Lecture - Chapters 12 and 13 - Student

Chapter 12
MANAGING THE FINANCIAL FUNCTION
Introduction
Financial Management is one of the most important aspects for individuals and organizations
in this rapidly growing world. It is no longer about saving money; it is about managing and
growing money. To run a business efficiently and effectively and achieve business goals, one
needs to have a good knowledge and understanding of financial accounting and management.
What is Financial Management?
According to the Financial Experts Guthman and Dougal,

“Financial management is the activity concerned with planning, raising, controlling and
administering of funds used in the business.”
It manages the finances in a way where the business/organization is profitable and scalable in
the near future.
Financial Management is a vital activity in any organization. It is the process of planning,

organizing, controlling and monitoring financial resources with a view to achieve organizational
goals and objectives. It is an ideal practice for controlling the financial activities of an
organization such as procurement of funds, utilization of funds, accounting, payments, risk
assessment and every other thing related to money.
In other terms, Financial Management is the application of general principles of management to

the financial possessions of an enterprise. Proper management of an organization’s finance
provides quality fuel and regular service to ensure efficient functioning. If finances are not
properly dealt with an organization will face barriers that may have severe repercussions on its
growth and development.
Importance of Financial Management
Financial Management is vital for businesses and organisations as it lays the right pathway to
achieve business goals and objectives. Here are some of the reasons why financial
management is essential in a business:
ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

2nd Semester, AY 2022-2023 INSTRUCTOR Page 1 of 26
• Helps in Financial Planning
• Assists in acquiring and managing funds
• Helps in funds allocation
• Provides insights to make critical financial decisions
• Cuts down financial costs
• Improves profitability and value of the organization
• Makes employees aware of financial savings and investments
• Helps in planning the future growth of the organization
• Helps in achieving economic stability
Objectives of Financial Management
1. Profit Maximisation
One of the most critical objectives is to ensure maximum profits in both the short and long run. A
finance manager should consider this on top of his priority list and ensure that outcomes related
to business performance are profitable.
2. Proper Mobilization
Just like you do not waste your savings all in one go to buy something and have nothing in
hand, managing funds is crucial for any business. Financial managers need to evaluate and
make vital decisions on the allocation and utilization of various funds. Whether it is shares,
products, or investing in small companies, all the critical factors must be considered before
investing.
3. High Efficiency
Financial Management tries to increase the efficiency of all the departments of the company.
Proper distribution of finances or funds to all the departments considering the resources and
work involved increases the organization’s efficiency as a whole.
4. Reduce Risks
There are always risks involved in running a business, especially with the uncertainties that
come along. Financial managers need to avoid high-risk situations/opportunities and take
calculated risks under the consultation of experienced leaders and subject matter experts.
5. Business Survival
Amidst the competitive world, the survival of the business is a primary goal. Darwin said,
“Survival of the fittest” in Biology, which is applicable for companies. Companies need to make
decisions intuitively. They can always take the help of expert consultants if needed.

6. Balanced Structure
Like they say – Balance is key to everything. This applies not just in life but to businesses too.
Financial managers need to prepare a robust capital structure considering all capital sources.
This balance is vital for liquidity, flexibility, economy, and stability.
Elements of Financial Management

Financial Management is made of the following key elements. These are:
1. Planning
Financial Planning is a way of calculating the capital required by an organization and adequately
allocating resources accordingly. To do this effectively, one needs to have answers to the
following questions:
• Do you have well-established business goals and objectives?
• What is your long-term plan as a brand?
• What is the capital required for the organization to sustain itself?
• What are the different policies and regulations involved in your business?
Answers to each of these questions and many more are all related to Financial Management.
So, it is crucial to plan things properly that help you achieve your business goals.
Identify the steps that align with the business or individual objectives.
Have you taken the time to properly establish your business goals and objectives? Do you know
what your long-term plans are for yourself, your brand and your staff? Each business goal,
whether that’s profit maximation, business growth or expansion of services will require financial
management and with each goal, there will be steps to get there. This includes financing,
budgeting, allocating roles, customer research, and much more. Take some time to agree upon
some measurable steps that get you towards your goal.
2. Organizing and directing
Decide on what resources are necessary to effectively carry out the plan
Resources don’t just refer to material assets and tools. It expands over to staff, roles, budget,
funding, technology & software, outsourcing services, and more. You do not want to start
implanting a strategy if you don’t even have all the resources at the ready to get the ball rolling.

3. Controlling
Ensure each aspect of the organisation is following the established plan
Now you know your steps, do you know that each part of the business is working to achieve the
objectives? This isn’t necessarily about cutting costs or determining redundancies, rather it is
more about setting appropriate KPIs that can quantifiably lead to the organisational goal. It’s
important to make sure any and all staff are aware of the goals and their role in achieving that
goal.
4. Decision making
Make choices after investigating all possibilities and options
Once you have established all alternatives and potential plans decision-makers must choose
which alternative is feasible and matches with goals and objectives. Decision making will, in
fact, coincide with the rest of planning, controlling and organising, as each element will need to
be confirmed before moving forward with the plan.
Functions of Financial Management

The financial management team in any organization is led mainly by the Finance Manager or
someone from the Core Leadership team. Here are a few functions which the team generally is
responsible for:
1. Capital Estimation
A finance manager has to estimate the capital required for the company. This will include
expected costs, profits, future programs, and expected losses, if any. The estimate had to be
made in such a way that the earning capability of the company increases steadily.
2. Deciding Capital Structure

