Development of linear programming for capital budgeting of construction projects

The UK construction industry suffers the largest number of bankruptcies of any sector of the economy, with many companies failing because of poor financial management, especially inadequate attention to poor cash flow forecasting. The financial model outlined in this paper demonstrates the potential application of simulation methods in assessing financial alternatives.     

Improvement tools in the UK construction industry

The use of improvement tools in manufacturing industry has proven to be an important aspect of continuous improvement activities. To determine whether the same is true in the UK construction industry, a survey was conducted to assess the current level of use and perceived importance of such tools. In addition, the impact of the ISO 9001 quality system on the level of use and perceived importance of these tools was also investigated. Following a comprehensive literature review, more than thirty improvement tools were identified and categorized using affinity diagrams. Factor analysis was used to demonstrate that the proposed classification was valid. The results of the survey showed that, in terms of use, quality control, performance measures and technology tools are common practice in the industry. A similar set of tools/techniques was perceived as highly important except that technology and performance measures were interchanged. When comparing the mean use and mean perceived importance for each group of techniques, significant differences were found in tools that help to gather customer needs, those aimed at programming and those used for measuring performance. In terms of the ISO 9001 standard, it was found that certified companies make more use of and place higher levels of importance on most of the groups of tools studied than those not certified. The conclusions from the survey will help to develop a framework for suggesting which tools to use at each stage of a construction project.     

Contractor financial credit limits; their derivation and implications for materials suppliers

Current methodologies for ‘calculating’ contractors' credit limits (for supply of construction materials) are discussed and critically appraised. It is highlighted that credit limit imposition should be a function of a supplier's financial characteristics as well as potential debtors' probability of defaulting upon repayment. A conceptually new approach is presented to identify whether an additional contractor's trade results in a worthwhile gain in utility for the supplier. It is identified, inter alia, that (i) allowing very few contractors credit facilities that account for a large proportion of suppliers' potential profits, (ii) having inaccurate creditworthiness evaluation procedures, and (iii) operating on low targeted profit margins are the characteristics that inflict maximum financial risk upon materials suppliers.     

Predicting profitability of listed construction companies based on principal component analysis and support vector machine—Evidence from China

In order to monitor the operating conditions of the construction industry, this paper incorporates the principal component analysis (PCA) and support vector machine (SVM) to predict the profitability of the construction companies listed on A-share market in China. With annual financial data in 2001–2012, this paper selected six indicators from different profitable perspectives to build a composite profitability index based on the PCA technique, and then established a SVM model to make the corporate profitability prediction of the construction companies in China. The results indicate that, the technical combination of the PCA and SVM can improve the profitability prediction significantly. In 2003–2012, the accuracy of predicting the profitability of the Chinese construction companies exceeded 80% on average. Compared with the artificial neural network (ANN), the SVM model has the superiority in the accuracy prediction of the Chinese construction companies.     

Reliability of Engineering News-Record international construction data

Since the late 1970s, the Engineering News-Record (ENR) has produced annual lists ranking firms involved in development of the built environment on the basis of their international revenues. ENR lists, such as the Top 225 International Contractors and the Top 200 International Design Firms, have become popular datasets for international construction research. Nonetheless, given that the ENR data are self-reported, reviewers for journals and research funding bodies frequently question the reliability of the data. The aim of this research is to ascertain the extent to which the self-report ENR data can be considered reliable for international construction research. Inter-data reliability tests conducted to measure the levels of resemblance between the ENR data and annual report data of 51 sample companies found that, contrary to the prevalent view that companies reporting to the ENR tend to inflate their revenues, there are no systematic errors in the ENR data. Although slight discrepancies were found, ENR data can be confidently used for international construction research. Journal reviewers and editors should be more open to ENR international construction data, rather than taking the default position that the data are inherently and seriously problematic and thus automatically dismissing those studies that use such data.     

