Integration Of Capital Investment Analysis With Public Interest And Value For Money In Mass Rapid Transit Project In Thailand

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Evaluation Of Effective Design In Architectural Design Process

Evaluation of effective design procedure is a difficult method to measure the performance of drawings. How can the architect manage this method effectively? How can they understand deeply in the role of design process? It is really a challenging task for them. For these above reasons, their experiences must be trained and modern technology methods applied in order to achieve as much best result as possible. Regarding to the way that the architect can manage the design process efficiently and effectively, they use a standardized method of measurement and common database.

Nowadays, construction is one of the most important industries in the country’s economy and still continuing to support an increasing proportion of the economy development. The construction industry plays a major role in the development of Vietnam. With the existing high growth, the demanding of all aspects concern constructability is also going along with this development. The overall economic situation will grow consistently at a relative high in future under the forecast of World Bank and the Asian Development Bank (ADB). Thus, the construction industry will have a good environment to develop. Many constructors and design professionals were also approached in Viet Nam by investors to assist them to develop their project. Moreover, in order to survive and emulate against experienced competitors, these methods to control the quality of design process should be applied. Evaluation of design effectiveness has been proved by particular evidences to play significant role for success or frustration of projects.

In practice, the concept of design measurement activities in design phase was an expectation for the perfectibility of output-drawings. Unfortunately, the traditional design consultant only pays attention to the process of design and planning projects lead to lack of concentration how to estimate this design process.

Design quality of construction project in Vietnam has been fallen down significantly because the designers have too many projects simultaneously. They had difficulty in controlling their works efficiently and smoothly. Main reasons for these bad situations were derived from the lack of effective methods in evaluating the effective design process. Most of designers do not realize this evaluation concept. They cannot utilize a powerful tool to managing their work.

Therefore, project participants faced many adverse factors influenced from design process such as: late or inaccurate drawings, maintainability, expensive changes originate, no specific details in technical drawing, and so forth.

There are following backwards usually impact on design stage of construction projects:

- Normally, the design phase of project is difficult to measure than the construction phase because the measurements are too simplicity and the quality of output in the design phase are not realized until has begun.

- There are limitations from the simplistic measurements such as: cost per drawing, man hours per drawings, etc., because of variations in drawing size and content. Furthermore, it consolidates realization that the downstream effects of a good or poor design process will multiply many times in the construction phase of project (Tucker and Scarlett, 1986).

- The most general indicators of design effectiveness are the ratio of design man hours per drawing. While this ratio may be an effective indicator of designer productivity, it does not address the expensive design-related problems projects occur construction stage (Tucker and Scarlett, 1986).

- The project designs are evaluated on cost design because cost is an important criterion in any design evaluation, but cost alone does not consider for the effects of design upon construction process.

From these problems mentioned above, the understanding of important performance measurement is applied to improve strategic design management (Amaratunga et al., 2001). It is necessary to find out a reasonable method to evaluate and control the design process. The designers should focus on improving their skills and increases the quality of drawing. In addition, if a post-project evaluation is assessed particularly, it becomes a potential tool for design management guide in forthcoming projects.

With high demand in improvement of design aspect, Vietnam construction requires all design professional commit in quality of design functions. Mr. Nguyen Kim The Anh made

a study to improve the quality design process for consulting and design architectural companies. To accomplish his objectives, four specific sub-objectives must be also accomplished:

1. Analyzing the current design management systems of Vietnamese design-consultant Company to identify the necessary improvement.

2. Defining performance of design output to clarify the meaning of design effectiveness.

3. Defining effectiveness criteria for Design Objective Matrix to apply for Vietnamese design-consultant Company.

4. Defining effectiveness criteria could apply on design architectural process for Vietnamese design-consultant Company.

Conclusions

1. The seven important criteria measuring design effectiveness immediately after construction and relevant regardless of construction category, construction activity, design user, or project variable are: Accuracy of Design Documents, Usability of Design Documents, Cost of the design, Constructability of Design, Economy of design, Performance against schedule, Ease of start-up.

2. The design evaluation matrix can be used by any design user for any projects type or phase.

3. The criteria and weights used in the matrix can be modified by the evaluator to fit any project, and the evaluation can adapt to most needs.

4. The matrix can be as simple (subjective ratings) or sophisticated (sub-matrices) as desired or needed.

5. The design evaluation matrix can track and compare performance over time and measure impact of various criteria.

6. The design evaluation matrix is feasible. As has been proved by the design evaluation matrix for piping, all data necessary to measure the criteria can be obtained or estimate.

7. The seven design evaluation criteria have proven to be meaningful, and can be quantified by various sub-criteria ratios and subjective ratings. The criteria have also proven fairly comprehensive, as no suggestions were made for additional criteria.

8. Not all the data required for the feasibility test, and for the evaluation itself, is readily at hand in some companies. Since no interviewees questioned the significance or relevance of the criteria, or could offer other measurements, the problem is not inappropriate or inapplicable criteria. Instead, this problem points out the need for a method such as the design evaluation matrix as a means of evaluation.

9. The data from the industry interviews can be inserted into evaluation matrices and used to evaluate piping design.

10. Ratio measures provide a better means of evaluation than do subjective ratings. The subjective ratings are consistently higher than the industry average at score three, and by raising performance indices this may prove misleading. Quantitative measures need to be identified for all sub-criteria.

11. It is possible to track the performance of each of the criteria using the performance index of the criterion evaluation matrix. When compared to past performance indices, the increase of this performance index indicates improvement or decline in the performance of the criterion.

12. The performance index might also be used to measure the affect on projects of the project variables of the schedules, size, and types of contract. Further study of proper use of the matrix may indicate a relationship in movement of performance index due to changes in the variables.

His thesis abstract is copied and posted.

ABSTRACT

Design effectiveness method has the potential to significantly benefits for consulting – design architectural companies to issue the best value outputs design to customers, while improves quality, reduces cost and shortens time. However, it is not widely know and applied on Vietnamese design construction field. Thus, the research focuses on main issues of current management system and design effectiveness method to find the best efficiencies and acceptability criteria suitable with Vietnamese consulting – design architectural companies. The data is mainly collected from thirty respondents at twenty-three companies who currently work on medium and large size design-consultant Vietnamese Company. The research could be utilizing questionnaires design as an efficiency tool to collect responses. The method of breaking responses’ survey is multiple rating list scale. The values “means” were considered as the benchmark to asset and rank the ratio of respondent’s perception on their responses. These results could reflect overall viewpoints of respondents toward research’s objective.

The finding shows higher knowledge and application of traditional management over new management. Meanwhile, design effectiveness method is not introduced widely in design companies. The research recommends solutions to improve management system to satisfy the research objectives. This action will enhance more application of design effectiveness method and boost up the effectiveness, efficiency abilities for Design Company to overtake with famous rivals on design architectural field.

System dynamics modelling of machine downtime for small to medium highway contractors in Thailand

Thanapun Prasertrungruang and B.H.W. Hadikusumo

IntroductionConstruction companies, especially highway contractors, rely heavily on mechanisation. Interruption of this mechanical supply not only incurs the direct costs of labour, replacement parts and consumables, but also the indirect costs of workforce, equipment downtime, contract delay, possible loss of client goodwill and ultimately, loss of profit (Edwards et al., 1998). Construction equipment is thus an important key factor for improving the contractor’s ability to perform their work more effectively and efficiently (Day and Benjamin, 1991). There are a number of factors affecting the productivity of construction equipment. Some factors are uncomplicated to identify and quantify, whereas others are problematic and difficult to predict. Downtime resulting from machine breakdown during operations is one of the most unanticipated factors that have a substantial impact on equipment productivity and organisational performance as a whole (Schaufelberger, 1999). Indeed, machine downtime is the most significant problem in equipment management faced by highway contractors (Prasertrungruang and Hadikusumo, 2007). Previous studies have addressed the issue regarding downtime in many aspects, for instance, downtime classification (Pathmanathan, 1980; Vorster and De La Garza, 1990), quantification (Vorster and De La Garza, 1990; Nepal, 2001), and prediction (Edwards et al., 2002), but little effort has been made to investigate the causes and consequences of downtime, particularly from a dynamic perspective (Nepal and Park, 2004). In fact, practices and policies for equipment management have some of the most dramatic effects on downtime (Elazouni and Basha, 1996). Variation in practices regarding the flows of machine-related factors (e.g. capital equipment, operators, mechanics, spare parts, and information) over time is thus a root cause of the dynamics of downtime (Nepal and Park, 2004). However, attempts to investigate the underlying interdependencies between these less tangible factors (e.g. equipment management practices) and downtime, which control the dynamic mechanisms of the system, have been rare (Edwards et al., 2002). Complex dynamic behaviour and the interaction between equipment management practices and downtime can be characterised by several key aspects, including cause-effect relationships, multiple feedback loops, nonlinear relationships, time-delayed responses, and involving both quantitative and qualitative data (Sterman, 2000). Managing construction equipment successfully with the aims of minimising downtime and maximising profit is therefore challenging (Edwards et al., 1998). This research is therefore intended to highlight the key dynamic features of downtime and its influential factors, using them as a framework in developing system dynamics (SD) simulation. Further, this simulation model generates several policy recommendations. The scope of this study focuses mainly on the equipment management practices and downtime of small to medium contractors in Thailand’s construction industry. Since machine weight is one of the major indicators of downtime and maintenance cost (Edwards et al., 2000a, b, 2002), only five types of large heavy equipment for highway construction were selected in this study (seeTable I). Note that weight interval for each equipment type is also assigned in order to allow for machine generalisation.