Once the estimate has been made, it is now time to form the capital structure. This includes
debt analysis in both the short and long term and is dependent on the capital the firm owns and
raised external fundings(if any).
3. Choice of Funds
When significant funds are required, the capital structure needs to be expanded. The
organization can take options like Bank Loans and Issues of Share and Debentures. It is
essential to evaluate these options considering the interest rates, returns and risk involved. A
pro and con list of each of these options will be helpful.
4. Investments
The organization cannot just sit on funds or profits. Growing money is more important than
saving money for sustainable growth. The finance Manager needs to allocate funds into

profitable ventures or make investments that give reasonable returns with safety on the
investment made.
5. Profit Allocation
Profit allocation plays an important role. Once the business makes profits, it is essential to allot
them properly. Various factors to be considered here are – employee bonuses, dividends,
returns to investors, funds for future growth, and other basic cashflows. It is essential to plan
and allocate profits to achieve business objectives.
6. Money Management
The team is also responsible for money or cash management. Cash is required for various
purposes such as salaries, electricity and water bills, real estate bills, buying raw materials,
storage costs, etc.
7. Financial controls
The finance manager has to plan and utilize the funds and needs to have complete control over
the finances considering both short term and long term. This can be achieved using risk
analysis and mitigation tools, financial forecasting, ratio analysis, cost reduction, and profit
control.
An Example of Financial Management

Suppose you decide to start your own business along with 4-5 partners. You choose to rent a
small office in Urdaneta City, Pangasinan. You will need to consider the following:
• Which area is best suited for office locations?

• Should I go for a small independent office or go for a co-working space?
• What will be the rent cost per annum?
• What if I buy the property? What will be the evaluation 15 years from now? Will it be
lesser than the rental cost for the next 15 years?
CONSTRUCTION FINANCIAL MANAGEMENT
WHAT IS FINANCIAL MANAGEMENT?

Financial management is the use of a company’s financial resources. This includes the use of
cash and other assets— such as equipment. Many everyday decisions affect a company’s
financial future. For example, the decision to bid on a large project can have a great impact on
the finances of a company. When deciding whether to bid on a project, a manager may need to
address the following questions: Does the company have enough cash resources to perform
this work or will the company need outside financing? Can the company get bonded for this

work? If not, what changes need to be made in the company’s financial structure so that the
company can get a bond for the project? Should the company hire employees to perform the
work or should the company subcontract out this labor? Should the company lease or
purchase the additional equipment needed for this project? If the company purchases the
equipment, how should it be financed? Will this project require the company to increase its main
office overhead? And, finally, what profit and overhead markup should be added to the bid? The
answers to all of these questions will affect the company’s finances. The answer to one of the
questions may change the available options to other questions. For example, if the manager
decides to hire employees to perform the work on the project, the project will require more
financial resources than if the company had hired subcontractors to perform the labor and may
leave the company with insufficient resources to purchase the additional equipment, and leave
leasing the equipment as the only option.
WHAT DOES A FINANCIAL MANAGER DO?

The financial manager is responsible for seeing that the company uses its financial resources
wisely. A financial manager’s responsibilities may be broken down into four broad areas that
include accounting for financial resources, managing costs and profits, managing cash flows,
and making financial decisions.
Accounting for Financial Resources

Financial managers are responsible for accounting or tracking how the company’s financial
resources are used, including the following:
●● Making sure that project and general overhead costs are accurately tracked through the
accounting system.
●● Ensuring that a proper construction accounting system has been set up and is functioning
properly.
●● Projecting the costs at completion for the individual projects and ensuring that unbilled
committed costs— costs that the company has committed to pay but has not received a bill for
—are included in these projections.
●● Determining whether the individual projects are over or underbilled.
●● Making sure that the needed financial statements have been prepared.
●● Reviewing the financial statements to ensure that the company’s financial structure is in line
with the rest of the industry and trying to identify potential financial problems before they
become a crisis.
Managing Costs and Profits

Financial managers are responsible for managing the company’s costs and earning a profit for
the company’s owners. Financial managers rely heavily on the reports from the accounting
system in their management of costs. Managing the company’s costs and profits includes the
following duties:

●● Monitoring and controlling project costs
●● Monitoring project and company profitability
●● Setting labor burden markups
●● Developing and tracking general overhead budgets
●● Setting the minimum profit margin for use in bidding
●● Analyzing the profitability of different parts of the company and making the necessary
changes to improve profitability
●● Monitoring the profitability of different customers and making the necessary marketing
changes to improve profitability
Managing Cash Flows

Financial managers are responsible for managing the cash flows for the company. Many
profitable companies fail because they simply run out of cash and are unable to pay their bills.
The duties of a financial manager include the following:
●● Matching the use of in-house labor and subcontractors to the cash available for use on a
project
●● Ensuring that the company has sufficient cash to take on an additional project
●● Preparing an income tax projection for the company
●● Preparing and updating annual cash flow projections for
the company
●● Arranging for financing to cover the needs of the construction company
Conclusion
A construction company is a risky venture. Each year, many construction companies go out of
business. Operating a successful construction company requires a specialized set of financial
management skills, because of the unique nature of the construction industry. Unlike other
industries, the construction industry faces a number of challenges including: (1) constantly
building unique, one-of-a-kind projects, (2) building a project at a different location each time,
(3) dealing with retention and progress payments, and (4) relying heavily on the use of
subcontractors to complete the projects.
References:
Retrieved from https://www.mygreatlearning.com/blog/financial-management-introduction-guide/
Retrieved from https://talentedge.com/articles/what-are-the-important-elements-of-financial-
management/
Retrieved from https://www3.fundsforngos.org/financial-management/2-what-is-financial-
management/
Retrieved fromhttps://www.arrow.net.au/what-are-the-four-elements-of-financial-management/
Retrieved from https://www.pearsonhighered.com/assets/samplechapter/
0/1/3/5/0135232872.pdf

Chapter 13
QUALITY MANAGEMENT
Learning Objectives:
1. Describe the management process and explain the different functions of management;
2. Identify management practices applied in civil engineering
INTRODUCTION
What Is Quality Management?

