Construction Business Management This page intentionally left blank Construction Business Management John Schaufelberger University of Washington Prentice Hall Upper Saddle River, New Jersey Columbus, Ohio Library of Congress Cataloging-in-Publication Data Schaufelberger,John Construction business management / John Schaufelberger.—1st ed. p.cm. Includes bibliographical references and index. ISBN-13:978-0-13-090786-8 (alk.paper) ISBN-10:0-13-090786-3 (alk.paper) 1. Construction industry—Management. I. Title. HD9715.A2S358 2009 624.068—dc22 2008021656 Editor in Chief:Vernon R.Anthony Editor:Eric Krassow Editorial Assistant:Sonya Kottcamp Director of Marketing:David Gesell Marketing Manager:Jimmy Stephens Marketing Assistant:Les Roberts Production Manager:Kathy Sleys Creative Director:Jayne Conte Cover Design:Bruce Kenselaar Cover Illustration/Photo:©M.Dillon/CORBIS.All rights reserved Full-Service Project Management/Composition:Shiny Rajesh/Integra Software Services Pvt.Ltd. Printer/Binder:Hamilton Printing Company Cover Printer:Phoenix Color Corp. Credits and acknowledgments borrowed from other sources and reproduced,with permission,in this textbook appear on appropriate page within text. The names of companies and their employees used in the examples in this book are fictional,and are not associated in any way with any actual companies or persons that may share the same names(s). Copyright © 2009by Pearson Education,Inc.,Upper Saddle River,New Jersey,07458. All rights reserved.Printed in the United States of America.This publication is protected by Copyright and permission should be obtained from the publisher prior to any prohibited reproduction,storage in a retrieval system,or transmission in any form or by any means,electronic,mechanical,photocopying, recording,or likewise.For information regarding permission(s),write to:Rights and Permissions Department. Pearson Education Ltd.,London Pearson Education North Asia,Ltd.,Hong Kong Pearson Education Singapore,Pte.Ltd Pearson Educación de Mexico,S.A.de C.V. Pearson Education Canada,Inc. Pearson Education Malaysia,Pte.Ltd. Pearson Education–Japan Pearson Education Upper Saddle River,New Jersey Pearson Education Australia PTY,Limited 10 9 8 7 6 5 4 3 2 1 ISBN-13: 978-0-13-090786-8 ISBN-10:     0-13-090786-3 Contents Preface x CHAPTER 1 Introduction 1 Nature of Construction Business 1 Primary Causes of Business Failure 2 External Influences 2 Internal Problems 2 Business Strategies to Minimize the Risk of Business Failure 4 Planning Strategies 4 Plan Implementation/Control Strategies 5 Financial Management Strategies 6 Leadership Challenges 7 Organizational Behavior 8 Employee Motivation 8 Individual Behavior 9 Collective Behavior 10 Ethics 11 Summary 13 Review Questions 14 Exercises 14 Sources of Additional Information 15 CHAPTER 2 Company Organization 16 Introduction 16 Alternative Forms of Business Organization 16 Proprietorships 17 General Partnerships 18 Limited Partnerships 19 Corporations 20 Type S Corporations 21 Limited Liability Companies 22 Joint Ventures 22 Alternative Organizational Structures 23 Functional Organization Structure 24 Divisional Organizational Structure 25 Matrix Organizational Structure 26 Organizational Design 27 v vi Contents Policies and Operating Procedures 30 Summary 32 Review Questions 32 Exercises 32 Sources of Additional Information 33 CHAPTER 3 Risk Management 34 Introduction 34 Risk Management Strategies 35 Insurance 36 Insurance Contracts 36 Insurance Agents 37 Insurance Types 38 Subcontractor Insurance 48 Insurance Certificate 48 Bonding 48 Surety Relationship 48 Bonding Agents 52 Types of Bonds 52 Underwriting Considerations 58 Summary 64 Review Questions 65 Exercises 66 Sources of Additional Information 66 CHAPTER 4 Financial Analysis and Management 67 Introduction 67 Accounting Systems 67 Primary Accounting System 68 Secondary Accounting Systems 69 Accounting Records 71 Accounting Methods 72 Financial Statements 73 Balance Sheet 73 Income Statement 75 Financial Analysis 76 Financial Statement Analysis 76 Cash Flow Analysis 81 Financial Management 84 Summary 88 Review Questions 89 Exercises 89 Sources of Additional Information 90 Contents vii CHAPTER 5 Strategic Planning and Management 91 Introduction 91 Planning Process 93 Mission Statement 95 Company Vision 96 Strategic Assessment 97 Strategic Objectives 97 Company Strategies and Short-Term Goals 98 Action Plans 98 Performance Measurement 99 Situation Analysis 99 External Analysis 99 Internal Analysis 105 Strategy Formulation 110 Strategy Implementation 113 Strategy Evaluation 113 Summary 114 Review Questions 115 Exercises 116 Sources of Additional Information 116 CHAPTER 6 Business Development 117 Introduction 117 Marketing Construction Services 119 Marketing Process 120 Market Analysis 122 Demand Assessment 123 Customer Satisfaction Assessment 124 Competition Assessment 125 Marketing Strategies 126 Marketing Tools 129 Marketing Plan 131 Acquisition of Work 133 Summary 133 Review Questions 134 Exercises 134 Sources of Additional Information 135 CHAPTER 7 Human Resources Management 136 Introduction 136 The Challenge 136 Decision-Making Processes 138 viii Contents Company Culture 138 Organizational Design 140 Staffing 142 Employment Manual 147 Employee Development 149 Leadership Development 152 Succession Planning 153 Performance Management 154 Compensation and Employee Benefits 156 Employee Retention 156 Union Relations 157 Safety and Wellness Programs 158 Regulatory Overview 160 Affirmative Action 160 Age Discrimination 161 Disabled Workers 161 Discrimination 161 Drugs in the Workplace 162 Equal Employment Opportunity 162 Preventing Violence in the Workplace 163 Privacy Rights 163 Racial and Ethnic Discrimination 163 Record Keeping 164 Religious Protection 164 Sexual Harassment 165 Summary 166 Review Questions 166 Exercises 167 Sources of Additional Information 167 CHAPTER 8 Information Management 168 Introduction 168 Information Requirements 170 Hardware and Infrastructure 171 Software 172 Security Systems 173 Company Security Policy 174 Company Web Sites 174 Summary 175 Review Questions 175 Exercises 176 Sources of Additional Material 176 Contents ix CHAPTER 9 Total Quality Management 177 Introduction 177 Quality Concepts 179 Quality Principles 180 Supporting Elements 181 Process Improvement Model 182 Implementation 183 Process Analysis 187 Sustainment 188 Effectiveness Assessment 191 Summary 191 Review Questions 192 Exercises 192 Sources of Additional Information 193 Appendixes A—Strategic Plan for Pacific Constructors 194 B—Case Study—Cascade Builders Annual Report 200 C—Case Study—Northwest Constructors Annual Report 209 D—Employment Manual for Western States Construction Company 224 Glossary 242 Index 247