the selection of type of contract.
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Fig. 8.1: Steps of contracting process
8.2.1 Project objectives
The client will have a number of overall objectives. These objectives may be of
primary and/or secondary importance. Primary objectives include functional
performance, time objectives, and cost objectives.
a. Project Scope (performance): The project scope defines the extent or the area
that the contract covers. Any additions or omissions during the life of the project
will increase or decrease the quantity of work involved. Likewise, any changes
in design must be discussed carefully to establish whether or not they are likely
to affect the scope of the project.
b. Time: The scope and time are closely interrelated. Decisions must often be
made on the effect of increasing or decreasing scope on time. If the completion
date of a project is critical, then increasing scope will call for an accelerated
program. The extra cost associated with this acceleration must be quantified.
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c. Price: The cost of a project is closely related to scope and time. The effect of
the contract on price, and the various incentives and penalties that can help to
keep price steady must be discussed and clearly defined.
On the other hand, secondary objectives could arise on a construction project and
would exert a major influence over contract strategy decisions Examples of
secondary objectives are:
 Allocation and payment for risk.

 Training of the client's staff.
 Transfer of technology.
 Involvement of contractor in design.
 Involvement of client in contract management.
 Choice of labor-incentive construction.
 Use of local material and resources.
 Protection of the environment.
8.2.2 Project constraints
All construction projects have constraints that influence the achievement of the
project objectives. These constraints should therefore, be considered when
choosing an appropriate contract strategy. There are a variety of constraints and
these are examples:
 Availability of funds.
 Availability of contractual incentives.
 Method of tendering.
 Project location.
 Target dates of the project.
 Possibility of design changes.
 Availability of resources.
 Seasonal working.
 Number of contractors willing or able to tender.
 Inflation.
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Factors influencing contract choice
Three main factors influence the choice of a given contract including: the incentive,
risk sharing and the flexibility.
8.3 Project Delivery Methods
The project delivery method translates what project parties are involved in the
project and how they interact with each other and called also project organizational
structure. The choice of an organizational structure should be related to
project objectives and constraints. It can be facilitated considering the following
factors:
 Size and nature of the work packages within the project.
 Selection of the design team form in-house resources external
consultants or contractors.
 Process of supervision of construction.
 Restrictions upon using combination of organizational structures within
the project.
 Expertise which the client wishes to commit to the project.
When plans are completed and the owner is interested in securing the low price,
the use of competitive bids is suggested. The competitive bidding results in the
type of contract that many are familiar with.
A negotiated contract should be used when construction should start before plans
are completed or when the many unknown factors of the project make an accurate
estimate impossible. When many changes are expected and when inspection and
supervision cannot be done efficiently, the negotiated type of contract should be
used. The various project delivery methods are summarized as follows:
8.3.1 Traditional approach
This is the most common approach in civil engineering projects in which the design
has to be completed before construction can start. Design and construction are
usually performed by two different parties who interact directly and separately
with the owner. The pros and cons of this approach are summarized as follow:
 Advantages:
- Price competition
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- Total cost is known before construction starts
- Well documented approach used in most government projects.
 Disadvantages
- Long time
- Design does not benefit from construction expertise
- Conflict between owner, contractor and A/E
Therefore, this method is fine in many cases where the project is clearly definable,
design is completed, time need not be shortened, and changes are unlikely to
occur during construction.
8.3.2 Direct labor
In this approach, owner organization performs both the design and construction
using its in-house labor force.
 Used by large authorities
 The owner performs both the design and the construction
 May use consultants for some specialized designs
 Most suitable for small projects
 Can be used when expertise are available
 Low risk projects
 Inadequate scope definition
8.3.3 Design-build
In this approach, a single organization is responsible for performing both design

and construction and, in some cases, providing certain “know-how” for the project.
The pros and cons of this approach are summarized as follow:
 Advantages
- One contract that may include know-how
- Minimum owner involvement
- Used for fast-track projects in order to reduce time
- Co-ordination between design and construction and easier in
implementing the changes
 Disadvantages
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- Cost may not be known until end of the construction
- High risk to contractor and more cost to owner
- Design-build company may reduce quality to save cost
The use of this approach, therefore, should be considered when contractors