Equipment management practices and downtime in construction
The construction industry is exposed to a variety of risks. Equipment failure is one of the major risks frequently occurring during construction that consequently causes expensive downtime. However, downtime can be affected by other factors as well. Those factors are project-related factors, equipment-related factors, crew-level factors, site-related factors, and force majeure (Nepal and Park, 2004). As the consequential impact of downtime is huge, contractors need to build their competency in managing construction equipment throughout a machine’s lifecycle: acquisition, operations, maintenance, and disposal. Key elements of equipment management practices that contractors need to consider include, for instance, procurement decision approach (equipment acquisition stage), safety and training programs (equipment operational stage), scheduling preventive maintenance inspection and standby repair-maintenance facilities (equipment maintenance stage), and equipment economic life and replacement decisions (equipment disposal stage). In order to minimise the effects of downtime, the contractors have several alternative actions to consider, such as seeking substitute equipment, waiting until the repair is finished, accelerating work pace, modifying the work schedule, and transferring crews to other operations (Nepal and Park, 2004). The consequences of downtime can be categorised into two groups: downtime cost and downtime duration. Downtime duration can be classified into two types: scheduled and unscheduled downtime. Scheduled downtime is a time period when equipment is not available due to a routine task (e.g. periodic maintenance), whereas unscheduled downtime is a machine failure period caused by breakdown or equipment malfunction (Elazouni and Basha, 1996). Downtime cost consists of two elements: tangible and intangible costs. Tangible costs (e.g. costs of labour, material, and other resources needed to repair equipment) are easy to determine. However, intangible costs (e.g. production losses from labour and associated machines, extended overhead costs, liquidated damages, late completion charges) are rather difficult to quantify (Pathmanathan, 1980).

Data analysis
Data collected from each company (case) were examined using within-case and cross-case analysis approaches (Eisenhardt, 1989). Within-case analysis approach was performed first to allow the unique patterns of each case to emerge, and cross-case analysis approach was then used to uncover the similarities and differences among the cases. By employing cross-case analysis approach, several generic feedback loop structures, representing overall dynamic behaviours of cause-effect relationships with time-delayed effects of the system across all company cases, could be launched. In this study, the SD approach was adopted. SD is a way of analysing the behaviour of complex socioeconomic systems to show how organisation and policy influence behaviour over time (Sterman, 2000). Note that opinions and comments from the selected experts had been incorporated in every step of the study in order to validate the outputs (e.g. generic feedback structures, generic SD model, and policy recommendations). That is, the outputs could not be accepted as valid without an agreement from the selected experts. Based on the generic feedback structures constructed, the generic SD simulation model was then created. This step includes the identification of stock and flow diagrams. Stock represents accumulated quantities, whereas flow controls the changing rate of quantity going into or out of stock (Park, 2005). Powersimw software was utilised to construct the model.

To check the credibility of the generic SD model, data collected from each of the five company cases were input into the model in order to generate five different applied SD models. Each of the applied SD models represents the equipment management system of one particular contractor case. The generic SD model could not be accepted as valid unless all of the applied SD models were capable of generating time-series outputs of selected variables similar to those plotted using historical data (reference mode) from each of the company databases. Once the generic SD modelling process had been completed, it was validated (e.g. using sensitivity analysis) until the model was satisfactory. Last, policy analysis was used to recommend improvements to the equipment management system.

Generic feedback structuresFeedback structures are essential in SD as they are not only the foundation on which quantitative SD model is built, but also a valuable device in describing and understanding the dynamics of the system (Coyle, 1996). In this section, five generic feedback structures developed based on the interview data from all five small to medium contractor cases are presented as follows.

1. Machine acquisition feedback structure
2. Machine operational feedback structure
3. Machine maintenance feedback structure
4. Machine disposal feedback structure
5. Machine downtime feedback structure

Generic SD model structure
The aim of this section is to illustrate key elements of the generic SD model. The model can be divided into five subsystems. Each of the subsystems comprises various sectors, which were constructed as referenced to their corresponding feedback loops. As mentioned earlier, this study focuses on only five types of heavy equipment. Each type of equipment was modelled separately in the simulation and then connected together in order to capture its interdependent behaviour, which in fact induces the dynamics of downtime. The conceptual basis of the model structure was preliminarily derived from literature: infrastructure project management model (Nguyen and Ogunlana, 2005), design-build project management model (Chritamara et al., 2002), manufacturing organisational model (Keating et al., 1999), and downtime in equipment management (Nepal, 2001). Model descriptions for each of the subsystems are now presented.

Resources subsystem
The resources subsystem is made up of three sectors: equipment, operators, and mechanics. Operators and mechanics represent workforces that are categorised into two types: skilled and unskilled workers. The number of operators sought is dependent on total equipment invested, whereas the number of mechanics sought is controlled by total repair work orders and machine budget status. The equipment sector (e.g. backhoe) comprises three major stocks: “invested backhoes”, “invested backhoes on site”, and “invested backhoes under repair”. In the simulation, “invested backhoes” represent total backhoes currently owned by the contractor. Investment for additional backhoes is made if the number of backhoes sought is greater than total invested backhoes the contractor currently has. Backhoes can flow out of the company either to the job site or through disposal. Once breakdown occurs during operations, failed backhoes then flow into “invested backhoes under repair” and stay there until the repair is completed.

Quality subsystemQuality in equipment management was modelled and disaggregated into various sectors. The maintenance quality sector is modelled as the ratio between maintenance cost and repair cost, whereas crew’s skill is defined as the ratio between the number of skilled workers and total workers.

Several sectors were modelled as an arbitrary scale of 0 per cent to 100 per cent instead of a formula. These sectors include equipment quality upon acquisition, spare parts quality, experience, supervision, and management commitment in proactive maintenance.

For the preventive maintenance effort sector, it is assumed that working hours of mechanics are divided into two parts: repair hours and preventive maintenance hours. This means that, if the mechanics spend much time on repair, the effort devoted to preventive maintenance is diluted.

Lastly, the machine defect sector presents an accumulation of equipment (e.g. backhoe) defects during the simulation. Level of backhoe defects is used as an indicator for breakdown events. Defects continually build up as the equipment is utilised. Further, other factors (i.e. equipment quality upon acquisition, operator’s skill, collateral damage, and spare parts quality) also affect machine defect generation. In the simulation, breakdown occurs once defects reach 100 per cent. However, defects can be partly eliminated by performing two tasks: repair and preventive maintenance.

Performance subsystem
In the performance subsystem, a number of factors influence machine productivity, such as operator schedule pressure, fatigue, supervision, experience, machine defects, and machine reliability. Most of the effects of these factors on productivity are modelled on a qualitative arbitrary scale of 0 per cent to 100 per cent. For the machine availability sector, the formula of availability was given as the difference between total invested backhoes and invested backhoes under repair, divided by total invested backhoes. Alternately, for the machine reliability sector, the formula of reliability was defined as the discrepancy between invested backhoes on site and invested backhoes under repair, divided by total invested backhoes.