Developing an SVM based risk hedging prediction model for construction material suppliers

Construction material suppliers are usually exposed to financial risks as a consequence of a high debt capital structure and the nature of the material import business. There is demand for a tool that is able to predict whether such a material supplier, based on its financial status, should use derivatives to hedge financial risks. The research objective is to develop a prediction model using the Support Vector Machine (SVM) to determine whether employing risk hedging based on derivatives usage would be beneficial. The scope of this research limits the database to 640 financial statements published over the last 5 years from 32 listed construction material suppliers. A total of 10 input determinants were identified and verified from the literature review, t-test results, and collinearity diagnosis. Using data trimming and normalization, these 640 sets were downsized to 520 sets which contained 248 effective and 272 ineffective risk-hedging sets. The SVM prediction model, based on the kernel radial basis function and normalized data, yields a prediction accuracy rate of 80.65%. The evaluation, using logistics and small sets of data, shows the validation and practicality of this model. This research concludes that 10 financial determinates are proven candidates for financial risk hedging. From the viewpoint of derivatives usage and the proposed SVM prediction model it appears feasible for construction material suppliers to apply this model.     

Prediction of tunneling-induced ground movement with the multi-layer perceptron

This paper presents a method to predict ground movement around tunnels with artificial neural networks. Surface settlement above a tunnel and horizontal ground movement due to a tunnel construction are predicted with the help of input variables that have direct physical significance. A MATLAB based multi-layer backpropagation neural network model is developed, trained and tested with parameters obtained from the detailed investigation of different tunnel projects published in literature. The settlement is taken as a function of tunnel diameter, depth to the tunnel axis, normalized volume loss, soil strength, groundwater characteristics and construction methods. The output variables are settlement and trough width. Parameters for the prediction of horizontal ground movement include diameter to depth ratio (D/Z), unit weight of soil and cohesion. The neural network demonstrated a promising result and predicted the desired goal fairly successfully.     

ISO 9000 certification and construction project performance: The Malaysian experience

Purpose

This paper explores the relationship between an ISO 9000 certified quality management system (QMS) and elements of performance in construction project environments.

Design/methodology/approach

A survey based approach is used to collect data from project managers working in the Malaysian construction sector in both ISO 9000 certified and non-certified organisations. Three elements of performance are explored: project management (PM) practices, financial management (FM) practices and Project Success. The Project Management Performance Assessment model (PMPA) (Bryde, 2003) is used as the framework for assessing PM Practices. 336 completed questionnaires are analysed, with a group of 73 being from ISO 9000 certified companies (a response rate of 48.3%) and a group of 262 being from non-certified companies (response rate = 32.6%). MANOVA are used to explore differences in levels of performance between the two groups.

Findings

Overall there is significance difference in mean scores at the 5% level in respect of each of the PM and FM Practice elements of performance, indicating that ISO 9000 certified companies have enhanced levels of performance in their project environments compared to those in non-certified companies. The two exceptions are the PM Practice related to establishing partnerships and managing resources and the FM Practice related to allowing for inflation and price escalations. The results also indicate that ISO 9000 certification has a positive moderating effect on the casual relationship between PM Practices and Project Success. Based on the survey results a Project Management Performance Assessment for Construction (PMPAC) model is developed, which extends the PMPA to include performance enablers linked to financial management activities.

Research limitations/implications

The survey focuses on the construction sector in Malaysia and further work is required to see if the findings are applicable to other countries and also to other business sectors beyond the construction sector.

Originality/value

The research reported in this paper is original in that prior research into the link of ISO 9000 certification and dimensions of organizational performance has not explicitly focused on project environments. The research findings provide evidence that those seeking to enhance their project performance could gain benefits from developing a QMS and seeking ISO 9000 accreditation. However the finding also indicate that an approach to performance management based solely on establishing a certified QMS may have its limitations in terms of establishing processes for managing the relationships on a project through partnership approaches and in dealing with uncertainty in the external environment, such as price fluctuations. The PMPAC model presented in this paper provides a framework for those working in construction project environments to ensure their project management systems incorporate the key activities that enable better performance.     

Industry financial ratios—application of factor analysis in Turkish construction industry

Turkish economy has been hit by various economical crises between the years 1998 and 2001 and the economic stagnation still continues. Past experiences in various countries show that it is vitally important to encourage construction activities in order to get out of stagnation, as construction output directly affects about 200 other sectors and industry financial ratio analysis is a means to provide a basis for the governments to undertake corrective action. However, there are over 50 financial ratios that can be used during analysis and some are more important than the others for different industries. Previous research has shown that there are about 25 factors that are important for the construction companies. This, in turn, requires elimination of unrelated data. Factor analysis is a data reduction and classification technique, which can be applied in financial analysis. Factor analysis was thus applied to the financial data collected from Turkish construction companies for a 5-year period in order to determine the financial indicators that can be used to analyse the financial trend of the industry. Five independent factors, i.e. liquidity, capital structure and profitability, activity efficiency, profit margin and growth, and assets structure were identified to be sensitive to the economical changes in the country. The results of the factor-based analysis can be used both by the government to analyse the changes in the industry with respect to time and by the construction companies to analyse their financial state with respect to their rivals.     