offer specialized design/construction/know-how expertise or when design is
strongly influenced by the method of construction.
8.3.4 Turnkey
This approach is similar to the design-build approach but with the organization
being responsible for performing both design, construction, know-how (if any),
and project financing. Owner payment is then made at the completion (when the
contractor turns over the “key”). An example is franchise projects in which a new
branch of a restaurant chain needs to maintain the same design, construction quality,
and food service quality.
8.3.5 Build-operate-transfer (BOT)
In this approach, a business entity is responsible for performing the design,

construction, long-term financing, and temporary operation of the project. At the
end of the operation period, which can be many years, operation of the project is
transferred to the owner. This approach has been extensively used in recent years
and is expected to continue. An example of its use is in express routes and
turnpikes. A consortium of companies shares the cost (design, construction,
financing, operation, and maintenance) and the profits gained from user fees, for
a stipulated number of years. Afterwards, the project returns to the government to
become publicly owned. This approach has also been used extensively in large
infrastructure projects financed by the World Bank in parts of the world that
cannot afford the high investment cost of such projects.
8.3.6 Professional construction management (PCM)
In this approach, the owner appoints a PCM organization (also known as

Construction Management organization) to manage and coordinate the design and
construction phases of a project using a Teamwork approach. The design may be
provided by specialist design firms and in some cases by the PCM organization.
168
With high level of coordination between the participants, innovative approaches
of overlapping design and construction (i.e., fast tracking) can be adopted. The
PCM organization aims at holding a friendly position similar to that of the
consultants in the traditional approach.
The services offered by the PCM organization overlap those traditionally

performed by the architect, the engineer, and the contractor. This may include:
management and programming of design; cost forecasting and financial
arrangements; preparation of tender documents; tender analysis and selection of
contractors; selection of methods of construction; recommendations on
construction economics; planning and scheduling construction works; materials
procurement and delivery expedition; provision for site security, cleanup, and
temporary utilities; supervision of control of construction contractors;
construction quality assurance; cost control; costing of variations and
assessment of claims; and certification of interim and final payments to contractors.
The use of PCM approach, therefore, should be considered when there is a need
for time saving, flexibility for design changes is required, and owner has
insufficient management resources.
8.3.7 Contractual relationships
Within each project delivery method, the contractual relationships among the
project participants can take various arrangements and the owner needs to make
a decision regarding the proper arrangement that suits the project and the parties
involved. The different contractual relationships associated with various project
delivery methods are illustrated in Figs. 2.2 (A represents services and $ contractual
relationships).
Direct force Traditional Design-build (turn-key)
169
Fig. 8.2: Contractual relationships
8.4 Types of Contracts
There are many types of contracts that may be used in the construction
industry. Construction contracts are classified according to different aspects. They
may be classified according to the method of payment to the contractor. When
payment is based on prices which submitted by the contractor in his tender, they
are called cost-based contracts. Examples are cost-reimbursable and target cost
contracts. Contracts may be classified in the point of view of the risk involved.
The range of risk runs from a fixed-price contract to a totally non-risk cost-
reimbursable contract at the other end.
8.4.1 Lump-sum contract
A single tendered price is given for the completion of specified work to the
satisfaction of the client by a certain date. Payment may be staged at intervals on
the completion. The contract has a very limited flexibility for design changes. The
tendered price may include high level of financing and high risk contingency.
Where considerable risk has been places with the contractor, this contract may
lead to cost cutting, trivia claims, or bankruptcy. Contract final price is known
170
at tender. A lump-sum contract would seem to prevent risks for the client where
in fact it just changes them. An important risk t the client is that of not receiving
competitive bids from desirable contractors who may avoid a high-risk lump-sum
contract.
This contract may be used for a turnkey construction. It is appropriate when

work is defined in detail, limited variations are expected, level of risk is low and
quantifiable, and client does not wish to be involved in the management of his
project.
8.4.2 Admeasurement contract
In this type of contracting, items of work are specified in Bills of Quantities or

