EFFECTIVE PROJECT CULTURE FOR INTERNATIONAL LARGE CONSTRUCTION PROJECTS

SEMINAR

EFFECTIVE PROJECT CULTURE FOR INTERNATIONAL LARGE CONSTRUCTION PROJECTS

By

Dr. Hadikusumo, CEIM/MPM Coordinator

On 20 Jan 2013, MPM program organized monthly technical seminar with topic for this month is: Effective Project Culture for International Large Construction Projects with the participation of more than 30 participants with many nationalities.

During seminar, Dr. Hadikusumo shared about Large Construction Projects have been perceived as high risks and complex processes. The risks involved technical, commercial and political risks.  And, the processes included Conceptuael, Design, and Construction to Commissioning processes. The situation will get more complicated whn people with different cultures work together in a project. Thus, the understanding and management of cultural dimensions are of paramount important to put people to work together in harmony the complex construction processes. 

Visit An Giang provinces and Da Nang city of MPM delegation

Visit An Giang provinces and Da Nang city of AITVN/ MPM delegation

Last 17/01/2013, AIT delegation has organized a visit to Center for Promotion of Human Resources Development, The People's Committee of Da Nang city, Da Nang city to explore the potential corporation between AIT and Da Nang city for high level human resources development.

From Left to right: Dr. Hadikusumo, Ms. Tuong, Ms. Hoa, Dr. Amrit Bart (AITVN) and CPHUD representative

Next event, on 18/01/2013, AITVN also had a meeting with An Giang university to finalize the Memo of Understanding so that AIT and An Giang University can start for our cooperation. Professional Master Program in Project Management in Construction will be a first program launched at An Giang very soon this year.

Dr. Amrit Bart, AITVN Director and Dr. Hoang Xuan Quang, Viec-Rector of An Giang University

Project Management Approaches of a Japanese Construction Company In Vietnam: Procurement Management, Organizational Structure, Subcontractors Management, Customers Management and Safety Control

Japanese contractors have been setting up their companies in Vietnam since 1990 and operating successfully with many buildings finished on schedule with good performances. Although Japanese contractors have created a good reputation with Japanese standard quality and on time delivery, there have been some problems remained in their system that the report was analyze in terms of Procurement Management, Organizational Structure, Sub-contractors Management, Customer Management, and Safety Control. Mr. Le Hoang Nguyen focused on the following problems:

1. Procurement or project delivery type of the Japanese contractors is Design & Build.

2. The organization structure of the Japanese contractors is usually too simple to meet all the requirements such as safety and QA/QC properly.
3. The owner – the main contractor – subcontractors – suppliers can form a supply chain.
4. The most important thing, how to control safety matters following the safety plan in the actual Vietnamese conditions with local subcontractors.

In conclusion, by analyzing the current project management approaches in Japanese construction companies in terms of procurement management, organization management, sub-contractors management, customer management and safety control, the report will find out strengths & weaknesses of the existing system and recommend for improvements.

The objectives of this case study were to : (i) study the current practices in Japanese contractors in Vietnam in term of Procurement Management, Organizational Structure Management, Sub-contractors Management, Customer Management, and Safety Control; (ii) investigate for an efficiency of organization set up; (iii) find out strength and weakness of the current system; and (iv) recommend approaches for improvements.

Conclusion

Basically, through the analysis of the current project management approaches the strengths and weaknesses of the current system were found at some points. Although the report shows the efficiency of the existing organization and the management system, in conclusion, the mentioned above project managements was reviewed and some approaches are recommended for improvements.

1. Procurement Management and organizational structure

Design & Build with lump sum contract and fast-track management is still the strong point of this type of procurement. This is based on the relationship and trust. Though, the high cost and risk are the remained issues need to be improved to increase the contractor’s competitiveness. There are some proposed approaches such as breaking down the scopes of work into smaller scopes with specialty suppliers, direct purchasing for main materials, equipments and machines. As a result, the direct cost could be reduced considerably.

As the demands of the procurement system, the organizational structure has some related issues. The organization is too simple to cover all the required works in terms of technical issues, construction works, QA/QC, safety matters and purchasing orders. In the proposal, the organizational structure should include necessary departments: Technical Department included QA/QC and Safety departments, Construction Department, Commercial Department with Procurement Department, Administration Department and Accounting Department etc.

