TMAXIMIZE PROFIT OF CONSTRUCTION CONTRACTOR

CASE STUDY FOR NAM THINH M&E CONTRACTOR

By

Ha Chi Nghia

Abstract

             

Business results of all the companies represent by profit that the company has achieved in business, the ultimate and first goals all of the company and type of business is profit. Profit is also a vital issue of whether large or small company, so companies are always looking for ways to achieve the highest possible profit. Profits are affected by many different factors that can directly or indirectly, may affect more or less.

The subject of this thesis will focus on the analysis of factors affecting the profitability of building contractors and thereby discuss effective strategies to achieve maximum profit for construction contractors.

My case study will focus on:

• Analysis of revenue, cost and profit of Nam Thinh M & E contractor all projects from 2005 – 2011.
• Manage financial of each project during construction for Nam Thinh M&E Contractor.
• Cash flow forecasting for Nam Thinh M&E Contractor.
• Key Performance Indicator for Nam Thinh M& E Contractor.
• Management system of Nam Thinh M & E Contractor in head office and Site.

Executive summary

Rationale of research

This research has been conducted to identify factors impacting profitability of project.

Objectives of study

To identify the factors involving increases in project cost and investigate the behavior of project making high profit by analyzing revenue cost and profit of project.

Develop management plan and strategy to control the factors affecting profitability of construction projects.

Methodology  

The exploratory research method is used to study revenue, cost and profit of Nam Thinh projects to identify high and less profitable projects.

Findings and conclusion

Cash flow and profits is critical for any organization. But in every business has unique properties and its own complexity, for the construction industry, the cash flow can be identified as the most important factor for all bidders. The profit that profit can be considered the first major puzzle in evaluating the success and viability of the contractor, the contractor's operation was successful or not taken on these factors, cash flow is that the profits of the enterprise.

Cash flow, profitability of the bidder is the best which allows evaluating capacity of the contractor's. Some of the unique aspects of cash flow for contractors include retention, lump sum contracts and multiple layers of contractors and suppliers. In addition, accounts receivable for contractors usually consists of a low volume of accounts with a relatively high amount.

So that, to maximize profit for the contractor's project, the most important thing is the contractors must organize and manage project cash flow for the most appropriate projects. To the best project cash flows of the bidder must provide the project planning, purchasing about equipment, labor and other expenses relative to the other details of the project period. So we have cash flow estimates for each task of the project, then consolidated cash flow for the project and finally summed up for all the company's projects are implemented.

In the cash flow projection for the activities of the project, the contractor must provide an alternative option to the best forecast performance, but the contractor should consider several different options for forecasting cash flow and make appropriate plans for settlement if that happens. Most importantly, the contractor needs to consider the worst case of cash flow, from planning to prepare and implement solutions to the company's ongoing.

To optimize the profit of the contractor, in addition to cash flow management and cash flow projection, the elements of the project is to evaluate management's effectiveness in project implementation phase of construction is also very important and we call it the KPIs (Key Performance Indicator).

Latter problem was studied in this topic "Maximize profit for the contractor's project" is the project management, with the subject of research will not be deep, but also offers the overall project management to maximize profits for contractor.

Recommendations

Some factors to consider contractors effectively manage cash flow and profitability of the project, including the following:

·         Implement an accounting system that provides timely information to be used in forecasting. Interface all areas of the company in the process to help ensure thorough and accurate data.

·         Negotiate to reduce contract retainage terms, particularly in situations in which the contractor has a successful prior relationship with the owner.

·         Use reasonable “front-end loading” techniques in preparing the schedule of values to provide better cash flow on the project in early phases. This will help ensure adequate cash to perform the work if, for example, unforeseen site conditions are encountered with front-end excavation.

·         Set the tone for open communication regarding cash flow among all relevant parties to the project. Openly discussing cash flow during pre-construction can better establish expectations, timing and procedures that will help start the job off on the right track. Ensure that any ambiguous terms or billing requirements are discussed and resolved to avoid payment delays as the job progresses.