An investigation of corporate approaches to sustainability in the US engineering and construction industry

Sustainability involves focusing on a project’s impact in three areas: (1) environmental; (2) economical; and (3) societal. In reality, companies’ approaches in the three areas are not evenly distributed. A study of current trends in the US construction industry related to the emerging focus on sustainable construction will be of great value for the engineering and construction industry to recognize the differences in corporate approaches to sustainability, for the sake of team alignment. A random cross‐section of 300 companies, consisting of 150 owner companies, 75 contractor companies and 75 design firms representing a variety of industries, was selected from annual company data assembled by the weekly construction news publication Engineering News Record (ENR). To identify sustainability‐related concepts within the context of these company documents, content analyses and chi‐square statistical analyses were performed on the selected companies’ publicly available annual reports and mission/vision/values statements. The primary objectives are to: (1) identify concepts of sustainability that are currently being emphasized within the US engineering and construction industry, possibly at the expense of other concepts; and (2) develop an understanding of the relationships between various company and industry groups related to the fundamental concepts of sustainable construction.     

The idea of building business processes: the responsive housebuilder

In many market sectors there has recently been an apparent step change for the better in how companies perform their core business. The result has been increased competitive advantage for companies in the electronic products, automotive, insurance, banking and mechanical sectors. Careful research has shown that the way forward for the construction sector to similarly benefit from the new methodology is to apply well established ‘business systems engineering7rsquo; (BSE) principles. But business systems engineering is concerned with both engineering and integrating the technological, financial, organizational and cultural aspects of business processes. The responsive housebuilder is the particular example selected herein to demonstrate the power of the approach. By re-engineering the design, financing, and production processes, the housebuilder first learns to survive economic turbulence. However, second it grows by increasing market share via the exploitation of new opportunities enabled by much reduced delivery times. The outcome is therefore a welcome addition to the construction sector survivability categories originally listed by Steven Groák in The Idea of Building.     

Diversification in the international construction business

Economic globalization has created an interdependent market that allows companies to transcend traditional national boundaries to conduct business overseas. In the international construction market, companies often adopt diversification as a strategy for growth, for risk management or for both. However, the diversification patterns of international construction companies (ICCs) as a group are barely clear. The primary aim of this research is to cover this knowledge void by mapping ICCs’ diversification patterns in both business sectors and geographical dispersal. It starts from a literature review of diversification theories. Based on the review, a series of hypotheses relating to ICCs’ diversification are proposed. Data are gleaned from Engineering News-Record, i.e. Bloomberg and Capital IQ, ranging from 2001 to 2015. By testing the hypotheses, it is found that larger ICCs prefer to diversify than their smaller counterparts. Most of the ICCs tend to diversify to geographical markets with similar cultural or institutional environment. Market demands drive ICCs to diversify to different geographical markets while they are more prudential in venturing into new business sectors. The research provides not only valuable insights into diversification patterns of ICCs, but also a solid point of departure for future theoretical and empirical studies.     

基于层次分析法的建筑企业竞争力评价研究

随着我国市场经济体制的逐步确立,建筑企业之间的竞争也日趋激烈。如何合理地评价建筑企业竞争力,以便为企业制定竞争战略提供可靠的依据,成为一个值得关注的问题。文中建立了建筑企业竞争力评价的多指标体系和综合指标,采用层次分析法计算指标权重,提出了建筑企业竞争力评价方法。以我国上市建筑企业做为研究对象,采用该方法进行了实证分析。研究表明,该方法可以有效评价建筑企业竞争力,通过对企业竞争力影响因素分析,能够确定建筑企业竞争策略。     

Understanding the costs of investigating coliform and E. coli detections during routine drinking water quality monitoring

Bacteriological failure investigations are crucial in the provision of safe, clean drinking water as part of a process of quality assurance and continual improvement. However, the financial implications of investigating coliform and Escherichia coli failures during routine water quality monitoring are poorly understood in the industry. The investigations for 737 coliform and E. coli failures across five UK water companies were analysed in this paper. The principal components of investigation costs were staff hours worked, re-samples collected, transportation, and special investigatory activities related to the sample collection location. The average investigation costs ranged from £575 for a customer tap failure to £4,775 for a water treatment works finished water failure. These costs were compared to predictions for US utilities under the Revised Total Coliform Rule. Improved understanding of the financial and staffing implications of investigating bacteriological failures can be used to budget operational expenditures and justify increased funding for preventive strategies.     