The concerned issue is that how to localize the management in the Japanese construction companies in Vietnam. The return of the localization the management could be the cost reduction, better communication, management and/ or coordination between local staffs & different departments and local suppliers, subcontractors, consultants. This is essential to form a supply chain network.

2. Sub-contractors management and customer management

As a matter of fact, in a general view, subcontractors – main contractor – customers form a supply chain network through project by project. So, the importance of relationships, between the client and the contractor, the contractor and the subcontractors should be understood properly. Moreover, the relationship should be focused on improving performance and adding value to the process.

In order to achieve the above targets, the following approaches could be applied.

First, at least three companies of each supplier, subcontractor and consultant should be considered, evaluated and then maintained for every project to have the best competitive price and performance delivery. Second, co-operations with supplier, subcontractor and consultant should be in more than one project in order to incorporate the knowledge into the new project and achieve continual improvement. Third, long-term relationship with the subcontractors should be considered and maintained in the concept of supply chain network by keeping payments on schedule and variations approval and any necessary supports at the right time of need. In other word, the Japanese contractor has to play the main role as the chairman in every meeting and co-ordinations in terms of time, cost, quality, and safety control in all the phases of the project.

Customers are almost the Japanese companies, the unique specific characteristic in Japanese contractor. Because of the increasing critical competition, the demand is that how to get jobs from non-Japanese customers. Achieved this target, the Japanese contractors not only could increase their competitiveness with local contractors but also expand the supply chain network.

3. Safety control

Finally and the most importance is safety first, the much different thing compared with local contractors. Safety control at jobsite is follow the company safety policy, safety targets and safety plan with specific measures and safety construction cycle in daily, weekly and monthly. However, the following recommendations should be considered.

First, the safety policy should include all of business activities, and the organization should be set up to make sure the safety plan is implemented seriously sufficiently and efficiently.

Second, planning and implementing safety targets should get agreements with managers and supervisors to make sure the targets are achievable. In addition, purchasing and supply policy should be taken into account too.

Finally, for continual improvement, not only safety construction cycle is implemented regularly but also PDCA (Plan-Do-Check-Action) circle should be applied continuously. Moreover, health and environment matters should be taken care of and applied at jobsite for a better working and living environment.

His thesis abstract is copied and pasted below.

Abstract

Vietnam construction industry has been developing significantly since 1990 with more and more high-rise buildings and factories built in Ho Chi Minh City, Hanoi, Da Nang, Can Tho and other cities due to continuously increasing demands in economical, cultural and social aspects. Foreign contractors found this big chance and set up their company in Vietnam at the right time. Among them are Japanese contractors such as Kazima Corporation, Shimizu Corporation, Obayashi Corporation, Fujita Corporation, and Taisei Corporation, which have been operating over fifteen years in mainly the industrial buildings section. As the result, the competition between the contractors, local and foreign companies, has been increasing dramatically. So the most challenge for the Japanese

contractors in Vietnam is how to increase efficiency, competitiveness and sustainable development.

For these purposes, this report will analyze the current project management approaches in Japanese contractors in Vietnam in terms of:

1. Procurement Management.

2. Organizational structure.
3. Sub-contractors Management.
4. Customers Management.
5. Safety Control.

Finally, in comparison with the theory and practices, the report will point out the strengths and weaknesses of the existing management system in comparison with the local companies, then recommend for improvement approaches that could be applied in Vietnam.

Factors Affecting Financial Performance of a Project in Times of Economic Crisis: A Case Study of Commercial and Office Center Projects in Ho Chi Minh City

Since Vietnam joined the WTO (1/2007), it fully entered international integration. According to the foreign investment inflow to Vietnam, a lot of multinational enterprises were established and opened the prospects of office and retail area for lease. Many businesses invested in real estate in the past. Thus, a supply of leasable sector has increased sharply for two years and became saturated. Actually, it is too difficult when Vietnam is influenced by crisis of the world economy which leads to a lower growth of domestic economy, high inflation, and tight monetary policy. Business reduces the operation scale, the investors limit expansion, and demand for office and retail area reduces.

Besides, according to the investment researches of consulting firms, the potential retail in Vietnam is attracted by crowded and young population, who is dynamic, open, and potential for consumption market.