Quality management is the act of overseeing all activities and tasks that must be accomplished
to maintain a desired level of excellence. This includes the determination of a quality policy,
creating and implementing quality planning and assurance, and quality control and quality
improvement. It is also referred to as total quality management (TQM).
In general, quality management focuses on long-term goals through the implementation of

short-term initiatives.
KEY TAKEAWAYS
• Quality management is the act of overseeing all activities and tasks needed to maintain
a desired level of excellence.
• Quality management includes the determination of a quality policy, creating and
implementing quality planning and assurance, and quality control and quality
improvement.
• TQM requires that all stakeholders in a business work together to improve processes,
products, services and the culture of the company itself.
Understanding Quality Management

At its core, TQM is a business philosophy that champions the idea that the long-term success of
a company comes from customer satisfaction and loyalty. TQM requires that all stakeholders in
a business work together to improve processes, products, services and the culture of the
company itself.
A successful construction project delivery requires proper quality management controls in place.
It ensures fewer mistakes and project rework, timely delivery, reduced costs, and improved
business relationships.

What is Construction Quality Management?
Construction quality management is the process of controlling quality on a construction site. It
basically ensures that all parts of the project are compliant and safe to use. Inspections are
performed both internally and externally. They’ll be testing for things like soil compactibility,
concrete stiffness, weld quality, and much more. It is usually performed both during and after
work unless it is for a specific material. Before construction begins, it is crucial to check building
materials to avoid any incidents. At the same time, final project inspections determine whether
or not it meets compliance and its cost-effectiveness.
What are the Key Challenges in Construction Quality Management?
Despite all these contractors and teams, however, not every project meets compliance. It is
almost impossible to accomplish quality assurance and quality control without quality
management systems or policies. It is common for superintendents to overwork themselves
since they are responsible for the quality of work. Quality and standards may also differ from job
to job due to a change of crew and suppliers. There are no standardized systems & processes
for conducting quality control, so quality assurance becomes difficult. An integrated construction
management approach improves quality on sites and reduces rework.
Quality management in construction begins with an understanding of the factors that can
influence safety and quality. Those factors include:
1. Defective and low-standard materials
Construction quality issues can arise from excess water or sand in concrete mixes, lumber cut
from stunted trees, and improperly graded steel. Not only are these materials prone to failure
early, but they pose a safety hazard during the construction process as well. For example,
worker injuries are common when sparks are generated during cutting or when a structure
collapses due to poor support. The only way to guarantee a project is supplied correctly is to
buy only from reputable suppliers and have a quality control officer oversee all materials
shipments.
2. Supplier Quality Issues
Problems with suppliers and vendors can increase costs and lower quality levels even if the
materials themselves are not to blame. For example, building supplies that are changed for
another brand or material that does not meet the same standards may lead to unhappy
customers and time-consuming rework requests. Make sure all suppliers understand the
requirements and conduct regular audits to ensure they are staying within them. When a
construction project is in the middle of the process, finding new suppliers might seem like a
distraction, but it can enhance construction quality.

3. Poor Subcontractor Management
A study found that human error accounts for over half of all construction defects. When
subcontractors hire employees without the proper skills and cannot train them, they can make
mistakes that go unnoticed for years. It would be best to screen subcontractors and other labor
providers to ensure they are skilled and capable of catching their own mistakes. Audits of
subcontractors are still necessary for contractors and project managers to detect and resolve
any problems early.
4. Lack of documentation of Changes and Practices
There are times when quality problems are not caused by errors or design changes but rather
by the lack of documentation. For example, changing material with different maintenance and
replacement periods can lead to improper handling by the maintenance team if all final
documents are not updated. You should be able to easily update project documents using a
Document Change & Control Management System. There is no reason to delay updating
drawings and other related files.
5. Managing Unexpected Changes

In the construction process, last-minute changes often cause serious quality issues. For
example, at the Kansas City Hyatt Regency in July 1981, a change in the design of the tie rod
supports led to a fatal collapse. Make sure you set deadlines by which designs cannot be
changed anymore or arrange for extensions. Give yourself enough time to verify any changes to
the existing design and test them.
6. Increased scope
Most construction projects begin much smaller and simpler than they end up. What makes a
primary bridge transform into a multilane highway? Such unplanned growth is known as scope
creep. The scope of every project changes over time as new costs, time constraints, and
constraints on a particular site are discovered. However, when these changes result in cutting
corners to stretch a limited budget and time frame, this is where the problem lies. A well-defined
scope of the project ensures that the contractors maintain the same quality throughout the
whole project.
7. Lack of communication between teams

According to a study, communication problems lead to the most quality issues. A lack of
communication leads to the inefficient use of new techniques, faulty materials, and a lack of
secondary and tertiary testing to identify current problems. You can significantly improve
communication between team members working on a single construction project with an
integrated eQMS solution like Qualityze with chatter functionality for enhanced communication.

8. Intricacy of designs
A work of high quality is unaffordable if it is too complex. Therefore, complex techniques and
unusual features must be minimized whenever possible in projects involving cutting-edge
infrastructure and commercial construction. Furthermore, simplified designs offer a better profit
margin to the construction company while maintaining the highest quality.
9. Lack of Proper Process Management

Using the right construction process management system, you can determine the best intervals
for checking the work for errors and omissions. Unfortunately, most construction firms fail to
carry out essential checks on their work on time without quality control and assurance
management system. If you utilize the right construction quality management system, you can
easily and quickly keep track of current projects.
10. Failure to Perform Regular Audits

Some contractors continue to use flawed designs or ignore quality problems regardless of the
results of their third-party testing and auditing plans. Reports bounce back and forth from the
project manager to the lead engineer without a clear workflow for managing the process.
Identify the right person who can manage audits, respective follow-ups, and share
recommendations for improvements within time to avoid any catastrophic events.
How to Improve Construction Quality Management?
It is best to implement an organized process for improving construction quality management.