Schedule of Rates. The contractor then specifies rates against each item. The rates
include risk contingency. Payment is paid monthly for all work completed during
the month. The contract offers a facility for the client to introduce changes in the
work defined in the tender documents. The contractor can claim additional
payment for any changes in the work content of the contract. Claims resolution is
very difficult because the client has no knowledge of actual cost or hidden
contingency. Tender price is usually increased by variations and claims. Two
forms of admeasurement contract are usually used: bill of quantities and
schedule of rates.
 Bill of Quantities Contract: Tenderers enter rates against each item of the
estimated quantities of work. The quantities are re-measured during the course
of the contract, valued at the tendered rates and the contract price adjusted
accordingly.
 Schedule of Rates Contract: It contains inaccurate quantities of work, possibly
with upper and lower probable limits. Therefore, it is common for separate rates
to be quoted for labour, plant, and materials. The contract price is derived by
measuring the man-hours, plant-hours and the quantities of materials actually
consumed, and then pricing them at the tendered price. This contract is best
suitable for repetitive works.
The admeasurement contract is well understood and widely used. It can be used
when little or no changes are expected, level of risk is low and quantifiable, and
when design and construction need to be overlapped.
171
8.4.3 Cost-reimbursable contract (cost-plus contract)
The contractor is reimbursed for actual cost plus a special fee for head office
overheads and profit, no special payment for risk. Payment may be made monthly
in advance. The contract involves a high level of flexibility for design changes.
Final price depends on changes and extent to which risks materialize. The
contractor must make all his records and accounts available for inspection by the
client or by some agreed third party. The fee may be a fixed amount or a
percentage of actual costs. This contract has no direct financial incentives for
the contractor to perform efficiently. It may be used when it is desirable for design
to proceed concurrently with construction and when the client wishes to be involved
in contract management.
8.4.4 Target cost contract
Cost targets may be introduced into cost-reimbursable contracts. In addition to the

reimbursement of actual cost plus percentage fee, the contractor will be paid a
share for any saving between target and actual cost, while the fee will be reduced
if actual cost exceeds the target. The target figure should be realistic and the
incentive must be sufficient to generate the desired motivation. Specified risk'
can be excluded from the tendered target cost. When these occur, the target cost
is adjusted accordingly and the client pays the actual cost incurred by the
contractor. The target may also b' adjusted for major changes in work and cost
inflation. This contract can be used in the same circumstances as the cost-plus
contract.
A brief summary of the level of risk exposed by each of the discussed contract
forms is illustrated in Fig. 2.3. As shown in the figure, competitive bidding
contracts (Lump Sum and Unit Price) are among the top risky contracts to
contracts and thus present a challenge in estimating their cost and schedule
at the bidding stage and before a commitment is made.
Fig. 8.3: Level of risk associated with various contracts

172
8.4.5 Time and material (T&M) contracts
T&M contracts are a hybrid type of contractual arrangement that contains aspects
of both cost-reimbursable and fixed-price-type arrangements. T&M contracts
resemble cost-type arrangements in that they are open ended, because the full value
of the arrangement is not defined at the time of the award. Thus, T&M contracts
can grow in contract value as if they were cost-reimbursable-type arrangements.
Conversely, T&M arrangements can also resemble fixed-unit arrangements when,
for example, the unit rates are preset by the buyer and seller, as when both
parties agree on the rates for the category of "senior engineers."
Most appropriate when the buyer wants to be more in control. It is also used
in an emergency to begin work immediately when a scope of work has not yet been
completed. Not possible at time of placing contract to estimate extent or duration
of the work, or anticipated cost, with any degree of confidence.
8.5 Contract Administration
As it was discussed in the previous sections, there is variety of types of contracts

used in civil engineering projects. Each type has its specific characteristics.
Contracts may be prepared under the heading of one type but could include
characteristics of more than a single type. Many professional societies and
government agencies have done a great deal toward the standardization of
construction contracts such that the general form and content are well established
for the various types of construction that may arise.
8.5.1 Contract documents
The contract is defined by the contract documents, which are developed from the
tender documents. In a logical order, these documents refer to the following
subjects:
 Input from the client (task description).

 Output of the contract (specifications, results to be achieved).
 Prices for the contractor's contribution.
 Responsibilities and procedures (liability, resources provided, time schedule,
payment conditions, changes procedures, etc).
173
Contract documents are usually arranged according to the following
sequence:
 General (for any project).
 Special (for a specialty area of the project).
 Supplementary (unique to a given project).
 Additional (during bidding or negotiation).
 Agreement form (for singing very important and particular clauses).
 Modifications (during contract fulfillment).
The complete contract agreement usually consists of the following

documents:
 Conditions (general, special, supplementary).