Although Vietnam population is approximately 90 million, but there are only 638 supermarkets, 120 commercial centres and more than 2,000 convenient stores. This number does not meet the needs of people. Forecast, from now to 2014, the retail sales in Vietnam will be increased 23% per year. Therefore, the potential of modern commercial business development is huge.

Consequently, in order to take the potential advantages of the Vietnam real estate as well as to help the market to overcome gradually difficulties during the economic downturn, it is necessary to consider the factors affecting the investment efficiently, especially the project’s financial performance, by which to set up the preventive plan. Develop projects, which strengthen the real estate market more stable and developing.

Ms. Hoang Quynh Anh made a case study which 2 main objectives were to: (i) research the factors that affect to the financial efficiency of the commercial real estate project commercial in the recession economy period; and (ii) give measures to minimize the effect of factors on financial efficiency of the project.

Conclusion

Each factor has a negative impact on the efficiency of investment project. According to the detailed solutions, the investors need to implement the project and in mid-2013 by using the following reasons:

- The positive signal from the government’s measures to restrain inflation, contributed to the project’s financial picture brighter, inflation falls down under 10%, the interest rate remains at 9%, economy grows slowly but it has progressed through each quarter;

-   Vietnam is a market with the great potential advantages of young population and high flexibility, rapid urbanization. Mostly investors and investment advisory companies have said that if the difficulties of the real estate market are temporary, it can be completely recovered when the economy has positive changes.

- Real estate is a high profitable sector.

Besides, the Vietnam real estate market is facing to the below challenges:

- The impact of the world economic crisis and Vietnam economic crisis are still prolong;

- The government’s solution has not brought the clear results yet;

- The competition between investors about reducing rental due to the rise of supply source of leasing area.

When the economic difficulties led to the crisis, real estate investment projects have been influenced heavily and may fail completely. In terms of the financial performance of the project, for instance, the project is not profitable for investors. The factors affect to the financial performance of the project during the period of economic crisis including exchange rate; inflation; interest rate; construction period; total capital; capital structure; occupancy rate; and rental.  When the economy is difficult, these factors are not guaranteed to initial expected value and change in bad direction, affect to the entire cash flow, financial indexes change negatively. To solve this problem, proposed solution is based on the relationship between factors and project cash flow, throughout the theories of basic financial calculation, determining the degree of change of financial performance when it has been influenced by these factors which have the solutions for each factor.

However, there are some limitations in this study. Firstly, the study does not consider the influence of some other type of real estate such as: apartments, townhouses, hotels, etc. Secondly, calculation depending on the accuracy of input data does not anticipate all risks.

Recommendations

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For the purpose of preventing harm to the financial performance of the project when the economy is difficult, recommendations are as follows:

- Surveying market and assessing demands to have the investment orientation proper in the feasibility study phase of the project.

- Completing marketing at the beginning of project, saving marketing cost by selecting the form of effective advertising such as: internet, attend exhibitions, contacting customer, attractive commission order.

- Increasing number of customer by establishing the principle contract, using memorandum of commitment after the project completes;

- Having preferential policies on rents, having convenient administrative procedures, lasting the rental period to pre-order customers, committing about quality after selling. 

- Researching the product and service properties of the same type on the market, researching demands, purchasing power and taste of customers to offer the reasonable price, adjusting price according to the volatility of the market.

- Having  financial plan, mobilization channel finance flexibility, reducing the dependence on bank;

- Taking advantage of supporting to the State policies on interest rate, tax… when the economy is difficult;

- Completing the project on the schedule for project operate quickly, early generating revenue;   

- Ensuring quality construction, do not increase cost and time due to repair of the damage, reducing maintenance cost when the project puts into operation;

- In the operation phase, it is necessary to establish management organization compact, transparency in administration, training institutions for the necessary technical personnel, saving cost.

According to the above solutions, developers should take all measures, since these solutions have been affecting to each stage of the project, and the final result is the success of the project. However, developers need to pay special attention to two factors below:

- Surveying market and assessing needs of market in the feasibility study phase of the project in order to direct the appropriate investment. This is crucial element lead to the success of the project. Therefore, the survey data must be accurate and updated, information supply must be reliable.