The first step to establishing any process is defining objectives and defining accountability in a
formalized structure. However, that is just the beginning. Construction Quality Management
System should detect and mitigate potential issues at every stage, verify any outcomes, and
assess the quality objectives’ effectiveness. While creating a process may seem like a lot of
work, it consists of just a few steps.
Quality Requirements
For a construction quality management process to be effective, it is necessary to research the
quality requirements and specifications for each project step. Documentation is needed for
distribution and clarification, so it’s more than just knowing the standards. The process may
involve clarifying specifications through further documentation. Once you’ve established quality
standards and documented them, you can develop your training process.
A quality management plan and a quality assurance process will form the basis of the quality
management process. A quality control plan outlines any unique project requirements,
determines quality standards, and how to achieve them. It also guides through the best
practices for meeting and exceeding quality standards. The quality assurance process will also
identify the inspection requirements, the timing, and the reporting methods, as well as the
person responsible for reporting.

Fulfill Training Requirements
Setting standards is essential, but training is also crucial. To comply with the construction quality
management processes, it is necessary to identify the people responsible for each process and
keep them informed about standards and requirements and the procedures to follow. Since they
will be responsible for the quality of the project, they should inform their subordinates of the
specific standards their team must adhere to.
Managing and Monitoring Construction Quality Processes

After the training is completed and the processes are established, assessing the quality of the
management is the last step. The quality assurance person should review all plans for
compliance with business standards, including work practices, materials, and finished work. It is
their responsibility to fix any faulty materials or labor. Finally, they implement quality control
procedures to ensure the project meets standards or exceeds them.
If you want a comprehensive solution to manage construction quality management and the
respective challenges, you can count on Qualityze Enterprise Quality Management Solution. It
enables your quality teams to align business objectives with industry-proven best practices
while meeting compliance and project requirements.
13.1. Quality Control
Quality control (QC) is a procedure or set of procedures intended to ensure that a manufactured
product or performed service adheres to a defined set of quality criteria or meets the
requirements of the client or customer. QC is similar to, but not identical with, quality assurance
(QA). While QA refers to the confirmation that specified requirements have been met by a
product or service, QC refers to the actual inspection of these elements.
QA is sometimes expressed together with QC as a single expression: quality assurance and

control (QA/QC).

Quality Control In Construction Industry
Quality control in construction typically involves ensuring compliance with minimum standards of
material and workmanship in order to ensure the performance of the facility according to the
design.
Quality Control and Safety During Construction
13.1.1. Quality and Safety Concerns in Construction

Quality control and safety represent increasingly important concerns for project managers.
Defects or failures in constructed facilities can result in very large costs. Even with minor
defects, re-construction may be required and facility operations impaired. Increased costs and
delays are the result. In the worst case, failures may cause personal injuries or fatalities.
Accidents during the construction process can similarly result in personal injuries and large
costs. Indirect costs of insurance, inspection and regulation are increasing rapidly due to these
increased direct costs. Good project managers try to ensure that the job is done right the first
time and that no major accidents occur on the project.
13.1.2. Organizing for Quality and Safety

A variety of different organizations are possible for quality and safety control during construction.
One common model is to have a group responsible for quality assurance and another group
primarily responsible for safety within an organization. In large organizations, departments
dedicated to quality assurance and to safety might assign specific individuals to assume
responsibility for these functions on particular projects. For smaller projects, the project
manager or an assistant might assume these and other responsibilities. In either case, insuring
safe and quality construction is a concern of the project manager in overall charge of the project
in addition to the concerns of personnel, cost, time and other management issues.
13.1.3 Work and Material Specifications
Specifications of work quality are an important feature of facility designs. Specifications of

required quality and components represent part of the necessary documentation to describe a
facility. Typically, this documentation includes any special provisions of the facility design as well
as references to generally accepted specifications to be used during construction.
General specifications of work quality are available in numerous fields and are issued in
publications of organizations such as the American Society for Testing and Materials (ASTM),
the American National Standards Institute (ANSI), or the Construction Specifications Institute
(CSI).

13.4 Total Quality Control
Quality control in construction typically involves ensuring compliance with minimum standards of
material and workmanship in order to ensure the performance of the facility according to the
design. These minimum standards are contained in the specifications described in the previous
section. For the purpose of ensuring compliance, random samples and statistical methods are
commonly used as the basis for accepting or rejecting work completed and batches of
materials. Rejection of a batch is based on non-conformance or violation of the relevant design
specifications. Procedures for this quality control practice are described in the following
sections.
An implicit assumption in these traditional quality control practices is the notion of an acceptable
quality level which is a allowable fraction of defective items. Materials obtained from suppliers or
work performed by an organization is inspected and passed as acceptable if the estimated
defective percentage is within the acceptable quality level. Problems with materials or goods are
corrected after delivery of the product.
13.5 Quality Control by Statistical Methods

An ideal quality control program might test all materials and work on a particular facility. For
example, non-destructive techniques such as x-ray inspection of welds can be used throughout
a facility. An on-site inspector can witness the appropriateness and adequacy of construction
methods at all times. Even better, individual craftsmen can perform continuing inspection of
materials and their own work. Exhaustive or 100% testing of all materials and work by
inspectors can be exceedingly expensive, however. In many instances, testing requires the
destruction of a material sample, so exhaustive testing is not even possible. As a result, small
samples are used to establish the basis of accepting or rejecting a particular work item or
shipment of materials. Statistical methods are used to interpret the results of test on a small
sample to reach a conclusion concerning the acceptability of an entire lot or batch of materials
or work products.
The use of statistics is essential in interpreting the results of testing on a small sample. Without
adequate interpretation, small sample testing results can be quite misleading. As an example,
suppose that there are ten defective pieces of material in a lot of one hundred. In taking a
sample of five pieces, the inspector might not find any defective pieces or might have all sample
pieces defective. Drawing a direct inference that none or all pieces in the population are
defective on the basis of these samples would be incorrect. Due to this random nature of the
sample selection process, testing results can vary substantially. It is only with statistical methods
that issues such as the chance of different levels of defective items in the full lot can be fully
analyzed from a small sample test.