Profitability of UK construction contractors

This paper describes three analyses to examine differences in construction company POT profitability between (1) different financial years and (2) different sizes of companies. In the first analysis, the aggregated profitability of a sample of 80 UK general contractors was found not to differ significantly from 3.23% for each year of the period examined. The size (turnover) of companies, however, was significantly and positively correlated with profitability. The second analysis, of a sub-sample of eight very large companies, showed that profitability enhancement was associated with diversification into house building and other related activities. The third analysis, of 110 speculative house builders, showed profit margins to be around four times those of general contractors but uncorrelated with company size. Systematic changes were found, however, over the period involved.

In all cases, the variability of profitability between companies was found to reduce with company size, implying a greater consistency in the financial performance of larger companies.     

A Grey System Theory‐Based Default Prediction Model for Construction Firms

As the prediction of construction firm failure is of great importance for owners, contractors, investors, banks, insurance firms, and creditors, previous studies have developed several models for predicting the probability of construction firm default based on financial ratio analysis. However, to be applied, these models require a considerable quantity of data, including normally distributed data, and the models cannot tolerate too many changing factors. Furthermore, most of the approaches produce sample selection biases. To avoid these disadvantages, this study is the first to integrate the grey system theory with all available firm‐year samples during the sample period to provide a new method for predicting the probability of construction firm default. This method not only offers an improved rate of prediction accuracy, but it also offers simpler and clearer procedures as a reference for examining firm default probability and ranks all financial ratios in terms of their level of importance. The research collects and analyzes the financial reports of 92 construction firms in the United States. The proposed model includes only eight ranked variables (financial ratios), and it achieves an 84.8% level of accuracy for predicting construction firm default probability. As a result, practitioners may directly use the model as a means of quickly and conveniently examining their firm default probability with the simple procedures.     

Computer-aided qualitative data analysis: panacea or paradox?

Following the methodological debate within the construction management research community in the 1990s, research studies adopting inductive methodologies have increased. Many such projects have adopted computer-aided qualitative data analysis in order both to facilitate the research process and to ensure methodological rigour and transparency. However, there remains a paucity of critical discourse within the construction management research literature about the impact of such approaches on the depth and rigour of the resulting analyses. This paper posits that so-called computer-aided approaches have the potential to affect detrimentally the outcomes of construction management research if researchers see such tools as a panacea for ensuring the rigour and transparency of their work. Paradoxically, computer-aided approaches often restrict rather than aid the analytical process. The paper draws upon the authors' experiences of using a leading package from which a number of considerations for the use of computers in qualitative data analysis are discussed. It is concluded that the research community would benefit from an open debate on whether computer packages really do provide a panacea to the analysis of qualitative data in applied construction management research projects or whether their use merely provides a label with which to convince sceptical positivists of the rigour of inductive research techniques.     

A simplified 3D model for tunnel construction using tunnel boring machines

This paper includes a presentation of a simplified three-dimensional numerical model for the prediction of soil movement induced during tunnel construction using tunnel boring machines (TBM). The model is based upon the generalization of the convergence-confinement concept to 3D tunnel construction. It uses two parameters (L_dec and α_dec) which stand for the length of the unlined zone and the partial stress release, respectively. The value of the parameter L_dec can be taken equal to the tunnel diameter, while the value of α_dec can be determined by fitting the model to empirical formula, and then adjusted based on settlement registered during tunnel construction.The capacity of the model is illustrated through an application to a shallow tunnel in soft soil. The comparison of the numerical results to those suggested by different authors shows good agreement.     

建筑企业智力资本对绩效影响的实证研究

本文选用智力资本增值系数法(VAIC)度量智力资本,运用EXCEL和SPSS 18.0软件,通过搜集我国沪、深交易市场40家建筑业A股上市公司2009年至2014年间的财务数据作为样本进行分析,通过实证研究证实物质资本、人力资本与结构资本对企业绩效有正面影响,其中,物质资本与人力资本的影响统计显著。此外,物质资本与人力资本、物质资本与结构资本、人力资本与结构资本两两要素间分别存在对建筑企业绩效的正向交互作用。