Ken wants to build a new house and approaches John the owner of NewHome Construction to explain what he has in mind. John is wary to quote a fixed price and only gives an indication of possible costs per square metre. He informs Ken that the first phase would involve a concept design, where certain sketches will be delivered. He also specifies the other phases he foresees - each with an indication of the deliverable, an approximate schedule and approximate cost. Later on Ken accepts a quote from John to provide the sketch plans. This contract specifies when the customer would be able to comment on a preliminary design, when the final sketches would be delivered, what the final sketches would include and what it would exclude, and a fixed price for this phase. A month later Ken approves the sketch plans. John now presents him with a second proposal, this time to do the detailed design – a phase that would specify the design of the house for the construction team to build the house. Upon approval of the final plans by the municipality, John indicates that construction would also be done in phases but he insists that Ken sign a contract that would authorize the rest of the project. He argues that, at this stage, there is sufficient clarity about the project and he insists on a commitment from Ken for completion of the project. The contract he now presents to him indicates the remaining phases, including a period after occupation (guarantee period or defects liability period). Ken goes ahead and signs the contract, stating that for each phase a milestone payment that would be due once the building reaches a specific stage. The final payment has to be made only after the guarantee period. Before each payment, Ken would be granted the opportunity to inspect the work to verify that it has been completed and that workmanship meets standards set out in the contract. Questions: 1. Why do you think John was hesitant to quote an exact price during the first meeting? 2. Why did Ken need an indication of the cost for the total project before he could start the project? 3. Was it a good idea to sign a contract for all construction work rather than to break it up into separate phases (with separate contracts) for different parts of the construction work? 4. Why would John require milestone payments during the construction phase rather than a single payment once the construction has been completed? 5. What assurance would Ken have if he discovered during the guarantee period that the roof leaks when it rains?
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
Ken wants to build a new house and approaches John the owner of NewHome Construction to explain
what he has in mind. John is wary to quote a fixed price and only gives an indication of possible costs
per square metre. He informs Ken that the first phase would involve a concept design, where certain
sketches will be delivered. He also specifies the other phases he foresees - each with an indication of
the deliverable, an approximate schedule and approximate cost. Later on Ken accepts a quote from
John to provide the sketch plans.
This contract specifies when the customer would be able to comment on a preliminary design, when
the final sketches would be delivered, what the final sketches would include and what it would exclude,
and a fixed price for this phase. A month later Ken approves the sketch plans. John now presents him
with a second proposal, this time to do the detailed design – a phase that would specify the design of
the house for the construction team to build the house.
Upon approval of the final plans by the municipality, John indicates that construction would also be
done in phases but he insists that Ken sign a contract that would authorize the rest of the project. He
argues that, at this stage, there is sufficient clarity about the project and he insists on a commitment
from Ken for completion of the project. The contract he now presents to him indicates the remaining
phases, including a period after occupation (guarantee period or defects liability period). Ken goes
ahead and signs the contract, stating that for each phase a milestone payment that would be due once
the building reaches a specific stage. The final payment has to be made only after the guarantee
period. Before each payment, Ken would be granted the opportunity to inspect the work to verify that it
has been completed and that workmanship meets standards set out in the contract.
Questions:
1. Why do you think John was hesitant to quote an exact price during the first meeting?
2. Why did Ken need an indication of the cost for the total project before he could start the
project?
3. Was it a good idea to sign a contract for all construction work rather than to break it up into
separate phases (with separate contracts) for different parts of the construction work?
4. Why would John require milestone payments during the construction phase rather than a
single payment once the construction has been completed?
5. What assurance would Ken have if he discovered during the guarantee period that the roof
leaks when it rains?
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