13.6 Statistical Quality Control with Sampling by Attributes
Sampling by attributes is a widely applied quality control method. The procedure is intended to
determine whether or not a particular group of materials or work products is acceptable. In the
literature of statistical quality control, a group of materials or work items to be tested is called a
lot or batch. An assumption in the procedure is that each item in a batch can be tested and
classified as either acceptable or deficient based upon mutually acceptable testing procedures
and acceptance criteria. Each lot is tested to determine if it satisfies a minimum acceptable
quality level (AQL) expressed as the maximum percentage of defective items in a lot or process.
In its basic form, sampling by attributes is applied by testing a pre-defined number of sample
items from a lot. If the number of defective items is greater than a trigger level, then the lot is
rejected as being likely to be of unacceptable quality. Otherwise, the lot is accepted. Developing
this type of sampling plan requires consideration of probability, statistics and acceptable risk
levels on the part of the supplier and consumer of the lot. Refinements to this basic application
procedure are also possible. For example, if the number of defectives is greater than some pre-
defined number, then additional sampling may be started rather than immediate rejection of the
lot. In many cases, the trigger level is a single defective item in the sample. In the remainder of
this section, the mathematical basis for interpreting this type of sampling plan is developed.
13.7 Statistical Quality Control with Sampling by Variables

As described in the previous section, sampling by attributes is based on a classification of items
as good or defective. Many work and material attributes possess continuous properties, such as
strength, density or length. With the sampling by attributes procedure, a particular level of a
variable quantity must be defined as acceptable quality. More generally, two items classified as
good might have quite different strengths or other attributes. Intuitively, it seems reasonable that
some "credit" should be provided for exceptionally good items in a sample. Sampling by
variables was developed for application to continuously measurable quantities of this type. The
procedure uses measured values of an attribute in a sample to determine the overall
acceptability of a batch or lot. Sampling by variables has the advantage of using more
information from tests since it is based on actual measured values rather than a simple
classification. As a result, acceptance sampling by variables can be more efficient than sampling
by attributes in the sense that fewer samples are required to obtain a desired level of quality
control.
13.8 Safety
Construction is a relatively hazardous undertaking. As Table 13-1 illustrates, there are

significantly more injuries and lost workdays due to injuries or illnesses in construction than in
virtually any other industry. These work related injuries and illnesses are exceedingly costly. The
Construction Industry Cost Effectiveness Project estimated that accidents cost $8.9 billion or
nearly seven percent of the $137 billion (in 1979 dollars) spent annually for industrial, utility and

commercial construction in the United States. Included in this total are direct costs (medical
costs, premiums for workers' compensation benefits, liability and property losses) as well as
indirect costs (reduced worker productivity, delays in projects, administrative time, and damage
to equipment and the facility). In contrast to most industrial accidents, innocent bystanders may
also be injuried by construction accidents. Several crane collapses from high rise buildings
under construction have resulted in fatalities to passerbys. Prudent project managers and
owners would like to reduce accidents, injuries and illnesses as much as possible.
TABLE 13-1 Nonfatal Occupational Injury and Illness Incidence Rates
Note: Data represent total number of cases per 100 full-time employees
Source: U.S. Bureau of Labor Statistics, Occupational injuries and Illnesses in the United
States by Industry, annual
Industry 1996 2006

Agriculture, forestry, fishing 8.7 6
Mining 5.4 3.5
Construction 9.9 5.9
Manufacturing 10.6 6
Trade,Transportation and utilities 8.7 5
Financial activities 2.4 1.5
Professional and business services 6.0 1.2
What are the problems with construction industry in the Philippines?
By Cause of Injury
Stepping on, striking against or struck by objects, excluding falling objects appeared to be the
major cause of injury in construction industry with 493 cases. Injuries from being struck by
falling objects totaled 186 cases while exposure to or contact with harmful substances or
radiations reached 132 cases. Injuries due to exposure to or contact with electric current was
the least frequent with only 33 cases.
Source: Philippine Statistics Authority (psa.gov.ph)
13.2 Quality Inspection
An inspection is an activity such as measuring, examining, testing or gauging one or more

characteristics of a product and comparing the results with specified requirements in order to
establish whether conformity is achieved for each characteristic. (This definition comes from the
ISO 2859 standard, which is derived from MIL-STD 105 E.)

The term inspection refers to the activity of checking products, whereas audit applies to
analyzing manufacturing processes and/or systems. The quality inspector usually follows a pre-
established checklist that is based on the product specifications. Inspected products can be the
components used for production, semi-finished goods, or (most often) finished goods before
shipment to a customer.
When you make consumer products to sell in the marketplace, you need to ensure that they are
well-made. If people buy your product and it breaks easily or doesn’t work as expected, they’re
likely to return it and give you a bad review. As such, product quality inspections are an
essential tool.
A product quality inspection is a procedure that involves checking the various attributes of a
product and testing it to ensure that it meets pre-specified standards. The factory’s quality
control team, a buyer, or a third-party inspection company like Insight Quality Services can
conduct this inspection.
Many experienced importers send an inspector to the factory to check their products before they
ship.
The Steps Involved in a Quality Inspection

At Insight Quality Services, we conduct many of these inspections. Here is a brief summary of
our process:
• Travel to the Facility and Pull Random Samples
• We conduct these inspections at the facility that manufactures your goods. Therefore,
your inspector first needs to travel to the factory, and then they pull a random sample of
your products for inspection using a method called AQL sampling, which we explain
below.
• Complete Checks From the Inspection Checklist
• Once they’ve pulled the sample, they run through all the tests and checks on your
inspection checklist. They check packaging and labeling, do a visual inspection, check
physical requirements, and more.
• Complete and Send the Inspection Report
• After going through the entire checklist, they put together an inspection report. You
receive a copy of this report, which tells you whether the goods passed inspection and
includes photos of your products and any relevant notes.
Most commonly, importers conduct these inspections once the factory has finished production
and before the products ship. But you can conduct an inspection before or during production as
well.