- Developers need to make effective financial plan to backup all risks and to reduce dependence on bank. This will help the project escapes from the difficult circumstances, because finance is an important factor for investment decisions.

 

Paying attention to two above factors, along with research methods, professional calculation will give the project approach to success.

 

For further studies the following should be analyzed:

- Making the financial plans to ensure the safety of the project, increasing the diverse capital such as issue of shares, taking advantage of customer deposits, bank debt agreement…

- Extending the study in some types of real estate such as apartment, hotel, downtown house, land…

Continue studying the influence of the factors of inflation and exchange rates which these indicators affect to the entire cash flow of the project.

Her thesis abstract is copied and posted below:

Abstract

Controlling the financial performance of a project as the economy fell to recession is very difficult, how a project can achieve profitability as planned? This is really challenging and time-consuming for the financial management of the project, since it involves to a wide range of issues within the project and the objective problems of social. To answer this question, it is necessary to determine what factors affect to the project finance in the circumstance of the economic stagnation. This final report focuses on review how the financial performance of a project changes when the input data changes, thereby determining the factors affect the financial performance. Through a case study is a construction project of commercial and office centre in HoChiMinh City, according to the basic financial calculation theories, the report points out the factors that affect financial performance of the project when the economy is difficult. Since then, giving some measures to improve the situation, maintain and develop the project.

Quality Management in Design Process: A Case Study at Tat & Associates D’architectura Co., Ltd

Design consultant or designer plays an important role in project quality. Currently in Viet Nam, there are many requirements for design quality. However, investors (public or private sector) have not really focused on the management of the project design, and the role of consultant/engineer in the design process has not been properly concerned. This affects the quality of work negatively. In order to create a good construction work, quality should be paid attention to all stages, especially in the first design stage. A detailed and perfect design will help to minimize defects or failures in construction, thus save costs and expenses. During construction period, such minor defects or failures may cause personal injuries or work delays, leading to indirect costs of insurance, inspection or regulation. In summary, the success or failure of a project is greatly affected by the decisions during design and planning stage.

Design quality must refer to health and safety factor in the project. A lot of decisions made in planning and design process related to safety during construction, and such careless design can make it dangerous or difficult to carry on construction works. On the other hand, good plans may considerably reduce the possibility of accidents. Hence, design consultant bears the responsibility to the owner and the society for design quality, material specifications and functional performance in their design. Mr. Doan Ngoc Hoai Vinh made a case study which major objective was to study the Quality Management in Design Process, and in order to achieve this objective, three sub-objectives were needed to accomplish such as: (i) study the existing practices of design process and management in Phuoc Binh Apartment project; (ii) analyze the effectiveness of design process and management; and (iii) provide framework for design process.

Conclusion

Design process quality management is very important to make high-performance of design and construction services. However, there are a few design companies which apply quality management for the design process in Vietnam and there are many causes related to this problem.

1. They do not have design quality awareness.

2. They work by experience and habits

3. They have limited capacity.

During a period of construction boom when people has just known benefit, profit without regard the quality of building. On the other hand, recently, the quality issues are always considered a top priority by investors when they want to evaluate and select the design consultants and construction contractors. Below are the conclusions drawn from the three sub-objectives.

1.   Existing practices of design process

Quality management in the design process that starts before a project even begins and touches all aspect of our business/internal processes. Design process include: design planning, structure and responsibility, design integration, conceptual design, preliminary design, detail design, value engineering, design review, design verification and validation, design change control, bidding and negotiation, construction, and feedback data.  The main benefit of this management is reduced risk, better client satisfaction, advancements in knowledge and ways of doing things, better-educated staff, and better projects in technical and design sense. Disadvantages are small. This study gives a standardization of the design process to encourage/remind designer to practice and also encourage the senior staff to continue to advise the younger staff.

2.  Effectiveness of design process and management

This study provides an overview of quality management and the analysis of specific existing design process quality management. Most of the requirements of quality management have been covered and presented in the existing system. However, the quality problems occur in most of design process that caused main risk to owner such as schedule delay, extra cost, abortive works and generating V.O.

In order to apply quality management in design process of project effectively, design consultants need to define the factors that affect to the quality of the design process and set quality as requirements to performance. And QM also depends on the characteristics of different projects to build feedback and develop appropriately. For example, requirements of apartment project are different from hotel project. Additionally, design consultants need to pay attention to quality perception. So, it is necessary to implement the internal quality audit and provide training at different position. It helps to consolidate quality perception in design team effectively.