Machine efficiency is the last sector in this subsystem. Efficiency was modelled in this simulation to have an inverse relationship with machine defects. The more the machine defects, the less the machine efficiency will be.

Work pressure subsystem
This subsystem includes four sectors, namely, downtime cost pressure, operator schedule pressure, mechanics’ schedule pressure, and company workload. In the simulation, downtime cost pressure was defined as a percentage of total equipment cost. The higher the ratio between downtime cost and total equipment cost, the greater the downtime cost pressure. For the operator and mechanics’ schedule pressure sectors, the formulas are similar. Schedule pressure was defined in this study as the difference between workers (i.e. operators and mechanics) sought and the current number of workers, divided by total workers.

In the equipment workload sector of equipment (e.g. backhoe), workload is controlled by work creation rate and work completion rate. Work creation rate of backhoe is proportional to the difference between desired work scope capacity and current workload of backhoe. Alternately, work completion rate was defined as a multiplication of invested backhoes on site and expected backhoe productivity.

Financial subsystem
This subsystem comprises four sectors: equipment ownership cost, equipment operating cost, downtime cost, and machine budget status.

Equipment ownership cost is a fixed cost that is incurred each year whether the equipment is operated or not. This cost is made up of two elements: depreciation, and insurance and tax. Alternately, equipment operating cost is the cost incurred only when equipment is operated. Thus, operating costs vary with the amount of equipment used and job operating conditions. The major elements of operating cost include operator and labour wages, repair and maintenance costs, and fuel cost.

The downtime cost sector is a combination of equipment substitution cost, operator and labour idle cost, equipment idle cost, dependent equipment idle cost, dependent operator and labour idle cost, and repair cost of the failed machine.

Finally, for machine budget status, this sector is modelled as a stock. Machine budget status is increased if work progress is generated by equipment. Conversely, machine budget status is decreased as a result of higher downtime cost pressure as well as a greater ratio between machine investment and disposal rate.

Model testing for validation
After the data from each of the five contractor cases had been input into the generic SD model, five applied SD models were then adopted. Each of the applied SD models was subjected to a variety of validation tests to establish confidence in the soundness and usefulness of the generic SD model (Forrester and Senge, 1980). The study adopts model testing methodology from Sterman (2000), which has been categorised into two groups as follows.

1. Structural validation test
The model has been checked for the adequacy and appropriateness of its boundary throughout the modelling process by using data from many sources such as literature, interviews with experts (e.g. equipment managers), archival materials (e.g. machine investment and disposal records), and company databases (e.g. repair and maintenance costs). To clearly depict the boundary, model boundary chart and subsystem diagrams were also employed. Additionally, the feedback structures and the generic SD model derived during data collection were reassessed repeatedly with experts in the field to ensure they are consistent with reality.

2. Behaviour validation test
In order to assess the model’s ability to reproduce the behaviour of the real system, outputs from the simulation were compared with historical data obtained from the contractor. The comparisons of model base run and historical data (reference mode) of selected variables over time for a selected contractor case. It is obvious that behaviour of the base run and historical data is relatively similar. The model is thus successful in reproducing real data. In addition, a certain period of delay incident occurred after the policy intervention had also been found before the emergence of equipment performance improvement. Such delay incident was observed both in the model behaviour as well as in the real system. This confirms that the simulation model is behaviourally valid.

Policy formulation and analysis
Up to this point, the model has already been proven as structurally and behaviourally valid. This section thus aims at analysing and identifying a set of effective policies capable of improving equipment performance. Four key performance measures for comparing the policy behaviour were selected: total downtime duration, machine budget status, operator schedule pressure, and machine reliability. The policies were derived not only by reviewing literature such as (Laugen et al., 2005), but also from interviews with professionals. During the simulation, the following policies were experimented individually for a time frame of ten years (i.e. year 2005-2015). The policies can be categorised into four groups as shown in Table II.

Machine acquisition policies
Among the three equipment acquisition policies explored (Figure 1), machine quality upon acquisition (policy 3) is the best in term of producing lowest downtime duration and operator schedule pressure, as well as generating highest machine budget status and reliability. Machine fleet expansion (policy 2), in contrast, is the worst as it incurs highest downtime duration as well as lowest machine budget status and reliability. It is noted that policy 2 seems to generate lowest operator schedule pressure at the beginning, as more machines have been supplied. However, such positive behaviour of policy 2 lasts only for the first five years. In the long run, policy 2, in fact, tends to cause highest operator schedule pressure when works are interrupted due to more equipment failures.

Machine operational policies
For machine operational policies (Figure 2), in term of downtime reduction, multi-skilled training (policy 4) is the best, whereas work incentive scheme (policy 6) is the worst. However, by considering other measures, quality improvement team (policy 5) seems to be superior to others. This implies that policy 4 is effective only for the short term. In the long run, though, policy 5 is the most sustainable strategy for improving equipment performance. This could be due to the reason that, once a quality improvement team is established (policy 5), equipment defects are then continuously eliminated with the efforts of all parties involved. For policy 4, as operators are allowed to use multiple machines, downtime is then apparently reduced but defects rapidly accumulate, causing inferior performance in the long term.

Machine maintenance policies
As shown in Figure 3, it is obvious that shop crew capacity expansion (policy 7) is the worst, based on the four performance measures. Instead of expanding shop crew capacity, the contractor can use repair outsourcing strategy (policy 10), which is much more powerful, especially in minimising downtime duration and maximising machine reliability. Supplier strategy (policy 8) and autonomous maintenance (policy 9) can also be considered as effective policies since they produce a significant improvement superior to the base run, especially in minimising operator schedule pressure and maximising machine budget status. Although allowing equipment operators to perform simple maintenance tasks (policy 9) seems to increase their schedule pressure at first glance, the benefit of this policy, which is better machine condition, far outweighs this pitfall. With better equipment condition, operators can work productively without breakdown interruption, thus causing less schedule pressure to operators.

Machine disposal policiesFigure 4 shows that all three equipment disposal policies have superior performance to the base run. Dismantling-for-parts disposal (policy 13) seems to be the best, according to the four performance measures; while disposing of machines based on resale value (policy 11) produces the least benefits. Trade-in-for-new disposal (policy 12) is also a best candidate since it generates behaviours relatively close to those of policy 13. By dismantling some of the disposed machines for parts (policy 13), the contractor can save a significant amount of spare parts cost as well as shortening downtime duration since spare parts lead time becomes minimal.

Conclusions
This research is of value not only in facilitating more understanding regarding the dynamics of downtime for small to medium highway contractors, but also in assisting the contractors towards achieving reduced downtime and improved equipment performance by means of various policy recommendations using the SD approach.


To be successful in minimising downtime, equipment management practices must be viewed as an integration of multiple dynamic processes, which are all interrelated with downtime. In fact, downtime suffers heavily from the reinforcing cycles of operator and mechanics’ schedule pressure creep, as well as schedule disruption and downtime cost pressure growth. Although the balancing cycles of operator and mechanics’ skill improvement can alleviate downtime problem, their expected benefits always accrue after a delay, thus retarding the effect of improvement, or sometimes worsening the scenarios if contractors decide to discontinue training. Once the reinforcing cycles of downtime cost pressure and operator schedule pressure creep have been activated, proactive maintenance efforts are gradually diluted due to increasing downtime.
However, an increase in downtime can be controlled by adjusting the maintenance budget required for mechanics, facilities, parts, etc.

Having identified the dynamics of equipment management practices and downtime through five key feedback structures, a generic SD model was then constructed and successfully validated with five contractor cases. Results of the policy analysis reveal several promising policies, including machine quality upon acquisition (acquisition stage), quality improvement team (operational stage), repair outsourcing (maintenance stage), and dismantling for parts (disposal stage).

Future research could be directed towards exploring the dynamics of downtime associated with other factors in different perspective, rather than only with equipment management practices. Influences and impacts of such differences on the organisational performance are of prime interest. Further study could also focus on studying the dynamics of downtime in other types of contracting companies where equipment is a major resource used in production.

This research paper was published in the journal of “Engineering, Construction and Architectural Management, Vol. 15 No. 6, 2008, pp. 540-561”. Full paper is available upon request.