What Are the 4 Types of Quality Inspection?
There are, in total, 4 types of inspection in quality control: pre-production inspection, during
production inspection, pre-shipment inspection, and container loading/unloading inspections. As
the name implies, each of the quality control methods is carried out at a different stage – and
each of them has its own purpose in quality control and supply chain management. Depending
on the product, experience with your supplier and other factors, one or all of these steps may
apply to your business needs.
Pre-Production Inspection (PPI)

The Pre-Production Inspection (PPI) is conducted before the production process begins and
helps to assess the quantity and quality of the raw materials and components and whether they
conform to the relevant product specifications.
A PPI is beneficial when you work with a new supplier, especially if your project is a large
contract that has critical delivery dates. This inspection can help to reduce or eliminate
communication between you and your supplier on issues regarding production timelines,
shipping dates, and quality expectations.
During Production Inspection (DPI)

During production inspection (DPI), also known as DUPRO, is a quality control inspection
conducted while production is underway. This step is particularly useful for products that are in
continuous production and have strict requirements and/or when quality issues have been found
prior to manufacturing during an earlier PPI.
DPI inspections take place when only 10-15% of units are completed so that any deviations can
be identified, feedback given, and any defects can be re-checked to confirm they have been
corrected. It enables you to confirm that quality, as well as compliance with specifications, is
being maintained throughout the production process. It also provides early detection of any
issues requiring correction, thereby reducing delays and rework.
Pre-Shipment Inspection (PSI)

Pre-shipment inspections (PSI) are an important step in the quality control process and the
method for checking the quality of goods before they are shipped. PSI ensures that production
complies with the specifications of the buyer. This inspection process is conducted on finished
products when at least 80% of the order has been packed for shipping. Random samples are
selected and inspected for defects against the relevant standards and procedures.
Container Loading/Loading Supervision (LS)

Container loading and unloading inspections ensure your products are loaded and unloaded
correctly. Inspectors will supervise throughout the whole process and ensure your products are
handled professionally to guarantee their safe arrival to their final destination.

This inspection will usually take place at your chosen factory while the cargo is being loaded
into the shipping container and at the destination once the products have arrived and are being
unloaded. This process includes evaluating the condition of the shipping container and verifying
all the product information, quantities, and packaging compliance.
Piece-by-Piece Inspections
In addition to the four types of quality control inspections above, another procedure also exists.
A piece-by-piece inspection involves checking each and every item to evaluate a range of
variables including general appearance, workmanship, function, and safety. This inspection
process can be carried out either before or after the packaging inspection. In the circumstance
where the goods require particular attention to ensure compliance to specification or when the
goods are high-value, a 100% inspection service should be performed.
Once the products have passed the inspection process, they will be sealed and certified with a
sticker to ensure that every piece included in the shipment meets the specified quality
requirements. This inspection is particularly useful for goods that must be fully compliant and
meet strict customer and market quality requirements. It can be carried out at any stage of the
manufacturing process.
13.2. Quality Assurance
Quality assurance can be defined as "part of quality management focused on providing

confidence that quality requirements will be fulfilled." The confidence provided by quality
assurance is twofold—internally to management and externally to customers, government
agencies, regulators, certifiers, and third parties. An alternate definition is "all the planned and
systematic activities implemented within the quality system that can be demonstrated to provide
confidence that a product or service will fulfill requirements for quality."
Quality assurance (QA) is any systematic process of determining whether a product or service
meets specified requirements.
QA establishes and maintains set requirements for developing or manufacturing reliable

products. A quality assurance system is meant to increase customer confidence and a
company's credibility, while also improving work processes and efficiency, and it enables a
company to better compete with others.

The ISO (International Organization for Standardization) is a driving force behind QA practices
and mapping the processes used to implement QA. QA is often paired with the ISO 9000
international standard. Many companies use ISO 9000 to ensure that their quality assurance
system is in place and effective.
The concept of QA as a formalized practice started in the manufacturing industry, and it has
since spread to most industries, including software development.
Importance of quality assurance

Quality assurance helps a company create products and services that meet the needs,
expectations and requirements of customers. It yields high-quality product offerings that build
trust and loyalty with customers. The standards and procedures defined by a quality assurance
program help prevent product defects before they arise.
WHAT IS ISO CERTIFICATION?

ISO certification certifies that a management system, manufacturing process, service, or
documentation procedure has all the requirements for standardization and quality assurance.
ISO (International Organization for Standardization) is an independent, non-governmental,
international organization that develops standards to ensure the quality, safety, and efficiency of
products, services, and systems.
ISO certifications exist in many areas of industry, from energy management and social
responsibility to medical devices and energy management. ISO standards are in place to ensure
consistency. Each certification has separate standards and criteria and is classified numerically.
For instance, the ISO certification we currently hold at Mead Metals is ISO 9001:2015.
Quality assurance methods

Quality assurance utilizes one of three methods:
• Failure testing, which continually tests a product to determine if it breaks or fails. For
physical products that need to withstand stress, this could involve testing the product
under heat, pressure or vibration. For software products, failure testing might involve
placing the software under high usage or load conditions.
• Statistical process control (SPC), a methodology based on objective data and

analysis and developed by Walter Shewhart at Western Electric Company and Bell
Telephone Laboratories in the 1920's and 1930's. This methodology uses statistical
methods to manage and control the production of products.
• Total quality management (TQM), which applies quantitative methods as the basis for
continuous improvement. TQM relies on facts, data and analysis to support product
planning and performance reviews.