Through above assessment and analysis, the study established a framework of design process, where entire project teams include: client, architects and consultants meet early to establish the vision, goals, objectives, criteria, and process for successful project.

Recommendation

- The ‘traditional’ outcome often dissatisfied clients, project budget and schedule overruns, and completed projects that were not actually achieving the results that the client had originally intended. There ‘had to be a better way’ as we embraced the new technology era. The firm began to record the processes and tools, using information management systems to formalize tools, processes and began a new model of working in a highly interactive and collaborative manner with our clients.

- The firm developed a clear strategic vision and a strong organization with embracing of quality improvement. The firm based on its direction should align the design processes together through proper communication, sustainable development and empowering the human resources of organization and concentrate on creating nurturing corporate culture.

- Focus on quality people is that the firm do not hire when need help; hire when find the very best people. The firm conducting interviews all year round and when find a top quality person and hire him or her; adjust workload of staff and not adjust staff to workload. The firm provides excellent working conditions and environment, the latest computer equipment and software, flexible work schedules, excellent benefits, fair pay.

His thesis abstract is copied and pasted below.

Abstract

 v  Sometimes we lose the next project for a client, even when we have done a great job on the previous one.

- We probably do a lot more rework than we need to, but we do not know because we do not measure it.

- Our designers never know when to stop designing, and it impacts on the time to complete the project.

- Scope omission is a constant problem, and it is hard to get increasing fees for it.

- We are expected to manage the project team, but our people are not very good at keeping the project team on schedule.

These, and a lot of other situations that frustrate principals, are in fact quality problems in disguise.

The research aims to study project quality management and improvement. The scope of study was limited in design firm in Viet Nam. Cross literature was reviewed and real case analysis was implemented in order to find out the factors influencing on the quality issue and focus on the framework of quality management in design process.  

Recently, quality management has been applied widely in construction projects. As we all know that it is developed to manage the performance of design and construction activity. In Vietnam nowadays, people pay more attention to the quality in building projects as well as to meet client’s requirements as much as possible. Therefore, the objective of quality management is not only to enhance the quality of construction projects but also to raise the effect and productivity during construction period. All of this aims to satisfy client’s needs, as a result.

The overall objective of the research is to provide owner, project manager, designer, contractor with information and practice knowledge which could support them to handle the tasks and solve the problems more effectively with their limited resources. All of this, as a result, will help to achieve better quality outcomes.

FIDIC Contract Application In An International Infrastructure Project: A Case Study Of Ho Chi Minh City Water Environment Improvement Project

In Vietnam, international projects are required to follow the international standard/ rules or the Standard FIDIC Form of Contracts through a lager infrastructure projects. The problem that the Employers usually face is that, Vietnam has its own rules which are different from the international standard. Differences in practices and thinking could not be avoided. Sponsors always reminded that when there is a difference between the rules of Vietnam and regulated by Sponsors, they must follow the Sponsor’s.

Therefore, in the process of implementing projects and preparing tender documents, the Employer works with the Consultant about General Conditions and Conditions of Particular Application of FIDIC Conditions of Contract. Ensure that all the conditions for construction contract have formed to fit as specified by the Sponsor, the FIDIC Conditions of Contract, and the rules of Vietnam law construction. General Conditions and Conditions of Particular Application of Contract as well meaning as easy to apply the project smoothly success and minimize the risk or controversy in the process of implementing projects. All General Conditions and Particular Conditions of Contract have shown in full tender dossier, during the period of negotiations and signing of the contract and attachments as part of construction contract.