AbstractPurpose – Downtime resulting from equipment failure is a major problem consistently faced in highway construction. Since managing construction equipment is tightly connected to various activities and parties inside as well as outside of the firm, failure to account for this fact invariably causes downtime to be even more severe. Variation in equipment management practices is thus, indeed, a root cause of the dynamics of machine downtime. This study is intended to address key dynamic features of heavy equipment management practices and downtime in small to medium highway contracting firms and propose policies for equipment performance improvement.
Design/methodology/approach – Face-to-face interviews with equipment managers from five different small to medium highway construction companies in Thailand were conducted. Data were analysed using a system dynamics (SD) simulation approach.
Findings – To overcome downtime problems, contractors need to understand the dynamics of downtime as well as its influential factors, and thus manage their equipment as a dynamic process rather than one that is static. Based on the simulation, various policies are proposed to improve the performance of heavy equipment for small to medium highway contractors.
Originality/value – The research is of value in facilitating better understanding on the dynamics of equipment management practices and downtime as well as their interdependency.
Keywords Main roads, Production equipment, System analysis, Dynamics, Construction industry, Thailand
Paper type Research paper

Factors Influencing The Financial Crisis That Affect Small & Medium-Sized Construction Enterprises In Thailand

Construction plays a vital role in economic growth and development. It is also important in terms of satisfying basic physical and social needs for a greater standard of living. ILO (1987) stated that construction is one of the few industries that is of common importance in all countries and is recognized as a great contributor to the national economies of all countries. Construction stimulates a sizeable amount of economic growth because the development of the construction industry supports other considerable industries such as manufacturing and real estate.

The construction industry, through the products that it creates, its size, and its ability to create employment, is likely to influence an economy’s gross domestic product (GDP) more than any other service industry (Love et al., 2004). In Thailand, the construction industry is a major component and greatly influences the economic growth. It is interesting to note that even though being an enormous industry, construction relies much on small and medium-sized construction enterprises or “construction SMEs”. Construction SMEs are not only the grass-roots of Thailand’s construction industry; they also play a significant role to drive the construction business which has the potential to develop the country. Office of SMEs promotion in Thailand (2001) promoted that small and medium-sized enterprises (SMEs) have been accepted as significant players and are the majority of business enterprises and comprise an important component for developing the economy and society of all nations. The information from National Statistic Office of Thailand (NSO, 2004), using the number of employees as the measure of size, reports that SMEs represent 98 percent of construction enterprises. In addition, construction SMEs have the financial volume approximately three times that of large construction enterprises. These distinguish how SMEs are important for construction but most construction firms are classified as SMEs.

Ms. Chanagarn Watanantachai made a study which aimed to investigate factors influencing the financial crisis that is affecting construction SMEs in Thailand so that the effective recommendations for financial crisis management could be proposed for minimize and prevent them from getting into a crisis. To achieve her objective, her sub-objectives were identified as follows: (1) to identify the key factors that lead to financial crisis and classify the importance level of each factor; (2) to explore and gain in-depth understanding how key factors influencing the financial crisis base on the practices of construction SMEs; and (3) to propose recommendations for financial crisis management that are appropriate for construction SMEs in handling with key factors influencing the financial crisis.

Results

In achieving the first objective, the analysis framework consists of 6 analysis processes. The first process is to identify the definition of factors influencing the financial crisis that is affecting construction SMEs in Thailand by using literature review and interview the managing directors. The researcher gets 33 factors that influence the financial crisis from interview expert compound with internal factors and external factors. The internal factors are included with the analysis of factors from Business Management, Financial and Accounting, Marketing, and Construction. The external factors are included with the analysis of factors from Financial Institute, Client, Supplier, Sub-contractor, and Environment .

The first objective was accomplished by using two statistic methods: 1) descriptive analysis (mean and ranking) for classifying the importance level of each factor and 2) hypothesis testing (T-test) for test the perception difference between construction SMEs with financial problem and construction SMEs without financial problem.

According to a descriptive analysis of the sample results, the main factors (the first top 10 ranked) influencing the financial crisis that is affecting construction SMEs in Thailand are Economic downturn, Payment delay from client, Increasing in construction costs, Politic instability, High competition, Unable to access sources of funds, Insufficient funds and limited capital, Low price bidding to get projects, Under-table expense for client, and Cash flow shortage. All top 10 factors are classified as a high importance level for influencing the financial crisis. There are 7 factors (out of top ten) from external factors which are difficult to control. The others 3 factors (out of top ten) are from internal factors. The groups of external factors and internal factors are shown below:

External factor
· From environment: Economic downturn, Politic instability and High competition
· From client: Payment delay from client and Under-table expense for client
· From supplier: Increasing in construction costs
· From financial institute: Unable to access sources of funds

Internal factor
From finance: Insufficient funds and limited capital and Cash flow shortage
From marketing: Low price bidding to get projects

In order to achieve the second objective of this study, factor analysis was used to explore and gain in-depth understanding how key factors influencing the financial crisis from the practices of construction SMEs. From factor analysis, the 33 factors influencing the financial crisis were classified into 7 groups of key factors: Adverse Effects of the Nation’s Situation, Less Profit or Making Loss, Low Cash Liquidity, Poor Credit Potential, Deficiency in Knowledge and Experience, Improper Contract Administration, , and construction project problems. The relationship and logical framework for summer of key factors that is influencing the financial crisis was illustrated in figure 1.



Figure 1. Logical Framework for Summer of Key Factors that is Influencing the Financial Crisis

Finally, the summary of interrelationship frameworks that demonstrate how key factors influencing the financial crisis are developed as illustrated in figure 2.



Figure 2. Summary of Interrelationship Framework of Key Factors that is Influencing the
Financial Crisis

Recommendations for Improvement

For achieving the final objective of this study, the last research objective is completed by proposing the recommendation for financial crisis management that are appropriate for construction SMEs. The causes, consequences, and recommendation for handling with the 10 key factors were discussed in table 1.

Her thesis abstract is copied and posted.

ABSTRACT

Construction SMEs are a backbone of the construction industry in Thailand. Unfortunately, construction SMEs have extremely high uncertainty and risk that lead them face with financial crisis and business failure easily and they can lead to failure of the Thai construction industry. Therefore, it is necessary to have a study concerned with financial crisis in order to know what factors lead construction SMEs to get into a financial crisis. This study aims to investigate key factors that influencing the financial crisis that is affecting construction SMEs in Thailand and recommend the effective method for financial crisis management.

The researcher decided to use 2 types of research design: 1) quantitative research by using survey design and 2) qualitative research by using case study. There are 3 statistic methods were used to analyze data from questionnaire surveys: 1) descriptive analysis (mean and ranking) for classifying the importance level of each factor, 2) hypothesis testing (T-test) for test the perception difference between construction SMEs with financial problem and construction SMEs without financial problem, and 3) factor analysis for reducing set of factors. For qualitative study, the case study was used to gain in-depth understanding how key factors influencing the financial crisis base on the practices of construction SMEs.

Results were found that there are 10 key factors that influencing the financial crisis: Economic downturn, Payment delay from client, Increasing in construction costs, Politic instability, High competition, Unable to access sources of funds, Insufficient funds and limited capital, Low price bidding to get projects, Under-table expense for client, and Cash flow shortage. The causes, consequences, and recommendation for handling with the 10 key factors were discussed in this study.

Web Application for Contractor Claim Analysis

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Claims in Building Projects in Public Sector: Case Study in Mekong Area, Vietnam

The nature of construction industry is source of claims and disputes. They have very strong effect on the social and financial benefit of building projects. It means that the stimulation functions of these projects cannot achieve optimal value for economic development strategy of Vietnam. “In Vietnam, regularly, construction projects have met delays and cost overruns” (Long 2008). Although, both contractor and owner know that these claims cannot be avoided or solved at all easily, claims can be managed by preventing and procedures for settling them when they occur. Firstly, claims are result of risks in construction projects. But all risks were not identified and managed by the appropriate methods in order to control them within allowable range to reduce extension time and/or cost overrun of both contractor and client.

Secondly, almost owners in public sector avoid claims by transferring these risks to contractors, designer and consultants. However, claims can be managed and settled claims by owners efficiently. Hence, the influence of claim issues may be mitigated by cooperation of all stakeholders.

Mr. Nguyen Van Tam made a study to find which source of claims are essential and which types of claims have usually occurred in building projects. The objectives of his thesis consisted of three main points: i) identify types and causes of claims in the building project in Vietnam; ii) identify how the claim is settled in terms of analysis for additional cost and/or analysis for extension time; and iii) study claim attitudes of owners and contractors in the building project.