How ISO certification can help your construction company?
ISO Standards can provide your construction business with robust management systems
covering a range of processes. Gaining ISO certification in these Standards can help you
complete pre-qualification questionnaires, qualify for government contracts and win tenders.
Importance of Quality Assurance in Construction Project
Quality assurance is not a one-time meeting or scheduled inspection, it is an on-going process

that lasts throughout the design and construction process. Quality assurance should include:
• Pre-construction review of project documents.
• Management of pre-installation meetings to review the scope of work, identify
participants and plan activities to ensure the parameters of quality are being met for
each phase of work.
• Collaboration with manufacturer’s installation instructions and their representatives to
understand and review proper installation procedures.
• Regular quality assurance inspections and documentation through quality observation
reports.
• Continual monitoring of work in progress to ensure that it meets the design intent,
specifications, manufacturer requirements and other established quality requirements of
the project.
13.3. Total Quality Management
Total quality management (TQM) is a management idea aimed at increasing an organization’s

ability to consistently deliver high-quality service to its consumers.
Total Quality Management (TQM) is a concept that strives to continually improve an

organization’s ability to attain quality and deliver the intended output to the client. In the
construction industry, total quality management ensures both quality and productivity. It’s
essentially a way of thinking about the concept of goal-setting, visualization, and achievement.
The well-known saying, “Prevention is better than cure,” is applicable to building project quality
control. Correcting a defect is far more expensive and time-consuming than preventing it.
What is Total Quality Management?

Total Quality Management (TQM) is a management technique based on the idea that all
“employees continuously improve their ability to provide on-demand products and services that
customers will find of particular value,” according to the definitive text, Total Quality: A User’s
Guide for Implementation.

The term “Total Quality Management” encapsulates the concept: of “Total Quality Management.”
The term “total” suggests that all personnel in the business are expected to improve operations,
from development to production to fulfillment.
Furthermore, “management” implies that this process should be a concentrated effort. To

actively manage product and service quality on a continual basis, leadership should offer
financing, training, manpower, and well-defined goals.
Functions and Career Opportunities for QA-QC Civil Engineers
The quality of materials and services used in the construction of civil engineering structures is
the responsibility of the QA/QC Engineer. They supervise product manufacturing and are
involved in every stage of the construction process. The primary responsibility of the QA/QC
Civil Engineer is to supervise functions and ensure that operations for client needs are
satisfactory and meet industry and internal quality standards.
The Function of a QA/QC Civil Engineer
If you want to be a strong player and apply for the QA QC Civil Engineers Job, you must first
understand what job roles you may be assigned. Here are some key ideas that can help you
understand your role as a QA/QC Civil Engineer:
● Monitoring and planning
Quality assurance procedures are planned and monitored, and quality plans are developed for
the company's projects. Maintain and update records for all quality sheets and documentation;
plan to record and register all construction quality elements.
● Contracting and Tenders
Costs for tenders and contractors are prepared, negotiated, and analyzed. Work effort
coordination Permission ensures that all materials to be used and installed are relevant and
approved by the client for the project.
● Checks the quality and storage of the material.
Check the quality of materials like cement, sand, aggregate, and steel. Concrete quality tests
include cube testing, concrete temperature, slum testing, and concrete vibration. Other checking
details are that the material should be stored in a dry place (not more than three months), its
condition should be checked and its connectivity should be close to the construction site.
● Checking site activity and creating a report
On the excel sheet, create a daily progress report and a monthly progress report. Mention all
the RCC work and the remaining days (14 days), as well as plaster, and masonry (10 days for
water curing), and shuttering time. Internal quality audits of the company's quality systems,

methods, and processes are reported regularly. Work Schedule: Time, Gradual Work Speed,
Manpower Daily site inspections should be followed upon.
● Maintains Daily Records
Daily, they interact with and oversee all QA/QC on-site workers as well as operational
difficulties. The quality assurance policy established by the project manager must be followed.
Ascertain that the project quality plan is followed at all stages of construction, including
handover and commissioning. inspections of materials obtained from suppliers, as well as the
effective implementation and compliance of the quality control system at project sites.
● Working Coordination
Coordinate with client-appointed quality inspection teams to handle complicated QA/QC
concerns by communicating with project managers to ensure that a quality plan and
construction plan are deployed. Train workers and engineers to guarantee that regular project
visits are made to enhance and train quality control personnel.
13.3.1. The PDCA (Plan, Do, Check and Act) cycle
PDCA cycle history

The PDCA cycle was first introduced by Walter Shewhart, the father of statistical quality control.
In his book, Economic control of quality manufactured product, Shewhart applied the scientific
method to economic quality control.
Shewhart’s thesis was further developed by W. Edwards Deming, who championed Shewhart’s
work. Deming expanded on Shewhart’s idea and used the scientific method not only for quality
control but also process improvement.
Deming went on to teach the method—which he called the Shewhart cycle—to Japanese
engineers. There, the Shewhart cycle mixed with kaizen (the Japanese principle of continuous
improvement, which was developed by Kaoru Ishikawa), the Toyota production system, and
lean manufacturing to become what we now call the Plan-Do-Check-Act (PDCA) cycle.
Nowadays, the Plan-Do-Check-Act cycle is commonly used as part of lean project
management.
This methodology has many names, including:

• Plan-Do-Check-Act cycle, or PDCA cycle
• Deming cycle or Deming wheel
• Shewhart cycle
• Control cycle
• Plan-Do-Study-Act cycle or PDSA cycle

The PDCA cycle is a loop rather than an end-to-end process. The goal is to improve on each
improvement in an ongoing process of learning and growth.
Image Source: The PDCA cycle (Tang et al., 2005)
The PDCA model

There are the four stages in the PDCA cycle (which you can probably guess from the name) to
start using it.
1. Plan
The planning stage is for mapping out what you are going to do to try to solve a problem or
otherwise change a process. During this step, you will identify and analyze the problem or
opportunity for change, develop hypotheses for what the underlying issues or causes are, and
decide on one hypothesis to test first.
As you plan, consider the following questions:

• What is the core problem we need to solve?
• Is this the right problem to work on?
• What information do we need to fully understand the problem and its root cause?
• Is it feasible to solve it?
• What resources do we need?
• What resources do we have?
• What are some viable solutions?
• What are the measures of success?
• How will the results from a small trial translate to a full-scale implementation?
•