 Drawing and specifications.
 Addenda.
 Agreement form.
 Modifications.
The most important document from the legal point of view is the agreement.
It is sometimes called the contract. Since so many documents are included as
contract documents, the agreement is the better term for this particular one. The
form of the agreement can be standardized and used for many projects, or a unique
document can be prepared for each project. The standard form of agreement
prescribed by the American Institute of Architects has proved to be satisfactory
and has been used on many building projects with good results. The form followed
for non-building projects is often more varied. Man: agencies have own standard
forms, which are used on all their projects.
Information usually included in the agreement are of three parts. The first part is
a short introductory paragraph which defines the parties, gives the date of the
agreement, and state that each party agrees to what follows. The second part
contains the elements of contract and defines the work to be undertaken. The final
paragraph confirms the agreement and provides space for signatures of the parties.
Thus, the agreement usually composed of the following articles:
1. A short introductory paragraph.
2. Scope of the work.
3. Time of completion.
4. Contract documents.
5. Performance bond.
174
6. Contractor's insurance.
7. Owner's insurance.
8. Laws, regulations and permits.
9. Payments.
10. Extensions of time.
11. Changes in the work.
12. Owner's right to terminate the work.
13. Contractor's right to terminate the work.
14. Confirmation and signatures.
8.5.2 Conditions of contract
The conditions of a contract are rules by which the execution of the contract is
to be governed. They set-out the responsibilities, rights, and liabilities of the two
parties. They also set-out the actions to be taken by the parties if and when certain
eventualities should arise. No two civil engineering contracts are similar.
Probably, no two construction contracts are truly the same. Therefore identical
conditions of contracts are not likely to be required. However, for work of a
similar type, certain conditions will apply for the vast majority of cases. It follows
that a standard form of conditions for a given type of work will remove the
necessity of thinking out and drafting new sets of conditions for every new
contract. By taking the standard form and modifying it to suit the requirements of a
particular contract, time and effort will be saved. The terms of a contract legally
fall into two categories:
Conditions: They are terms expressing matters basic to the contract. A failure to
perform the requirements of a condition is a fundamental breach of an essential
obligation giving the aggrieved party the right to:
1. End the contract and claim damages, or
2. Continue the contract and claim damages.
Warranties: They deal with matters not of the essence of the contract, being
subsidiary to the main purposes for which the parties contracted. An example of
a warranty is where a nominated sub-contractor warrants that the work will
be carried-out to specific standards. The conditions of a contract usually
comprise the following:
1. A standard form of general conditions of contract appropriate to the natures
175
of the work involved.
2. A series of amendments to the forging in order to adjust them to
the circumstances of the actual contract concerned.
3. A number of special conditions, which deal with matters peculiar to the
contract and not dealt with by the standard.
8.5.3 The standard (general) forms of conditions of contract
Standard forms are prepared jointly by professional bodies and organizations

representing contractors or by large organizations and public bodies to suit their
own circumstances. The intention is that a common approach by the parties to all
contracts will be achieved and standard interpretations of risks and responsibilities
involved. There are a number of standard forms of conditions of contract used in
civil engineering. The most commonly used are:
 Institute of Civil Engineering (ICE) Conditions of Contract: This document
includes the forms of Tender, Agreement and Bond. It is applicable to all civil
engineering construction works. It is particularly suitable for general civil
engineering work which is predominantly either in the ground or in, or
adjacent to, water, and carets for the attendant risks and claims situations. It
is also used, sometimes, for building works and for mechanical and electrical
works where such works are included in a civil engineering or building contract.
 Federation Internationale Des Ingenieure-Conseils (FIDIC): These

conditions are, in effect, international versions of the ICE conditions to which
they are closely related. The fourth edition (1987) of the conditions for works
of civil engineering construction comprises:
Part I: General conditions with forms of tender and agreement.