Conclusion

Causes of Claims in Building Projects in Mekong Delta

The case study explored the most significant problems causing claim in terms of delays and/or cost overrun. Factors related to designers, contractors and consultants were rated among the top problems. Delay issues as design changes by mistakes, additional works by owner, and mistakes during construction with 26 vital factors to be inventoried by literature and experts. Cost overrun issues such as design changes by mistakes, price fluctuation, additional works by owner, and unforeseen site condition. The foundation structure changes due to poor or lack of soft soil properties lead increase delay time and cost overrun. There are many owners who can give changes in design document during construction stage.

Claim Settlement in Terms of Additional Cost and/or Extension Time Analysis

There were not clear and fair claim analysis procedures that were written in contract condition or any construction decree or construction law. This was the opportune platform to grow claims. Owners did not force or require contractors to use CPM method in planning, monitoring and controlling the projects. A diary and meeting paper are central tools to notify all events in construction site. Evidently, both parties did not negotiate or discuss to choose a claim analysis method to deal when claims occurred. Although there are major numbers of delay and cost overrun analysis methods, choosing an appropriate analysis method is significant factors to estimate delay time and additional cost in clear and fair way.

Claim Attitudes in Building Projects

Core of claim cultures that were found are distributive attitude and economic order. These attitudes affected very deep in thinking and acting claim events in building projects. However, integrative attitude and occupational order can be observed as cooperation strategy inside project stakeholders. All findings in the study can support to managers and engineers who work in organization level or project level to enrich effect of building projects in public sector in Mekong area or Vietnam scale.

Abstract

Building projects in public sector in Mekong area in Vietnam has been suffered claim impacts heavily. They affect very strong on the social and financial benefit of building projects. In order to increase effect of claim management in building projects, three issues of claims that are causes of claim in terms of delay and/or cost overrun, claim settlement in terms of additional cost and/or extension time and claim attitudes were studied. The study was conducted by case study methodology with data of six building projects in public sector. First finding, the case study explored the most significant problems causing claim in terms of delays and/or cost overrun. Second finding, there were not clear and fair claim analysis procedures that were written in contract condition or any construction decree or construction law. Final finding, core of claim cultures were found are distributive attitude and economic order. These attitudes affected very deep in thinking and acting claim events in building projects. All findings in the study can support to managers and engineers who work in organization level or project level to enrich effect of building projects in public sector in Mekong area or Vietnam scale.

Keywords: Claim, delay, cost overrun, claim attitude, Mekong delta, Vietnam.

Evaluation of Effective Design in Architectural Process

Evaluation of effective design procedure is a difficult method to measure the performance of drawings. How can the architect manage this method effectively? How can they understand deeply in the role of design process? It is really a challenging task for them. For these above reasons, their experiences must be trained and modern technology methods applied in order to achieve as much best result as possible. Regarding to the way that the architect can manage the design process efficiently and effectively, they use a standardized method of measurement and common database.

During the past decade, the Vietnam government has opened its door for cooperating with oversea knowledge and business. This policy has resulted in many construction fields included design architectural professional. In practice, the concept of design measurement activities in design phase was an expectation for the perfectibility of output-drawings. Unfortunately, the traditional design consultant only pays attention to the process of design and planning projects lead to lack of concentration how to estimate this design process. Therefore, project participants faced many adverse factors influenced from design process such as: late or inaccurate drawings, maintainability, expensive changes originate, no specific details in technical drawing, and so forth.

With high demand in improvement of design aspect, Vietnam construction requires all design professional commit in quality of design functions. Mr. Nguyen Kim The Anh made a study which major objective was to improve the quality design process for consulting and design architectural companies. To achieve the objectives, the four specific sub-objectives were need to be accomplished:

1. Analyzing the current design management systems of Vietnamese design-consultant Company to identify the necessary improvement.

2. Defining performance of design output to clarify the meaning of design effectiveness.

3. Defining effectiveness criteria for Design Objective Matrix to apply for Vietnamese design-consultant Company.

4. Defining effectiveness criteria could apply on design architectural process for Vietnamese design-consultant Company.

Conclusion


1. Current design managements system

There are six sub-conclusions about the current management system:

i. The respondents perceive that problems of Design Company highly involve to “Business partner”, “Customers satisfaction” and “Management aspects”. They are main reason for low competitive abilities and influence into the company’s image. For better competitive abilities and business positions on free market economy, the research could identify clearly these problems at basis level to propose new improvement solutions.

ii. The traditional management methods such as: “Planning”, “Scheduling”, “Controlling”, “Technologies”, “Value engineering” and “Management Quality” are understood and applied at high perception degree. This fact reflects that these methods exist and apply on Vietnam’s architectural system for long time with repeatedly mentioning, training, and practicing at high knowledge in order to maximize customer satisfaction.

iii. Meanwhile, the degree of “design effective method” could be understood at low perceptions. This fact reflects that this method was not introduced and applied on design companies.

iv. The specific management problems currently happening on design process are “lack of autonomy”, “slowly react with change”, “outdate and unsuitable” and “low motivation”. They come from outdated business management. Design companies do not change their business attitude regarding the transferring from central planning system to free market system. The strict control system and cumbersome structural hierarchies from current managements system could make less power of self-decision-making of designers while they still react slowly against business changes. These limitations will decrease their competitive abilities on free market.

v. In order to make better management methods, respondents mostly suggest two solutions: “modify or add new management methods” and “maintain current management system, but try doing better”. These results reflect that design managers still trust on current systems even some existing but recommend applying new methods for concurrently operating.

vi. The respondent indicate that the high contributions of “management’s motivation”, “management’s commitment”, “designer’s motivation”, “designer’s commitment” and “effort” are value resources to enhance and improve the current managements system.

2. Design effectiveness method

2.1The important of management aspects in design effectiveness

Design managers understand that “human aspects” could be concerning “management ability of design managers”, “experience design”, “setting up schedule for project” and “allocate of budget” are important management aspects to contribute into making better design effectiveness.

2.2 Detail for evaluation of design effectiveness

The results from survey indicate that seven criteria (e.g. “accuracy of design documents”, “usability of design documents”, “cost of the design”, “constructability of design”, “economy of design”, “performance against schedule” and “ease of start-up”) take high perception from respondents. These criteria have proven to be meaningful and fairly comprehensive. Thus, they play important role to all designers, design activities, construction category and construction activity. Each criterion is necessary for designers’ evaluation, and can be assessed immediately after accomplishment of design projects.

2.3 Detail for design architectural

Base on Vietnamese design architectural situation, the high perception and application of ten criteria (e.g. “structures”, “arrangement”, “interface”, “material use”, “technologies”, “energy management”, “time site program”, “originality & uniqueness invention”, “historical reference” and “economy”) play important role into the successful of design architectural process. The mission of these criteria could measure degree and scope of integration that is necessary for creating design activities. Furthermore, there are many sub-criterions could be identified and ranked in order to understand their contribution into the successful of architectural design.

Recommendation

1. Current design managements system

i. Design companies need to solve and eliminate current problems (e.g. “customer satisfactions”, “business partners” and “management aspects”) to fulfill advanced demand of free market economy. In order to do so, they need to create all of problems becoming to database. Setting up the strategic and planning to solve these problems at basic level. Additionally, design companies should create new department focusing into the “customer satisfactions”, “business partners”. Their missions have to attend advance requirements, build up and maintain effective communication systems. It moreover recommends they need to select good business partners and setting up coordinates environment for sharing information.

ii. Regarding with specific management problems (e.g. “lack of autonomy”, “slowly react with change”, “outdate and unsuitable” and “low motivation”). Changing business attitude, purge of managements system, limitation of cumbersome and boosting of self-decision-making ability are introduced to improve the basic level of current problems.

iii. Design companies still maintain and enhance the “traditional management methods” and “human management aspect” at maximum advanced level. They need showing their commitments by contributing time, efforts, money, etc., for learning, implementing and maintaining these methods. Coordination with foreign partners is moreover suggested to gain mutual benefits for both sides.