During this stage, an affinity diagram can help you and your colleagues organize a large number
of ideas into groups. Once you have determined your course of action, write down your
expected results. You will check your results against your hypothesis and expectations in the
“Check” stage.
2. Do
The next step is to test your hypothesis (i.e., your proposed solution). The PDCA cycle focuses
on smaller, incremental changes that help improve processes with minimal disruption.
Test your hypothesis with a small-scale project, preferably in a controlled environment, so you
can evaluate the results without interrupting the rest of your operation. You might want to test
the solution on one team or within a certain demographic.
3. Check
Once you have completed your trial, it’s time to review and analyze the results. This stage is
important because it allows you to evaluate your solution and revise your plans as necessary.
Did the plan actually work? If so, were there any hiccups in the process? What steps could be
improved or need to be eliminated from future iterations?
Your evaluation at this stage will guide your decisions in the next step, so it is important to
consider your results carefully.
4. Act
Finally, it is time to act. If all went according to plan, you can now implement your tried-and-
tested plan. This new process now becomes your baseline for future PDCA iterations.
Consider the following questions before you act:
• What resources do you need to implement the solution at full scale?
• What training is needed for successful implementation and adoption?
• How can you measure and track the performance of the solution?
• What opportunities are there for improvement?
• What have we learned that can be applied to other projects?
If the plan did not pan out as expected, you can cycle back to the planning stage to make
adjustments and prepare for a new trial.
References:
Retrieved from https://www.investopedia.com/terms/q/quality-
management.asp#:~:text=Key%20Takeaways-,Quality%20management%20is%20the%20act%20of%20o
verseeing%20all%20activities%20and,quality%20control%20and%20quality%20improvement.
Retrieved from https://www.qualityze.com/construction-quality-management/
R e t r i e v e d f r o m h t t p s : / / w w w. t e c h t a r g e t . c o m / w h a t i s / d e f i n i t i o n / q u a l i t y - c o n t r o l -
QC#:~:text=Quality%20control%20(QC)%20is%20a,%2C%20quality%20assurance%20(QA).

Retrieved from https://www.cmu.edu/cee/projects/PMbook/
13_Quality_Control_and_Safety_During_Construction.html#:~:text=Quality%20control%20in%20construc
tion%20typically,facility%20according%20to%20the%20design.
Retrieved from https://psa.gov.ph/sites/default/files/vol6_20.pdf
Retrieved from https://qualityinspection.org/what-is-quality-inspection/

https://insight-quality.com/what-is-a-product-quality-inspection/
Retrieved from https://mccowngordon.com/the-importance-of-quality-control-in-construction-midwest-

construction-experts/
https://www.hqts.com/what-are-the-4-types-of-quality-inspection/
#:~:text=In%20quality%20control%2C%20there%20are,inspection%20has%20its%20own%20purpose.
Retrieved from https://asq.org/quality-resources/quality-assurance-vs-

control#:~:text=Quality%20assurance%20can%20be%20defined,
%2C%20certifiers%2C%20and%20third%20parties.
Retrieved from https://www.techtarget.com/searchsoftwarequality/definition/quality-assurance
Retrieved from https://www.qmsuk.com/iso-by-industry/construction
Retrieved from https://www.hollandcs.com/blog/how-important-is-quality-assurance-to-my-construction-

project
Retrieved from https://www.constructionplacements.com/tqm-in-construction/
Retrieved from https://www.linkedin.com/pulse/functions-career-opportunities-qa-qc-civil-engineers-/?

t r k = p u l s e - a r t i c l e _ m o r e - a r t i c l e s _ r e l a t e d - c o n t e n t -
card#:~:text=The%20primary%20responsibility%20of%20the,industry%20and%20internal%20quality%20
standards.&text=Quality%20assurance%20procedures%20are%20planned,developed%20for%20the%20
company%27s%20projects.
Retrieved from https://www.designingbuildings.co.uk/wiki/

Plan,_Do,_Check,_Act_(PDCA)#:~:text=Plan%2C%20Do%2C%20Check%2C%20Act%20(PDCA)
%20is%20a,management%20and%20health%20and%20safety.


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Chapter 12

MANAGING THE FINANCIAL FUNCTION

What is Financial Management?

According to the Financial Experts Guthman and Dougal,

Financial Management is a vital activity in any organization. It is the process of planning,

In other terms, Financial Management is the application of general principles of management to

Importance of Financial Management

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

Objectives of Financial Management

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

Elements of Financial Management

2. Organizing and directing

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

Ensure each aspect of the organisation is following the established plan

Functions of Financial Management

2. Deciding Capital Structure

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

An Example of Financial Management

• Which area is best suited for office locations?

CONSTRUCTION FINANCIAL MANAGEMENT

WHAT IS FINANCIAL MANAGEMENT?

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

WHAT DOES A FINANCIAL MANAGER DO?

Accounting for Financial Resources

Managing Costs and Profits

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

Managing Cash Flows

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

2. Identify management practices applied in civil engineering

What Is Quality Management?

In general, quality management focuses on long-term goals through the implementation of

Understanding Quality Management

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

What are the Key Challenges in Construction Quality Management?

2. Supplier Quality Issues

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

4. Lack of documentation of Changes and Practices

5. Managing Unexpected Changes

7. Lack of communication between teams

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

9. Lack of Proper Process Management

10. Failure to Perform Regular Audits

How to Improve Construction Quality Management?

It is best to implement an organized process for improving construction quality management.

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

Managing and Monitoring Construction Quality Processes

13.1. Quality Control

QA is sometimes expressed together with QC as a single expression: quality assurance and

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

Quality Control and Safety During Construction

13.1.1. Quality and Safety Concerns in Construction

13.1.2. Organizing for Quality and Safety

13.1.3 Work and Material Specifications

Specifications of work quality are an important feature of facility designs. Specifications of

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

13.5 Quality Control by Statistical Methods

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

13.7 Statistical Quality Control with Sampling by Variables

Construction is a relatively hazardous undertaking. As Table 13-1 illustrates, there are

ES 15-ENGINEERING MANAGEMENT ENGR. RIZAYN C. ILUMIN

TABLE 13-1 Nonfatal Occupational Injury and Illness Incidence Rates

Industry 1996 2006

What are the problems with construction industry in the Philippines?