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Assignment Title Basics Of Project Management Construction Essay

Paper Type: Free Essay Subject: Construction
Wordcount: 3195 words Published: 1st Jan 2015

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Real estate can be subdivided into two distinct sub-classes: commercial real estate and residential real estate. Investment in real estate is subdivided into two major classes; i.e., direct real estate investment is achieved through purchase of property while indirect investment is normally achieved through acquisition of shares or units in listed or unlisted entities that hold property. Shares and bonds are considered as the other assets in this task, and these can refer to investment in all sectors of economic goods.

Real estate tends to be held for long periods of time and is rather heterogeneous in nature, which this brings a problem to valuate direct real estate investment. So many times appraisal valuation of real estate is commonly relied upon other similar portfolios.

Alternatively the market value of shares is constantly being updated. Share returns tend to move together both over time and across markets and there is some evidence of increasing correlation during crisis periods.

Real estate investment price is affected by the location of the site, while the location of shares doesn’t affect the price all around the world. Taking for instances if shares in an American company go up, this same increase will be reflected in whoever has invested in these shares from Malta. In order to see the investment making profit in a real estate it takes time, and many authorities control the investment, which sometimes they can throw the project off course because of the time and cost consumption. Additionally the client has more control over real estate rather than investing in stock market.

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Real estate gives more control to the client of what to buy, where to buy and when to sell it. The client can increase its value or the income it generates. With real estate, there will be no scandalous bookkeeping that causes the value of the investments to plummet. With real estate no person will be telling the owner what the cash flow will be, and no one will be taking the money and giving the owner what’s left over.

According to (Heaney, 2012), for real estate there is no total return index available for direct investment in residential real estate. Share market returns are considerably more volatile than the returns for the direct real estate investments. The direct real estate investment returns also exhibit less skewness and kurtosis. During this literature it has been argued that combining direct investment in commercial or residential real estate with investment in shares could provide considerable diversification benefits.

P 1b Give at least three reasons why a client makes an investment in real estate.

During the past years, the value of real estate has been constantly increasing, making this a very interesting market for investors. In the Old Testament, Ecclesiastes, Solomon had said, ‘Divide your investments among many places, for you do not know what risks might lie ahead’.

Owning real estate brings along several advantages:

Capital gains

Real estate tends to go up in value, and the demand for property will never stop, because as population increases, more housing will be required. The price of a property can be increased by making use of sweat equity, where a small investment/improvement to the property might reflect in a large increase in value.

Cash Flow

Investment in real estate can lead to a generation of rental income, and the rents tend to go up over time, because of inflation, which this is also a great interest for the owner. This is done during the time that mortgage payments on the property remain stable. Additionally real estate investment gives a growth component that cash lacks, that is that the value of land will increase along time.


Many say that leverage is what makes real estate the most powerful investment of all time. This means that by using borrowed capital, a person can acquire assets or fund operations. Even though a person puts a small percentage of his/her own money into the property, and the bank will put the rest, the owner will still get 100% of the appreciation and cash flow. Leverage involves risk, so the successful investor must understand how leverage impacts the real estate investment.

Tax Advantages

In foreign countries ownership of properties leads to tax that shall be paid, but there are several ways on how to take advantage of tax. Rental property is said to run like a business, and every expense involved with it is tax deductible. The real estate investment is like a business, and this means that a deduction of the value of the house (not the land) will be carried out every year. In reality the price of the house is going up, this procedure is called ‘phantom loss’.

P 2 List and explain all of the following:

The reasons for the client to appoint a Project Manager, referring to at least five Client’s tasks

The differences between line and stuff functions (Project Leadership and Project Monitoring) of project management, giving some examples concerning client’s tasks.

The kind of skills a Project Manager should have, and explain why s/he should be a generalist within a client’s organisation.

The client requires knowledge to manage a project, that’s where the experience and acquaintance of a project manager comes in handy. A project manager knows what the risks are, and therefore is able to lead the project in a way of avoiding risks. Risks can be associated with several tasks, but very important for the client are the costs of the project, and in this sector the project manager will make sure that the distribution of money is done properly. Moreover in order to keep a project within budget, it is a target for each project to showcase outstanding quality of work, and again a project manager will make sure that quality control and quality assurance are managed according to specifications. A project shall meet deadlines both from the client, and also from other stakeholders, therefore scheduling is of utmost importance, and it is one of the major tasks that a project manager shall be appointed for.

