Presentation on theme: "NATURE OF CONSTRUCTION BUSINESS Aleš Tomek Faculty of Civil Engineering Department of Economics and Management CZECH TECHNICAL UNIVERSITY IN PRAGUE."— Presentation transcript:
NATURE OF CONSTRUCTION BUSINESS Aleš Tomek Faculty of Civil Engineering Department of Economics and Management CZECH TECHNICAL UNIVERSITY IN PRAGUE
Construction involves the marshaling of materials, people, and equipment on a project site and assembling the materials in the proper sequence to construct a project that meets the customer's requirements. These projects may range from an individual home to a sophisticated infrastructure project, such as a regional airport or a major transportation system
CHALLENGES OF BUSINESS MANAGEMENT The business management challenges in construction are to ensure that : the revenue generated by the construction activity exceeds the cost of doing the work, the company has adequate demand for its services, the company has adequate financial resources to finance construction projects until reimbursed by its customers, the company has a skilled, motivated workforce of sufficient size to meet anticipated requirements, and the cost of the company overhead is affordable based on the projected workload.
Construction : competitive business Construction is an intensely competitive industry, with companies ranging in size from less than ten employees to over tens of thousands of employees. Because of the great diversity in the types and sizes of projects as well as the variety in the expertise and size of companies, most firms tend to specialize in distinct segments of the market, such as : highway, commercial, industrial, residential, electrical, mechanical, site and utility, marine, and underground.
Business problems of every contractor The following business responsibilities are similar: acquisition of work, performance of the work, and management of the financial, capital, and human resources of the firm.
Working capital - necessary condition The construction industry annually accounts for about 10 percent of the gross domestic product (e.g. of the United States). It is a fragmented industry with a large number of firms. Unlike manufacturing, construction does not require large capital investments to establish a business. Construction does require sufficient cash resources to meet financial obligations.
PRIMARY CAUSES OF BUSINESS FAILURE Few construction firms fail from a single cause or from a sudden, catastrophic event. One cause may predominate, but inadequate response to several interrelated factors is the typical cause of business failure. The primary causes of failure can be grouped into two categories: external influences and internal problems. External Influences prolonged economic recession, loss of a major customer, new competition, and shortage of skilled labor.
Internal problems as main cause of failure Strategic Planning Issues Pursuit of volume To many people in the construction industry, business volume is a measure of success. While it may indicate the significance of a firm in its relevant market, profitability is a more important measure of success. The pursuit of volume without a corresponding increase in profitability places the economic viability of the construction firm at risk. Lack of comprehensive business plan Construction companies often do not have business plans that guide their business decisions. They simply react to the market. Business planning requires an understanding of the market, procurement, the competitive advantages, services to be offered, the selection of market area, the selection of people and equipment required.
Diversifying into unfamiliar types of projects There is high risk, because appropriate suppliers and subcontractors may not be known, and the technical requirements may exceed the expertise of the company's project management staff. Costs may be underestimated, resulting in unprofitable projects. Unfamiliar contracting approaches, such as design-build, results in significant financial risk Diversifying into unfamiliar geographic areas New market poses great risk to a construction firm. Potential customers, suppliers, and subcontractors are unknown. If the location of the new market is a significant distance from the company's normal area of operation, there will be little ability to augment project management staff with other company resources; placing greater stress on the project management team.
Lack of managerial maturity Construction firms often are founded by one or two people. As a firm grows, its management system must cope with increased scope of work. Additional managers are needed, and the founders must delegate some authority for making business decisions to others. Continuing to centralize all decision making in one or two people does not provide the responsiveness needed to react to changing business conditions