COMMERCIAL MANAGEMENT OF PROJECTS. COMMERCIAL MANAGEMENT OF PROJECTS.
The workshop for this subject has introduced several tools and models that can be used to manage issues related to commercial management of projects. The topics that were included in the block workshop broadly included finance for commercial projects, risk management, procurement and decision making.
Please choose two (2) out of the three (3) topics below and answer the associated questions. The topics are weighted equally. You find further information regarding the weighting of individual questions in the respective sections.
Topic 1: Financial Management
ResortLife Development Project
ResortLife Developments is a large property development corporation that specialises in coastal developments in Australia, New Zealand and Fiji. You are the project manager on large construction site on the Sunshine Coast. The planning phase was completed on 31 March 2015 and construction commenced on 8 April. The first phase of construction (site preparation) is expected to be completed on 6 September 2015.
The project will be funded using a combination of internal funds and a bank loan. The loan facility was drawn down for the first time in May. See Appendix A for interest paid amounts.
During April the earth moving equipment moved in and started clearing the site. The earth moving contractors invoice monthly and ResortLife Developments have offered 29 day payment terms in return for favourable rates. There was some delay in certain areas due to mechanical failure of one of the main machines. See the source documents for their most recent statement.
A project in New Zealand had a contractual change that resulted in custom-made glazed tiles MPM 15348 Final Assignment 3 Spring 2015 – Page 2 not being used. That project had already paid $230,000 for them six months ago. These expensive tiles would suit the Sunshine Coast project’s pool area. Although they will only be required in 9 months, they have been shipped to Australia and are currently in storage. The shipping cost of $3,500 has already been paid.
An entrepreneur from Fiji is looking at using ResortLife Developments to construct a similar project. He flew over to inspect the site and talk to you about the project. The travel costs including flights and accommodation amounted to $6,400. You spent a day with him highlighting risks, possible similarities and areas of difference which could incur additional costs.
The architect was paid a deposit of $90,000. The balance was due in April but the architect only sent the invoice in June. The architect fees were in the budget for the planning phase. They were paid for in August 2015.
ResortLife Developments works on a standard 8 hour day for employee and contractors. Overtime is paid at 1.25 of normal rates. Salaries and wages are paid on the last working day of every month.
An environmental impact study was carried out and the report was received in March. This cost $207,000 and was paid in March. As part of the report ResortLife Developments is required to ensure the drainage of 1.5 hectares is improved. This was not budgeted for and will cost $350,000. Envirocare Pty Ltd was contracted to carry out this work and $120,000 worth of work was completed and paid for on 30 June 2015.
In addition to the above-mentioned items, one of your team members has compiled a list of other costs incurred to date. See Appendix A.
1. List the costs that will be allocated against your project and should be disclosed in the Project Accounts at the end of the current financial year, ending 30 June 2015. In a column on the right provide any assumptions you made or your reasons for including the cost. 50 Marks
2. Discuss how the above transactions would have impacted the project’s cash flow for the months April to June. 10 Marks
Topic 2: Risk Management:
Question 1 (30 Marks)
Using the notes on Graham Kenny’s Strategic Factors (the PowerPoint presentation for Day 2: Risk Management – Concepts and Strategy), and also the insights gained from Day 1: Finance and Day 3: Contracts & Procurement; fill out the Table with column headings ‘Organisational Objectives’, ‘Behavioural Outcomes’, ‘Risks’, ‘Strategic Factors’ and ‘Measure’ (template provided). The Case Study A: Football Stadia pertains to The Millennium Stadium, Cardiff given on pages 381-398. Refer to page 392 of the, Figure A.3 for a list of stakeholders for the project.
With the Welsh Rugby Union (WRU) / Millennium Stadium as the ‘Organisation’, identify any six (6) key stakeholders of which two (2) of these should be subcontractors (Contract & Procurement) and one (1) of these a bank (Finance). Do the following:
i. Identify the WRU’s organisational objectives (as many as you can) in relation to each of the identified key stakeholders.
ii. What do you think are the desirable behavioural outcomes that the WRU would desire of these stakeholders?
iii. What are the potential risks faced by the WRU? Next to these risks, in a sentence or two indicate how these may be mitigated.
iv. What are the strategic factors? In other words, what does each of the selected key stakeholders want (in return) from the WRU?
v. Identify some measures (i.e. metrics) by which each of the key stakeholders could establish their level of success in doing business with WRU.
Note that in filling out the Table, you would have answered i-v.
Question 2 (30 Marks)
Refer to the PowerPoint presentation for Day 2 on Risk Management – Basic and Advanced Tools. Using the soft copy of the risk matrix template (see Group Exercise II) made available to you, do the following:
i. Identify the hazards and risks for the key stakeholders that you have identified above.
ii. Assess the probability (likelihood) of occurrence, the potential consequences and the resultant risk rating if no mitigating measures are put in place.
iii. For each of these risks, indicate what mitigating (control) measures should be instituted in order to reduce the likelihood of occurrence and the severity of the consequences
iv. Re-assess the likelihood of occurrence, the potential consequences and the revised risk rating in view of these measures. Note that in filling out the columns of the risk matrix, you would have answered i-iv. The final question below (v.) is listed on the risk matrix (template) spreadsheet itself.
v. In your opinion, which of these risks would be better assessed using a more quantitative risk tool e.g. Monte Carlo? Briefly explain your answer.
Topic 3: Procurement and Contracting
Your Australian based company will be bidding for the construction of a football stadium, similar in scope and complexity, to the Millennium Stadium. The stadium is to be constructed in Country X (Country X is a country of choice, but not the UK).
One of the main challenges in conducting the project in your chosen jurisdiction is to secure the services of suitably qualified and capable local sub-contractors for the supply of key services, materials and equipment.
From your company’s perspective you need to engage with the relevant local sub-contractors prior to submitting your proposal for the Design and Construction of the stadium. In preparing for your tender submission, you need to:
1. Define the major work packages that you will require sub-contractors for (not more than 3): [mark – 10]
2. Define a procurement strategy (as comprehensive as you deem necessary) to engage the relevant sub-contractors (through a selective tendering process); [mark – 30]
3. Define the tendering process, with specific reference to your evaluation criteria (and weightings) to identify the most suitable sub-contractors; and [mark – 10]
4. Define the key performance metrics that you will incorporate in your contract management plan, which measures the performance of your subcontractors. You also need to illustrate how and when, your company – as the prime contractor – will provide your Client visibility of the performance of these sub-contractors. [mark – 10]
In addition to these specific requirements identify three key lessons learned from the Millennium Stadium project that you believe are critical to incorporate in your company’s dealings with its sub-contractors to ensure a successful contract and project delivery. Use the information from the Millennium Stadium case study to inform the development of your company’s procurement strategy, tender evaluation process, and sub-contractor performance measures.
• Assume that you have sufficient time to run a full tendering process to engage the most suitable local sub-contractors; and
• Identify suitable local conditions, methods of contracting, standard forms of contact, etc., for your chosen location.
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