PartII: Conditions of particular application with guidelines for preparation of Part
II clauses.
It is intended for general use for works where tenderers are invited on an
international basis, but it also suitable to domestic contracts. The objective is to
provide a standardized document which is well-known, internationally recognized
and accepted, an adequately reflects the interests of the parties concerned. The
standard (general) forms of conditions of contract usually cover the general aspects
in arranged clauses. For example, FIDIC general conditions of contract comprise
clauses that cover the following items:
176
 Definitions and interpretations.
 Engineer and Engineer's representative.
 Assignment and sub-contracting.
 Contract documents.
 General obligations.
 Labor, Materials, plant, and workmanship.
 Suspension.
 Commencement and delays.
 Defects liability.
 Alternations, Additions and Omissions.
 Procedure of claims.
 Contractors' equipment, temporary works and materials.
 Provisional sums.
 Certificates and payments.
 Remedies.
 Special risks.
 Release for performance.
 Settlement of disputes.
 Notices.
 Default of Employer.
 Changes in cost and legislation.
 Currency and rates of exchange.
Most of the standard forms of conditions of contract contain one or more clauses,
which require completion by the Client/Engineer before the conditions are issued.
8.5.4 Special conditions of contract
Special conditions are new clauses to augment the general conditions of a standard
form. Usually they deal with subjects not touched on by the standard form. It is often
simpler to introduce a special condition than to amend a standard form condition.
After a new clause is written, it must be ensure that no conflict or ambiguity is being
introduced. The range of possible subjects for special conditions is large. They
normally deal with the peculiarities of one contract and one site. There are a variety
of choices in which a new subject may be written:
• In the specification (if it is of technical matter).As special condition of
contract.
• In the site regulations (if it deals with site administration or discipline).
• In separate correspondence (if it is not essential to incorporate it into the
177
formal contract).
The decision to consider a special condition does not depend on importance.
The following are typical examples of subjects for special conditions:
• Special terms of payments.
• Patents and licenses.
• Applicable law.
• Official Language.
• Obligatory use of local labor, plant and material.
• Co-operation with contractor on site.
• Fair wages to be paid.
• Union membership of work force.
• Protection and disposal of historic, valuable, archaeological, etc. finds on
site.
• Prohibition of access to named places.
• Restrictions on noise levels, dust, fire hazards, etc.
• Control of demolition work, explosives, etc.
• Responsibility for damage to public services.
• Responsibility for payment of local taxes.
8.5.5 Construction claims
A construction claim is a request for payment or time extension to which the

contractor considers him/herself entitled. There are three types under which claims
are required:
- Extension of time only.
- Additional cost.
- Both extensions of time and additional cost.
The main reasons for construction claims may include:
• Late possession of site or late provision of working drawings.

• Change of contract start or activities schedule.
• Design change and variation.
• Delays in approval and examining work.
• Work acceleration by the client.
• Late delivery of materials supplied by the client.
• Different ground and/or site conditions.
• Unforeseen events and disasters.
178
8.6 Selecting the Contractor
Selecting key personnel and organizations that will participate in a project is a major
step for the owner and can mean the success or failure of a project. By large, the
competitive bidding process has been the main vehicle for contractors to obtain
jobs. The process is required by law for public projects, which has been the largest
percentage of all projects, except in emergencies such as war or natural disasters.
Under this process, a simple quantitative criterion is used to award the bid to the
“lowest responsible bidder”, thus potentially obtaining the lowest construction cost.
The process, however, has its drawbacks, including: (1) overlooking important
criteria such as contractor’s experience and strength; (2) potentially causing
construction delays and problems if the contractor bids below cost to win the job;
and (3) contributing to adverse relationships between the owner and the contractor.
The competitive bidding process encompasses three main steps: announcement,
bid preparation and bid evaluation.
To announce for a project, the owner should have the design completed and
a bid package prepared with all design information. The owner then announces a
general call for bidders or sends a limited invitation to a list of pre-qualified
contractors. Through the limited invitation, the owner organization can reduce
potential construction problems by avoiding unknown contractors who
intentionally reduce their bids to win jobs, particularly if the project requires
a certain experience. Owners, therefore, need to maintain a list of qualified
contractors with whom they had successful experience or by advertising a call for
pre-qualification.
8.7 Sub-Contracting
On almost all construction projects, some of the work is sub-contracted to