2. Design effectiveness method

i. Design companies should plan and apply the design effective method as soon as possible to minimize the business risk and current problems occurring on design process.

ii. In order to achieve the best outcome on design process, designers need to focus the criteria of design architectural like guideline for design activities. However, based on actual situation, these criteria or sub-criterions may be to utilize or not to adapt with demands of design missions.

iii. Design managers need to create “Design effective method” to be the guided procedures in order to make suitable for design users.

iv. Design effective method model is partly proposed in this research and apply in design companies to draw their pros and cons. Feedbacks from practical application can help research modifying and making them more suitable for Vietnamese architectural design field.

His thesis abstract is copied and pasted below:

Abstract

Design effectiveness method has the potential to significantly benefits for consulting – design architectural companies to issue the best value outputs design to customers, while improves quality, reduces cost and shortens time. However, it is not widely know and applied on Vietnamese design construction field. Thus, the research focuses on main issues of current management system and design effectiveness method to find the best efficiencies and acceptability criteria suitable with Vietnamese consulting – design architectural companies. The data is mainly collected from thirty respondents at twenty-three companies who currently work on medium and large size design-consultant Vietnamese Company. The research could be utilizing questionnaires design as an efficiency tool to collect responses. The method of breaking responses’ survey is multiple rating list scale. The values “means” were considered as the benchmark to asset and rank the ratio of respondent’s perception on their responses. These results could reflect overall viewpoints of respondents toward research’s objective.

The finding shows higher knowledge and application of traditional management over new management. Meanwhile, design effectiveness method is not introduced widely in design companies. The research recommends solutions to improve management system to satisfy the research objectives. This action will enhance more application of design effectiveness method and boost up the effectiveness, efficiency abilities for Design Company to overtake with famous rivals on design architectural field.

Construction Litigation Analysis: A Case Study of Thai Supreme Court Cases

Thailand is fast becoming a newly industrialized country and, consequently, plenty of construction works are projected for the future. In the period of construction boom, it is inevitable to have a large number of disagreements that turn into large number of conflicts. These conflicts that end up as disputes reduce efficiency in the construction industry and cause a lot of detrimental problems (O'Reilly, M. P., 1993). All of the parties involved in the construction activity have become increasingly concerned with construction contract claims and disputes and generally agree that the handling of claims and disputes arising in the construction projects is a serious problem (Bruce M. Jervis, P. L., 1988). Whenever a dispute arises, neither owner nor contractor benefit from it. The beneficiaries are, by and large, those engaged in helping litigants through legal process (Cornes, D. L., 1994). Disputes divert resources from meeting project objectives and consequently the project suffers and progress slows down (Hughes, J. M. (2000). Many of these disputes have to be settled by adjudication through litigation at courts of law, which make project cost much more than they should, and those who deal with it lose their reputation when disputes mark the headlines of trade magazines and newspapers (Richard H. Clough, G. A., 2005).

Mr. Tanatat Wisetsurakarn made a research to investigate the information of construction contract and tort disputes in the Thai construction industry which were resolved in the courts of law. Such information can be collected from the law digests. These law digests, namely “Supreme Court Decision”, contain court cases which were decided by the Thai Supreme Court for use by lawyers as case references.

As indicated that the civil liability due to professional practice has caused many issues and subsequent problems. Therefore, it is necessary to initially explore and investigate the Supreme Court cases. Hence, the following objectives were needed to be accomplished:

i. To explore key decision making in court cases that affects the outcome of construction litigation in civil liability in Thailand

ii. To identify the civil liability due to professional practices in construction litigation

iii. To propose the recommendations on the improvement of professional practices to prevent civil liability in construction litigation.

Conclusions

Regarding the study of the acceptance of fault in civil cases for people who work in the field of civil engineering, especially engineers who deal with construction, the study shows that the faults were from engineers. This is because they lacked professional practice in many construction projects. It can be concluded from the results of the analysis that professional civil engineers such as contractors, project supervisor or architects who didn’t work carefully would cause damages to the project owner, the contractor, and outsiders. In terms of civil aspects, engineers have to pay compensation to those who are injured due to a lack of professionalism in their practice. This type of responsibility occurs when one breaks the contract or tort depending on the legal action between the contractor and the ones who receive damages. The damages resulting from violating or tort others will not exceed 1,000,000 baht. For legal cases concerning contracts, the damages will vary depending on the value of the project. The problems found in Supreme Court both in tort cases and in contract cases can mainly be divided into 7 problems as follows. Earthwork found that the piling was done with negligence or without sufficient careful planning, erroneous bid specs / lack of quality found that construction didn’t follow the architectural plan or drawing specifications and careless construction or lack of knowledge about proper construction methods., owner interference found that there was delay from the project owner, warranty period found that did not repair the work to its perfect condition while it was under warranty, project delay found that the construction wasn’t completed in due time, third party harm found that careless practice in constructing tall buildings that were adjacent to surrounding buildings and no signs or precautions to warn people of the construction, the digging, or other activities which caused danger, overdue debt found that didn’t pay wages or didn’t pay wages in due time.

From the aforementioned information, it can be seen that the engineers have high levels of responsibility and must be knowledgeable and experienced in their work. They also have to work carefully to complete their work. Therefore, it is suitable for both engineers and involved personnel to study work data and past court cases that are related to their work, so that they can be careful about their work.

Recommendation for Improving Professional Practices

The nature of work that engineers do causes them to have a high risk for being sued; it would be better if they were informed of legal laws and court verdicts on prior lawsuits similar to their professions. This can be done by giving training to and educating civil engineering students. Concrete examples from legal actions should be added to create basic knowledge so that engineers and students will recognize and take some precautions when they work. In terms of the Engineering Council, it should collect all legal cases and give legal advice to those engineers who have problems or have to go to court because they are being sued. Finally, the engineers themselves should be interested and eager to gain more relevant legal knowledge, and should also prepare themselves in looking into old cases. By doing these things, they will prevent problems which might occur in the future.

His thesis abstract is copied and pasted below.

Abstract

The Thai construction industry has been greatly developed, and experienced. Constructions of several large projects are being carried out in the both public and private sectors. There are an increasing number of construction contracts resulted in claims and disputes. All of the parties involved in the Thai construction industry are fully aware that disputes not only lead to cost overruns, but can end up as expensive and lengthy courtroom battles. However, very few studies related to construction contract claims and disputes in Thailand have been presented. This study is an attempt to gain further insight to construction contract claims and disputes in the Thai construction industry.

This thesis examines the subject-matter of construction contract and tort disputes, which were resolved in the Thai courts of law. The data examined include the reasons behind the legal disputes and the legal principles concerning construction contract and tort law. By using Supreme Court decisions pertaining to construction contract and tort disputes are analyzed and once know the judge key decision and detail story then proposing the specific problem of that case and recommendations for improvement the professional practices. The study indicates that the problems found in Supreme Court both in tort cases and in contract cases can mainly be divided into seven problems as follows. Earthwork found that the piling was done with negligence or without sufficient careful planning, erroneous bid specs / lack of quality found that construction didn’t follow the architectural plan or drawing specifications and careless construction or lack of knowledge about proper construction methods., owner interference found that there was delay from the project owner, warranty period found that did not repair the work to its perfect condition while it was under warranty, project delay found that the construction wasn’t completed in due time, third party harm found that careless practice in constructing tall buildings that were adjacent to surrounding buildings and no signs or precautions to warn people of the construction, the digging, or other activities which caused danger, overdue debt found that didn’t pay wages or didn’t pay wages in due time.

From the aforementioned information, it can be seen that the engineers have high levels of responsibility and must be knowledgeable and experienced in their work. They also have to work carefully to complete their work. Therefore, it is suitable for both engineers and involved personnel to study work data and past court cases that are related to their work, so that they can be careful about their work.

Business Diversification of Real Estate Company

Thailand’s economy grew at the lowest rate in the past several years resulting in a slow growth in construction. Construction companies encounter financial problems from external factors such as price fluctuation of raw materials and internal factors such as cash flow shortage. Therefore, financial relationship is quite complex, is contacted with lenders, investors, sub-contractors, employees, and customers. The company is careful for managing finance in each function and considering financial problem that can affect financial management in the company.