Mr. Dang Ngoc Hoi made a case study which three main objectives were to: (1) study FIDIC Forms of Contract application in a project; (2) study problems occurred and implement process for application General Conditions and Particular Conditions of FIDIC Forms of Contract in this project; and (3) Analyse the strengths, weakness, and proposal a procedure for solution

Conclusion

Using the FIDIC Forms of Contract with ODA loans, it needs to meet the regulatory requirements of sponsors such as the World Bank, JICA, ADB, etc. through international competitive bidding and is usually carried out by international Contractors. To implement the project according to the terms stipulated in the loan agreement between the Government of Vietnam with Sponsors, these guidelines apply to the FIDIC Conditions of Contract or the Sponsor's policies and regulations on project management of Viet Nam Government. Owner Units (Employers) in Vietnam face big opportunities and challenges. Minimising the risks, controversial claims in the process of implementing a construction Contract. the Employers often require design Consultant (or Employer) to draft Contractual terms according to the forms regulated by the Sponsors or FIDIC Conditions of Contract, technical specifications, and other agreements in accordance with regulations on management of ODA capital projects of the Government of Viet Nam, and be reflected in the Particular Conditions of the Contract, and ensures that the Particular Conditions and General Conditions of FIDIC Contract including the binding of the Employer, Engineer, and the Contractor with full rights and responsibilities of all Parties in the process of implementing the project. In the event that the Parties understand and perform the full duties and responsibilities in the Contract, they will mitigate or can avoid controversial action.

Based on the author’s observation, applying the Forms of FIDIC Contract in international projects on infrastructure construction in Vietnam is very useful. It binds the specific rights and responsibilities, represents the equity and risk sharing for the Parties (Employer, Engineer, and Contractor). However, users also anticipate difficulties and always active to improve the understanding when applying this Form of FIDIC Contract such as:

+ Language differences also affect the Countries which are not using English communication. This is also a limitation for Users who cannot fully understand the terms or legal in the FIDIC Contract.

+ Improving the General Conditions of FIDIC Form of Contract and the additional terms through Particular Conditions or Special Conditions and over time of usage between the Employer, the Engineer and the Contractor, it will increase the compliance made between the Parties under the Contract.

+ Because the FIDIC General Conditions of Contract clauses varied from time to time or improved, the Users need to be trained to improve the User’s knowledge and capability to apply FIDIC Form of Contract performance, it is very important in the process of implementing a international infrastructure investment and construction projects.

+ Success of using FIDIC Form of Contract often depends on the experience of People who have used similar FIDIC Conditions of Contract in infrastructure construction projects.

+ Several Conditions of Particular Application of the FIDIC Conditions of Contract for Works of Civil Engineering Construction, the Fourth Edition in 1987 have been adopted in the project is also attached to this report (Appendix No.1).

This report also focused to describe the advantages and disadvantages in the process of applying the General Conditions and Conditions of Particular Application (COPA) in FIDIC Conditions of Contract of large scale infrastructure construction projects in Vietnam, in particularly, the Ho Chi Minh City Water Environment Improvement Project, to resolve the major problems occurred in the process of implementation the project.

His thesis abstract is copied and pasted below.

ABSTRACT

In recently, Viet Nam has mobilized more resources to develop the infrastructure construction system, the budget are including the domestic resources, Foreign Direct Investment (FDI) capital, and official development assistance (ODA) loans from Organizations and Countries in the World. More international projects will be built in Vietnam based on international competence it necessity will have to use the international standard/ rules or the Standard FIDIC Form of Contracts through a lager infrastructure projects.

To perform the role and mission of the Employer, the Employer have to implement project management and make it meet all requirements of FIDIC Forms of Contract and Vietnam’s rules these jobs are not easy, because there are still differences between the rules of the international Sponsors with the rules of Vietnam. Differences in practices and thinking could not avoid. Therefore, in the process of implementing projects and preparing tender documents, the Executing Agencies or the Employer has requested to amend and apply widely adding special conditions to General Conditions to disputes arising among the parties in Contract, the amendments and additions shall be set out on pages headed Particular Conditions. Ensure that all the conditions for construction contract have formed to fit the specified by the Sponsor (or Sponsor’s policies). The FIDIC Conditions of Contract, and the rules of Vietnam law construction which are combined as well meaning as easy to apply the project smoothly success and minimize the risk or controversy in the process of implementing projects. They also have shown in full tender dossier, during the period of negotiations and signing of the contract and attachments as part of construction contract.

This report focuses to describe the advantages in the process of applying the General Conditions and Conditions of Particular Application in FIDIC Forms of Contract (special on Part II – Conditions of Particular Application) to resolve the major problems occurred in the process of implementation the project. Analysis on strengths, weakness, proposal a procedure for solution, and recommendations of construction contract for improvement in future that are applied FIDIC Form of Contracts.