specialty contractors, known as sub-contractors. The greatest part of the work is sub-
contracted on building projects, with a lesser amount usually sub-contracted on
heavy construction projects. Construction contracts generally have clauses
pertaining to sub-contracting. Such clauses often limit the amount of work to be
sub-contracted and generally provide that the client retains the right to approve
sub-contractors. The contractor who employs sub-contractors to carryout part of
the works must be totally responsible for their workmanship, performance, and
general behavior on the contract. Any communication on these aspects should be
made between the main contractor and the client. It is the former's responsibility.
179
Any restrictions on sub-contracting should be made in the tender documents. If the
client wishes a particular sub-contractor to carryout part of the work, he may then
make such a nomination. Nominating sub-contractors in such way is useful when
work of a specialized nature dictates such action. It is common for clients to place
other restrictions on sub-contracting, through confirming the main contractor to a
list of approved contractor. This occurs at the tender stage.
8.8. END OF CHAP VII REVIEW QUESTIONS
1. State if True (T) or False (F):
a. Contract changes are more likely to occur on a single fixed price contract than
on a cost plus a fee contract.
b. The delivery method that an owner chooses should be in response to the
amount and type of risk that an owner sees in a project.
c. In lump sum contracts, it is allowed to change in the quantity of work
performed within a limit of 25%.
d. In the admeasurement contracts, the item description, quantity, unit of measure,
unit cost and the total cost in the B.O.Q should be cleared.
e. The owner has the ability to know the contractor profit in the unit price
contracts.
f. The direct costs are the summation of the cost of the labor, equipment,
materials, and subcontractors.
g. Overheads include the cost of items which cannot be directly charged to a
specific work element.
h. Loading of rates may be risky to both the contractor and the owner. i.
Contract type has not effect on the project deadline.
I. The advantage(s) of a traditional delivery method is (are):
a. Reduced project time b. Known project cost before construction
c. Non-adversarial relationships between participants d. All of the above
II. The developer of a 40 story high-rise office building desires the shortest
180
possible construction time. What delivery method would be the best?
a. Traditional b. Design-build
c. B and C only d. Construction project management d.

All of the above
III. Which type of contracted arrangement would be best used when the quantities
of work are difficult to determine in advance?
a. Single fixed price b. Unit price
c. Cost plus a fee d. None of the above
IV. If the contractor considers that the quantity of an item in the BOQ has been
underestimated:
a. He should phone the Client to declare this item
b. He has to use this quantity. c. He can raise the rate of this item.
IV. The contractor may decide to subcontract an item of work in order to:
a. give a chance to another contractor
b. cover lack of specialized resources. c. reduce project cost.

3. Briefly differentiate among the various project delivery approaches (various
organizational structures).
4. Explain what is meant by loading of rates in B.O.Q.
5. What are the main types of construction contracts?
6. Specify the suitable contract type for each of the following construction project:
- A pumping station of standard design.
- Sewer and water lines projects.
- Highways
- Hospitals
- Construction of irrigation canals.
- Bridges.
- Repetitive and similar units.
- Military projects.
7. What are the construction contract documents?

8. Explain what is meant by the two terms: “Price-based Contracts” and “Cost-
based Contracts”.
181
9. Compare the following types of contracts from the point of view of flexibility
for design changes and variations:
- Lump Sum.
- Admeasurement.
- Target cost.
10. Compare the lump sum, admeasurements, and cost plus contracts from
the following point of view:
- Early start to construction.
- Risk sharing.
11. Give three examples of secondary objectives which could affect the selection
of the contract strategy decision.
12. Give two examples of project organizational structure which can be used
to achieve fast-track construction.
182
CHAPTER 9: SAFETY & HEALTH MANAGEMENT AND QUALITY
CONTROL
At the end of this course students will be able to:

 Explain requirements for health and safety in construction industry
 Explain quality assurance and control principles in construction projects
9.1 Safety & health management
 What is health and safety management system?
 Management commitment for workplace health and safety
183
 Establishing a company health and safety policy
 Health and safety policy
184
 Hazard assessment and control
 Employer responsibilities
185
 When to repeat hazard assessment?
Step 1: Identify and assessing hazards
What is a hazard?
Hazard may be grouped into four categories. They may include but are not limited
to:
186
Step 2: Eliminating and controlling hazards
They are many different ways to control workers’ exposures’ to hazards:
187
 Work site inspections
188
During inspection
After the inspection
Incident management and investigation
Employer responsibilities
189
Goals of an incident investigation
Conducting an incident investigation
190
 Worker competency and training
191
Competent worker
192
 Emergency response plan
 First aid
What is first aid?
Who is a first aider?
Training
193
First aids records
First aid keeping
194
Workplace violence
Violence in workplace
Types of workplace violence
Prevention of workplace violence
195
 Working alone
196
9.2 QUALITY MANAGEMENT
 Definitions
 Quality: Conformance to requirements and fitness of use.
 Quality Management: The process required to ensure that the project will
satisfy the needs for which it was undertaken.
 Quality management concepts
 Total Quality Management (TQM): A philosophy that encourages companies
and their employees to focus on finding ways to continuously improve the quality
of their business practices and products
 Continuous Improvement: Small improvements in products or processes to
reduce costs and ensure consistency of performance of products and services.
 Prevention over Inspection: Many years ago, the main focus of quality was on
inspection. The cost of doing so is so high that it is better to spend money on
preventing problems. “Quality must be planned in not inspected in.”
Measurements and Quantitative Tools
 Quantitative quality management tools
• 3 or 6 Sigma: Sigma is another name for standard deviation. 3 or 6 sigma

represents the level of quality that a company has decided to try to achieve.
– At 6 sigma, only 1 out of 10,000 doors produced have a problem.

– At 3 sigma, 27 out of 10,000 will have a problem.
– Therefore 6 sigma represents a higher quality standard than 3 sigma.
 Benefit / Cost Analysis: involves estimating tangible and intangible costs and
benefits of various projects and product alternatives, and then using financial
measures to assess the relative desirability of the identified alternatives.
 Flowcharting: A flow chart is any diagram that shows how various elements of a
system relate. (Cause and effect diagrams, system or process flow charts
 Inspection: includes activities such as measuring, examining, and testing
undertaken to determine whether results conform to requirements.
 Statistical Sampling: involves choosing part of a population of interest for
inspection.
 Trend Analysis: involves using mathematical techniques to forecast future
outcomes based on results. It is often used to monitor technical and cost/schedule
performance.
197
 Quality assurance /quality control (QA/QC)
 Quality Assurance: Planned and systematic actions to help assure that project
components are being designed and constructed in accordance with applicable
standards and contract documents.
 Quality Control: The review of project services, construction work,
management, and documentation for compliance with contractual and regulatory
obligations and accepted industry practices.
 QA/QC process
• The owner is primarily responsible for specifying and funding QA/QC activities.
The owner works closely with the designer to develop a QA/QC process that focuses
on project objectives.
• The designer is responsible for formulating, implementing and administering the

design QA/QC plan.
• The contractor develops and implements the construction QA/QC plan for owner’s
review and approval.
• QA/QC processes involve mutual understanding among participants of their

respective concerns and accomplishments, as well as a commitment to resolve
problems equitably and quickly.
 Typical contractor QA/QC program items

 Recruiting and assigning a skilled work force.
 Quality control organization
 Project progress schedule
 Submittal schedule
 Inspections
 Quality control testing plan
 Documentation of quality control activities
 Procedures for corrective action when quality control and/or acceptance are
not met.
 Computers and project quality
• Computer technology offers a wide range of benefits to the project team.
• Computers can improve staff productivity by automating individual tasks, as well

as improving integration and coordination for the entire team.
198
• Computers can help the team improve the speed and accuracy of communication,
especially when members are spread over several offices or large geographic areas.
• Types of software packages used by project team members:
 Word Processors
 Spreadsheets
 E-mail
 Databases
 Project Management and Collaboration
 Computer-Aided Drafting (CAD)
 Accounting – Presentation
 Desktop Publishing
 Computer tools for the owner
 Facility operation (planning, scheduling, and administering maintenance and