Business diversification is widely used and the supply chain is one form of diversification. The real estate is one of the business diversify into related business including material supplier, construction, and real estate. The fundamental of the diversification is to create value for stockholders. The additional value is created through synergetic integration of a new business into the existing one thereby increasing its competitive advantage. The real estate company should concentrate on each link between real estate developer and its members especially operation and financial inter-relation. The real estate company decides to diversify because it is more benefits in term of operation and financing. To study business diversification can decrease the cost of construction and can generate the diversity of incomes. It can also make more profit margins and increase the strength of financial capability in Real Estate Company.

Ms. Pichaya Bhanubhak made a study aimed to identify the inter-relationship among real estate developer and supply chain members. Next step, this study is to define the financial relationship through the business diversification and propose the guideline in financial strategy to Real Estate Company. To attain the main objective, three sub-objectives were needed to accomplish: i) to identify the financial and operational inter-relation between real estate developer and its parties through business diversification; ii) to investigate how the real estate developer can diversify business into construction, and iii) to propose the recommendation for financial management that is appropriate for real estate business in handling with the important factors towards diversification into construction.

Conclusions:

The Financial and Operational Inter-relation of Business Diversification in Real Estate Developer

Based on the inter-relation between real estate developer and its parties, it is found that organization business process consists of three major issues including financial, spending, and revenue. There are three parties including material suppliers, land agents, and skilled contractors/skilled labors significantly affect on the operating and financial conditions in the business. Construction material cost, land cost, and labor cost are the main cost of real estate so these expenses relate to sale prices of housing units. Customers are the key parties also relate to the major source of revenue in the company. The key factor has impact on the number of customers who buy the housing products is the sale prices of housing units.

1.There are two parties including financial institutions and investors related to financial. Financial institutions give loan to the company and the company pay back principal and interest payment to them. Investors invest in equity in the company and the company pay dividend back to investors at the end of year. Financial is the process to find funds for operation and investment. The company uses fund for operation to spending to material suppliers, land agents, skilled contractors/skilled labors, and employees. Company uses fund to invest into subsidiaries.

2.Spending comprises of four parties are material suppliers, land agents, skilled contractors/skilled labors, and employees. Cost of materials is the one of the major part in cost of real estate because company purchases materials in high volumes which are more costly for the company. So, company purchases the major construction materials by inviting tenders and entering into long-term price agreement as 3-6 months or 1 year to protect fluctuation of material price.

3.Company purchases land from owners and agents when it develops a project. Skilled contractors and skilled labors hire as outsource contract. High value projects or urgent tasks, company uses bidding process to find competent contractors.

4.Customers are the major source of revenue and the company receives revenue from sales of real estate. More than 90 percent of company’s home buyers borrow by mortgage. Customers lend money from the commercial banks or Government Housing Bank to buy houses and they use their land and house as collateral. They pay principle and interest payment at MRR 4.75% (in 2009). However, the economic slowdown and changing policy of commercial banks or Government Housing Bank on mortgage loans impact confidence and spending of the customers so these situations affect company’s revenue. The company will take the risks of rejection rate of customers that will decrease the revenue from sales of real estate. Thus, the company has appointed a working committee to regularly monitor and track on the bank’s loan policy and the economic status in order to adapt the appropriate strategy.

The business diversification of real estate developer

From the case study, real estate developer diversified into construction business and it also diversified business into sales of real estate. Moreover, the company expands its business in traveling city such as Phuket and Chonburi and foreign markets to capture the business opportunity.

The company diversified into seven subsidiaries that are divided by type of business as following:
1) Subsidiary A to operate as a contractor for home decoration and construction

2) Subsidiary B and Subsidiary C to operate as property developers to sale of real estate

3) Subsidiary D as investors for investment

4) Subsidiary E to operate as real estate developer and housing construction for construction and development of oversea projects.

5) Subsidiary F to operate as real estate developer and housing construction in India

6) Subsidiary G operates as a contractor in India. Furthermore, company manages construction works and constructs houses by itself.

Company A, Subsidiary B, and Subsidiary C sustain in the old market by capture the real estate business. Subsidiary A expands business into construction but it still capture in the old market. Subsidiary E and Subsidiary F expand into new market to capture the real estate business. Moreover, Subsidiary E, Subsidiary F, and Subsidiary G expand to capture the contractor business into new market. There are several benefits from the business diversification as following:

1.The company can reduce the construction period that are shorter than conventional method. The construction of one-story townhouses can build 30 days and two-story townhouses are complete in 60-80 days. The construction period of single-detached houses is about 75-90 days.

2.The company diversified into subsidiary so it can invest more in R&D to improve the efficiency of the business and to improve in high technology to build houses. The company can reduce the cost of construction. Thus, the company can set the sale price that is lower than other developers. The company’s sale prices for townhouses are 15-20% lower than other developers and the prices of the single-detached houses are 10-15% lower than other developers.

3.The company is granted with the Board of Investment (BOI) to exempt tax from BOI promotion privileges because it can build houses that not exceeding 600,000 baht at a unit price including land cost. The company gets the exemption the corporate income tax on net profits receives from sale of residential units in the promoted projects for a period of five years.

4.The company invests into subsidiary A as home decoration and contractor. The company is more flexible to get some benefits. Company separates into two contracts when customers buy houses. The first contract is to sell land and houses that not exceeding 600,000 baht at a unit price to exempt tax from BOI promotion privileges and second contract is decoration by the subsidiary company. The company hires the subsidiary to work in its project.

5.The company invests into subsidiary B and subsidiary C to sales of real estate. It is more flexible in some laws and regulations for the EIA report. Land development for residence, the number of units is more than 500 units or the area is more than 100 rai so the company must do EIA report to office of Natural Resources and Environmental Plans and Policy. Subsidiary B or Subsidiary C develops project after the company in the exceed units to avoid the EIA report.

Her thesis abstract is copied and pasted below.

Abstract

The property market was volatile and impacted by political instability and global financial crisis. These causes affect consumer confidence. However, real estate company adopts business strategy by diversifying business to maintain the business growth. The study focused on diversification of real estate into construction which can affect the operating and financial inter-relation in organization business process to determine the financial outcome of business diversification. The objectives of study are 1) to identify the financial and operational inter-relation between real estate developer and its parties through business diversification 2) to investigate how the real estate developer can diversify business into construction 3) to propose the recommendation for financial management that is appropriate for real estate business in handling with the important factors towards diversification into construction.

The study used qualitative method by using case study as a research design. The research methodology begins with modeling of business diversification which comprise of preliminary modeling and verification. It continued with the data collection by using the modeling to design the case study questions for interviewing and to select the case study. Data analysis is conducted by using explanation which all important evidences are described.

The result from the study showed that there are three main issues in business organization process including financial, spending, and revenue. The financial is the part to find funds for operation and investment. The spending is divided into material cost, land cost, skilled contractors/skilled labors cost, and wages. The revenue comes from to sales of real estate to customers. Finally, the benefits of diversification are to exam tax from BOI promotion privileges, to reduce the cost of construction, to reduce construction period, and more flexibility to operate business such as in some laws and regulations for the EIA report. The modeling of business organization process, business diversification, and money management are developed and discussed in this study. Moreover, the analysis of causes and effects of business diversification are also proposed in this study.

Collaborative Strategy between Stakeholders of Hydropower and Power Intensive Industry in Bhutan

Before 1960, handicrafts, wood products, bamboo products, agricultural products were manufactured in small scale. The number of industries continued to expand steadily after the implementation of first five year plan in 1961. Today most of produce includes cement, wood products, processed fruits, alcoholic beverages, calcium carbide and other minerals. (Bhutan, 2008). Due to high transportation cost, small domestic markets and under developed infrastructure, industrial development has experienced slow pace. Nevertheless as Bhutan continued cordial relation with India, growing demand for minerals and other products has made inevitable to exploit the available resources.

Industrial growth has increased to 5.8% in 2007 from 3.8 % in 2006. (Royal Monetary Authority, 2009). In spite of unprecedented industrial growth, RGOB has to slacken its development owing to power intensive. The demand of minerals and other products continues to grow but industrial development has to stand still until new hydropower plant is installed which can cater the power to these power intensive Industries.

As per the electricity demand scenario, with considerable increase in domestic demand and based on the existing demand forecast, there will be no power available for export by 2012 during the lean season. Due to increased coverage and industrial demand, 12 MW on average of power has to be added per annum to avoid reduction in export. 1 MW reduction of export of electricity will result in about Nu. 14.89 million losses in cash to the Government. (Department of Energy, 2005). The power intensive industries will be affected as the domestic tariff will make par with the export tariff.

