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NATURE OF CONSTRUCTION BUSINESS

NATURE OF CONSTRUCTION BUSINESS. Aleš Tomek. Faculty of Civil Engineering Department of Economics and Management CZECH TECHNICAL UNIVERSITY IN PRAGUE .

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NATURE OF CONSTRUCTION BUSINESS

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  1. NATURE OF CONSTRUCTION BUSINESS Aleš Tomek Faculty of Civil Engineering Department of Economics and Management CZECH TECHNICAL UNIVERSITY IN PRAGUE

  2. Construction involves the marshaling of materials, people, and equipment on a projectsite and assembling the materials in the proper sequence to construct a project thatmeets the customer's requirements. These projects may range from an individual hometo a sophisticated infrastructure project, such as a regional airport or a majortransportationsystem

  3. The business management challenges in construction are toensurethat : • the revenue generated by the construction activity exceeds the cost of doing the work, • the company has adequate demand for its services, • the company has adequate financial resources to finance construction projects untilreimbursed by itscustomers, • the company has a skilled, motivated workforce of sufficient size to meet anticipatedrequirements, and • the cost of the company overhead is affordable based on the projected workload. CHALLENGES OF BUSINESS MANAGEMENT

  4. Construction is an intensely competitive industry, with companies ranging in sizefrom less than ten employees to over tens of thousands of employees. • Because ofthe great diversity in the types and sizes of projects as well as the variety in the expertiseand size of companies, most firms tend to specialize in distinct segments of themarket,such as : highway, commercial, industrial, residential, electrical, mechanical, siteand utility, marine, and underground. Construction : competitive business

  5. The following business responsibilities are similar: • acquisitionofwork, • performance of the work, and • management of the financial, capital, and human resources of the firm. Business problemsofeverycontractor

  6. The construction industry annually accounts for about 10 percent of the grossdomestic product (e.g.of the United States). It is a fragmented industry with a large numberof firms. Unlike manufacturing, construction does not require large capital investmentsto establish a business. Constructiondoes require sufficient cash resources tomeetfinancialobligations. Workingcapital - necessarycondition

  7. Few construction firms fail from a single cause or from a sudden, catastrophic event. • One cause may predominate, but inadequate response to several interrelated factors isthe typical cause of business failure. The primary causes of failure can be grouped intotwo categories: external influences and internal problems. • ExternalInfluences • prolongedeconomicrecession, • loss of a major customer, • newcompetition, and • shortageofskilledlabor. PRIMARY CAUSES OF BUSINESS FAILURE

  8. StrategicPlanningIssues • Pursuit of volume To many people in the construction industry, business volume is ameasure of success. While it may indicate the significance of a firm in its relevantmarket, profitability is a more important measure of success. The pursuit of volumewithout a corresponding increase in profitability places the economic viability of the constructionfirmat risk. • Lack of comprehensive business plan Construction companies often do not havebusiness plans that guide their business decisions. They simply react to the market. Business planning requires an understanding of the market, procurement,the competitive advantages , services to be offered, the selection of marketarea, the selection of people and equipment required. Internalproblems as main cause offailure

  9. Diversifying into unfamiliar types of projects • There is high risk, because appropriate suppliers and subcontractors maynot be known, and the technical requirements may exceed the expertise of thecompany's project management staff. • Costs may be underestimated, resulting inunprofitable projects. • Unfamiliar contractingapproaches, such as design-build, results in significant financial risk Diversifying into unfamiliar geographic areas • New market poses great risk to a construction firm. Potential customers, suppliers, andsubcontractors are unknown. If the location of the new market is a significant distancefrom the company's normal area of operation, there will be little ability to augmentproject management staff with other company resources; placing greater stress on theprojectmanagement team.

  10. Lack of managerial maturity Construction firms often are founded by one or twopeople. As a firm grows, its management system must cope withincreased scope of work. Additional managers are needed, and the founders mustdelegate some authority for making business decisions to others. Continuing tocentralize all decision making in one or two people does not provide theresponsiveness needed to react to changing business conditions

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