repair operations, managing inventories)
 Financial management (tracking and managing project assets)
 Facility space management
 Communications management
 Human resources
 Computer tools for the designer
 CAD software
 Specifications-writing software
 Design software
 Electronic information exchange
 Coordination and communication
 Computer tools for the contractor
 Quantity calculations
 Project management
 Document control
 Submittal tracking
 Information management
199
REFERENCES
 Barrie, D.S. and Paulson, B.C. (1994). Professional construction management, 3rd
edition, McGraw-Hill, Inc: N.Y
 Clough, R.H. and Sears, G.A. (1991). Construction project management 3rd
edition. John Wiley & Sons, Inc: N.Y.
 Smith, Currie & Hancock. (2005). Common sense construction law 3rd edition.
John Wiley and Sons, Hoboken: New Jersey.
 Fisher, R. and Ury, W. (1991). Getting to yes 2nd edition. Penguin books: New
York
 Callahan, M.T., Quackenbush D.G. and Rowings, J.E. (1992). Construction project
scheduling. Irwin McGraw-Hill, Inc: N.Y.
 Ahuja D. and AbouRizk. (1994). Project management techniques in planning and
controlling construction projects. John Wiley.
 Harris R.B. (1978). Precedence and arrow networking techniques for construction.
John Wiley & Sons, Inc: N.Y.
 Clifford F. G. and Erick W. (2000). Project management the managerial process.
McGraw-Hill.
 Oberlender, G. D. (2000). Project management for engineering and construction
second edition. McGraw-Hill.
200

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INTEGRATED POLYTECHNIC REGIONAL COLLEGE GISHARI

ADVANCED DIPLOMA PROGRAM

CIVIL ENGINEERING DEPARTMENT

OPTION: CONSTRUCTION TECHNOLOGY

YEAR OF STUDY: YEAR II

HANDOUT OF THE MODULE:

CSTCM701: CONSTRUCTION PROJECT

Academic Year: 2022-2023

CONSTRUCTION PROJECT MANAGEMENT CED 206, Compiled By Chief instructor,

1.1 TheNeedforProjectManagement .......................................................................................... 6

CONSTRUCTION PROJECT MANAGEMENT CED 206, Compiled By Chief instructor,

CONSTRUCTION PROJECT MANAGEMENT CED 206, Compiled By Chief instructor,

CONSTRUCTION PROJECT MANAGEMENT CED 206, Compiled By Chief instructor,

CONSTRUCTION PROJECT MANAGEMENT CED 206, Compiled By Chief instructor,

1.0. LEARNING OBJECTIVES

 Differentiate clearly the characteristics of construction industry from

1.1 The Need for Project Management

Figure 1.1: Example of a complicated project

1.2 The Construction Project

Getting your goal straight

Writing a scope statement

Breaking Your Project into Phases

1.4 The Project Life-Cycle

The project life cycle may be viewed as a process through which a

There is no single best approach in organizing project management throughout a

Figure 1.4: Sequence of operations in design and construction phases and

1.4.2 Procurement phase (Bidding and award phase)

1.4.4 Closeout phase.

1.5 Major Types of Construction Projects

In planning for various types of construction, the methods of procuring

Residential housing construction includes houses and high-rise apartments.

Figure 1.5: Level of influence vs. project duration

The residential housing market is heavily affected by general economic

Institutional and commercial building encompasses a great variety of project

Specialized industrial construction usually involves very large scale projects

Infrastructure and heavy construction includes projects such as highways,

 Architect: An architect is an individual who plans and design buildings

In traditional management where the owner, design professional, and

1.6.4. Working together

1.6.5 Construction Project Manager

Construction project managers oversee all aspects of the building process,

 Clear definitions of the goals of the project.

1. State if True (T) or False (F):

a. The amount of information that a project manager must consider increases as

2. Select the right answer:

I. Site selection and financing would be the responsibility of which

c. Construction project manager d. Subcontractor

a. Having a specific goal b. Having a defined beginning and end c.

VI. As project moves on in time, the ability to change the

3. What are the main types of construction?

At the end of this chapter students will be able to:

 Prepare projects plans in terms of defining work breakdown structure,

Detailed planning for tendering purposes and the preparation of construction

Available resources Responsibility

Figure 2.1: Planning inputs and outputs

2.2 Project Planning Steps

The following steps may be used as a guideline, or checklist to develop a

1. Define the scope of work, method statement, and sequence of

The WBS is described as a hierarchical structure which is designed to

Figure 2.2: WBS and their description

Figure 2.3: Five levels WBS

Accordingly, a complete WBS for the warehouse project can be shown