Communication between different members of a team is vital, but it is also important that some members have more authority than others, that is why line and staff functions have differences but also similarities. The members of the team that perform the core activities and contribute to the project directly are called line functions, while members and firms that are responsible for the support function and contribute indirectly to the project are termed as staff functions.

In staff function the firm that is taking care of a particular task, is responsible to do the task properly but is not responsible of how this data is used within the project. This results in an increase of employee expenditure within the team, while having an indirect control with restricted autonomy. The project control, which has a staff function, does not have any decision-making authority within the project management.

On the other hand the leadership of a project shall have line function, with decision-making authority and enforcement. In line function the project manager takes over the client toward the other project participants. The client has a line function when it comes to decision making authority and enforcement. The leadership in regards of financing and aim specification is another non delegable line function of the client. The line function activities have direct impact on the project, therefore if any factor within the company structure interfere with these functions, the end result will normally be loss of revenue over the short term.

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A project manager should be knowledgeable in many trades in order to accomplish several tasks, but on the other hand a project manager shall not specialize in a particular trade. This prevents the project manager from giving extra importance to a specific task, and ends up prioritizing it. Essentially a project manager shall have a deep technical, economical and legal knowledge, and must know the interrelations and interfaces. Since a project manager shall not just be an advisor to the client, but shall also be a partner with the architect, and a coach of the specialist designers, it is without doubt important to be a generalist. If a project manager becomes a shareholder, there will be conflict of interest and obviously this would create risks for the project overall. If new and improved methods of construction are available, and the project manager has got some knowledge about them, it would be easier to implement within the project, by employing the ideal specialist within the team.

P 3 List and explain the differences between transferable and non-transferable client’s tasks.

For a client the most important part of a project is to have the project ready on time, within budget and its quality shall be that of what has been paid for. This brings along a number of tasks that the client shall take care of, either directly or indirectly, but not all tasks can be directly done by the client, and vice versa. The client can be an individual or an organization with various target definitions and competencies. Depending on whom the client is, the requirements of the client differ, and therefore the triangle of time, cost and quality might also be skewed.

Some tasks have to be carried out directly by the client, and these are non-transferable tasks. The original ideas of the project are tasks that only the client has the authority to voice out, and only the client knows what s/he wants. Hence in order for the rest of the team to understand what the client needs, a proper explanation of the aims and objectives shall be specified by the client. Non-transferable tasks include instances such as occasions where financing is required. The client provides the capital for the investment, and hence it is always the client who does the final decision making on how to spend the money. Final decision making of all aspects of the project shall be signed off by the client, and the signing off of contracts shall not be transferred to anyone else except the client.

Other tasks are more appropriate to be carried out by a professional person, rather than the client, these are called transferable tasks. These tasks might be transferred for several reasons, either because of lack of knowledge by the client on specific aspects, or maybe in order to avoid unwanted risks. In some cases the client requires a person to direct him/her, and therefore a project manager or client representative is required. In order for the clients to proceed with their ideas, an authority shall be present to take action and filter the proposals of the client. The client in order to appropriately control the project, shall instruct a consultant to take care of the operational tasks.

Sometimes the client tries to decrease the expenses of a project by avoiding to include specific members in the team, and instead ‘manages’ the task himself, which this could obviously lead to disorder, and increases the chances of risk. During the life cycle of the project the little that is saved at construction phase from not employing a project manager, will probably result in harsher expenses during operation phases. When a project manager is not included in the team from initial stages of the project, this could also affect the overall performance of the project. Hence the client shall be informed from initial stages of what tasks s/he shall be responsible for and what others shall be transferred to selective individuals.

M 1 Explain and compare the goals and the differences between the three management services namely Project Management, Project Development and Facility Management.

Management is essential throughout the whole project, but the responsibility of management during the construction phase and during the operations phase differ. Project management is considered to be responsible as an overall management role, but project development and facilities management are roles during the construction phase and the operations phase respectively.