The RGOB is in dilemma as to focus on industrial development which is backbone of socio-economic development or continue to earn enough revenue through the export of electricity. In order to encourage power intensive industries keeping in view the affordable domestic tariff and increased level of revenue through export of electricity, is it possible to have collaborative situation- i.e. “domestic tariff remains affordable while at the same time export earnings continue to grow” (Department of Energy,2005) so as to achieve the national goals of meeting the internal demand of the country at affordable tariff and at the same time increased sufficient revenues from the export of hydroelectricity for investment in socio-economic development sectors to achieve economic self-reliance and Gross National Happiness.

Mr. Karma Gyamtsho made a study which objectives were to: i) explore in-depth into the field of industrialization, hydropower generation and the policies of the Government and identify the key collaborative issues of different stakeholders and their behavioral approaches towards collaborative strategy between hydropower generation and power intensive industries in Bhutan; and ii) develop a collaborative framework between hydropower generation and power intensive industries of Bhutan keeping in view the unique development philosophy & strategy of Gross National Happiness and provide suggestions & recommendations.

Conclusion:

Economic growth in Bhutan through export of electricity and industrial development have become like two sides of coins, both cannot be seen at same time. If Bhutan strives to achieve economic development through export of electricity and industrial development, a complementary strategy of hydropower development by industrialist for its own consumptive uses should be permitted.

The network of interrelationships of the different stakeholders is illustrated in figure below.

The collaborative issues of the different stakeholders surfaced are lack of technical & managerial expertise, high logistic cost, import of foreign workers, land ownership, water user right, equitable regional development, under performance of the machines, excise duty, logistic cost, absence of policy, wheeling charges, feed- in tariff, opportunity cost, high lending rate, high insurance premium, absence of FDI in hydropower sector, environmental clearance, rational power tariff, scarcity of raw materials, excise duty, high lending rate, high insurance premium, equity in investment, access to external source of fund and sustainability. The collaborative approaches to the collaborative issues are human resource development, strategic infrastructural development, more foreign workers, full land ownership, full water user right, balanced development, excise duty refund, policy development, affordable wheeling charges, rights to feed in power, external borrowing, foreign insurance, accelerated environmental clearance, maximum equity in investment and affordable tariff. Based on the study, a collaborative strategy is developed.

The collaborative issues that are desired by the maximum stakeholders are policy development, strategic infrastructural development and human resource development. The collaborative issues such as wheeling charges and feed-in tariff are considered the most significant as it determines the tariff of electricity for the industries.

Recommendations

The following recommendations are made based on the collaborative strategy developed:

1. Policy Development: It is inferred that there is intense need for the policy development by Hydropower plant, Department of Industry, Bhutan Electric Authority, Investor, power intensive industries and department of Industry. The collaborative issues of these stakeholders include the absence of policy which inhibits them to develop such hydropower plant for industrial uses and there is considerable loss of opportunity for the nation. The rational power tariff between industries and hydropower plant can only be determined if the policy is in place and the inclusion of hydropower in foreign direct investment policy can greatly steer the investors. One window clearance system can reduce the lengthy procedures of approvals.

The following recommendations are done with regard to policy development:
The captive power policy formulation should be expedited meanwhile the permit to conduct survey and investigation for hydropower project should be issued to the interested industrialist.

Foreign Direct Investment should be allowed in hydropower sector.
One window clearance system should be established for speedy approvals for projects.

2.Strategic Infrastructural Development: There is also need for the strategic infrastructural development by contracting agencies, machinery supplier, raw material supplier, hydropower and power intensive industries where the collaborative issues is high logistic cost.

Following recommendations are done with regard to strategic infrastructural development:
- Enhanced quality and reliable road network should connect hydropower site and industrial estate.
- Alternate mode of transport such as ropeways and railways should be developed.
- The private sectors should be entrusted with the infrastructural development.

3. Human Resource Development: It also necessitate to have human resource development by the contracting agencies, machinery supplier, hydropower plant and power intensive industries where the collaborative issues includes lack of technical & managerial expertise and underperformance of machines.

The following recommendations are made with regard to human resource development:
- Mandate Indian contracting agencies executing the projects to induct Bhutanese contractors as joint venture.
- Establish more vocational training institutes which provide skill enhancement in Hydro Power and industrial sectors.
- Conduct short term courses and training in hydropower and industrial sectors.
- Financially support private and corporate sector for Human Resources Development.
- There should be involvement of Bhutanese with the reputed firm for the design of machineries and also in the operation & maintenance.

4. Environmental Clearances: An accelerated environmental clearance is also a priority for hydropower plant and power intensive industries where environmental clearance and the scarcity of raw materials are the collaborative issues. It is recommended to have one window clearance system for environmental clearance in the policy and more exploration for mines to meet the inadequate supply of raw materials for the industries.

5. External Borrowing: The permit to external borrowing is also necessary for hydropower plant and power intensive industries where high lending rate is the collaborative issues. It is recommended that the external borrowing should be permitted and the lending should be based on cash flow projection rather than the collateral based.

6. Refund of Excise Duty: The refund and exemption of excise duty is also emphasized by the machinery supplier, raw material supplier, hydropower plant and power intensive industries. It is recommended that there should be exemption of excise duty on import of machineries and refund of excise on the import of raw material.

7. Land Ownership: The land ownership is also area of concern for hydropower plant and power intensive industries. It is recommended that lease period specified in existing relevant policies and regulations should be increased and the lease rate to be made transparent in the relevant policies.

8. Import of foreign workers: It is desirable to allow more foreign workers for hydropower plant, power intensive industries and contracting agencies. It is recommended that entitlement of number of foreign workers should be based on actual requirement.

9. Balanced Development: Equitable regional development is desired by RGOB and is a collaborative issue for hydropower plant and power intensive industries. It is recommended that transmission grid should be extended connecting eastern and western grid. The industrial estate development should be diversified across the country.

10. High Insurance Premium: There is need to access the foreign insurance where high insurance premium is a collaborative issue of hydropower plant and power intensive industries. It is recommended that foreign insurance should be permitted and private insurance company established in the country.

11. Water User Right: The water user right need to assured to the hydro power plant. It is recommended that the full water user right should be assured through the license wherein the quantity and time frame of the use of water is specified.

12. Wheeling Charge: The affordable wheeling charge can be assured to the hydropower plant by BPC through the construction of sub-station and incorporating the cost of sub- station in the wheeling charge thereby reflecting in the contract agreement. It is recommended that wheeling charge be allowed and the necessary infrastructures developed by Bhutan Power Corporation.

13. Feed in Power: Feed in power in the BPC transmission grid is the issue of hydropower plant where the right can be assured through provision of energy banking facilities and willingness of the BPC to take the surplus energy at appropriate tariff. It is recommended that banking of energy be allowed and sale of surplus power to Bhutan Power Corporation at appropriate tariff be made available.

14. Equity of Investment: The investors can be attracted through the equity of investment. It is recommended that 100% equity in investment should be allowed.

15. Sustainability: The core of competency through cost leadership for the power intensive industries can be achieved through the affordable tariff that will be determined by the performance of hydropower plant. It is recommended that electricity duty should be exempted and subsidy on interest should be provided.

His thesis abstract is copied and pasted below.

Abstract

Bhutan still has the incidence to the poverty and unemployment which poses a challenge to industrial and hydropower sectors to create quality employment for the Bhutanese. The rapid industrial growth has increased the domestic power demand affecting the export quantity considerably. The power intensive industries will be affected if domestic tariff becomes par with export tariff. Therefore economic growth in Bhutan through export of electricity and industrial development have become like two sides of coins, both cannot be seen at same time.

It will be prudent if industrialists are permitted to develop hydropower plant for their own consumptive uses and Royal Government of Bhutan continue to focus on revenue generation through export of electricity. As Bhutan has always chosen middle path of sustainable development guided by central development policy of Gross National Happiness, it is necessary to explore the collaborative issues and the approaches of the stakeholders involved in hydropower development for industrial uses before realigning country’s development plan and policies to address these opportunities and challenges. A framework of collaborative strategy between hydropower generation and power intensive industries has to be sensibly derived based on collaborative issues and approaches of stakeholders for effective implementation without deterring the philosophy and strategy of Gross National Happiness.