The project manager takes the lead role in managing their team along new projects. The role of the project manager is to make sure that team members are meeting their goals, while being able of keeping control of the development of new innovative methods that the team aspires to achieve. The project manager is responsible for the client interaction on a day-to-day basis; therefore communication ability is vital in order to keep ties strong between the client and industry. The project manager not only needs to know their own business but is required to build knowledge base of each client’s business, organization and objectives. It is also essential that a project manager mentor those with less experience through normal channels.

The project development manager plans, directs, coordinates and budgets, activities concerned with the construction and maintenance of structures, facilities and systems. It is the role of the project development to schedule the project in logical steps and budget time required to meet deadlines, while making sure that inspections and monitoring of the project is being undertaken, and reviews the project to be compliant with building and safety codes, and other regulations. Additionally project development managers shall be able to interpret and explain plans and contract terms to administrative staff, workers, and clients, representing the owner or developer. If variations have to be done along the project, the manager must be able to explain the reason behind the changes, the cost, and the extra time needed in order to complete the project. It is also essential for the development management team to requisition supplies and material for the project making sure that the crew is not getting behind because of lack of supplies to work, while on the other hand they must pay attention not to order too many supplies because if items cannot be returned these would cost the company money.

The facilities manager is responsible for the service management and process implementation supporting all core business units, by maintaining an ideal working environment and keeping the activities of the company within budget and schematics. Facilities managers generally work as independent service units, focusing on business practice improvement through efficiency and cost reduction indicators. This role requires specialization in various aspects of performance management and productivity.

The responsibilities carried out by these management services are different, the way they think and look at the project shall also differ, and what is very important for a facilities manager, might not be of much importance to the project development manager, because they operate at different phases of the project. This is taken for example, the access control of a building, at design stage, the site where the project will be constructed might be land, and therefore access control is not important during that time, during construction the access control will only be required to eliminate danger for the general public, plus giving some security to the machinery inside, but in contrast the facilities manager must make sure that total access control is offered for the privacy and security of residents and occupants of the building.

D 1 You, as the instructed project manager for an office building, must analyse the architect’s design concerning economical aspects.

Explain and list the major aspects / characteristics, to optimize the investment costs and subsequent (follow-up) costs within the design under constant consideration of the intended purpose. Also explain the basic interrelation between investment and subsequent costs.

The main issue of the cost management is to optimize the ratio between investment and operating costs. Investing in real estate brings along a high capital lockup, consisting in the initial investment and follow up by subsequent costs.

The project manager shall convince the client that what is being proposed for construction is what is being paid for. For the client the most important factors are that the project will be ready quickly and within the least amount of budget possible. The smaller the amount of expenses that the client has to pay for the construction of the project, the larger the amount of profits that will be rendered.

The investment cost drives the owner of whether to invest or not, and during cost assessment the investor will look for the net yield. There are a number of common cost assessment methods that can be used for cost planning. These investment calculation methods should be structured in a clear and simple way, illustrating the profitability of relevant basic conditions, while also showing the absolute and relative profitability of an investment.

About 85% of the life cycle costs result from utilization, only 15% are caused by design and construction. There is a huge potential in lowering the operating costs by the facilities manager. Follow up costs of an office block has an average percentage of 8.5% of the construction costs per annum, and has duration of 11 to 12 years till overstepping the production costs.

If the life cycle costs are held in mind, this will clearly show that if during the design and construction stages attention will be given to the overall life of the building the project could be more sustainable, and the little extra costs that have to be invested during the implementation phases, these will be reflected in a much more positive view at facilities management, which covers the rest of the 85% of the project.

During the conception phase it is important that while working out profitability analysis, beside the unique investment costs all the costs resulting during the utilization phase are to be considered (follow-up costs). An investment is profitable when the total costs are lower than the alternative investment project.

A construction manager optimizes design processes and design content during the pre-construction phase. S/he is responsible to ensure that the architectural and engineering solutions are able to be implemented in both a practical and also economical manner. This is conducted by comparing the target definition of the project to the design status and during this procedure consideration is given not only to investment costs buy also to operating costs that will be incurred later on.

When monitoring the progress of work of the project, using target-performance bar chart, delays can be noticed and time scheduling can be optimized, in respect with reducing rising costs because of extensions within the construction period.


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