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Management Essay Example: Crisis at the Carillion Construction Company

7 pages
1762 words
Boston College
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Successful management of large and small projects in todays environment has become very complicated. However, understanding of the success factors for project delivery can play a key part in the final delivery of the project objectives. Successful management of projects involves the management of the company, risk management, management of the stakeholders and management of the external contractors. When all these functions are managed the company correctly increases its chances of completing the projects on time, on budget and with no quality issues. In the instance of Carillion's cash flow crisis, it had been suggested that the abandonment of the huge number of sub-contractors would have reduced the companys high labor costs. It appears that Carillion's issues stem from an inability to manage the risks associated with a high number of subcontractors. Furthermore, if Carillion wants to remain in the construction industry in the future, they need to accurately define the project objectives, fully establish the budget, schedule and select proven contractors. Collaboration with local authorities can also enable Carillion to develop skill in anticipation of the full implementation of Brexit. More to that Carillion should move away from specific risky markets especially their bread and butter government contracts while strengthening its support services divisions which can provide a long-term solution to the companies falling profits  This project criteria if correctly executed at the beginning of the project will ensure successful project execution and close out.


1. Introduction

Making and sustaining profit and growth in the construction industry in the modern business environment has become one of the most challenging jobs in the last few years. The construction industry is the most significant industry in the world and is an importance to any countrys economy is however as like many other industries has faced significant transformations. These changes have made companies re-think their long-term strategies to rescue their business from the cutthroat bidding and rapidly to change technologies and expectations. (Flanagan, R., Jewell, C., and Dongping, F. (2013). In other words, the modern business environment for construction companies has become so complicated that the companies have to continually review their business models so to compete in the global construction industry. This report aims at building a theoretical report in which Carillions problems can be examined as well as give suggestions on what the company can do in the future to get off its current situation through a review of; project management, portfolio management risk management, and stakeholder expectations will be carried out.

Some of Carillions troubles can be attributed to their recent changes in the global construction environment (company and political) in which the company operates. For example, Britains decision to leave the European Union (Brexit) has created nervousness in the UK construction industry even with some of the most successful and profitable companies in the UK. The exit from the European Union is also a great concern to these companies who rely on an influx cheap of skilled immigrant labor from Europe, not to mention the ongoing weakening of the pound resulting in huge profit losses. Although Brexit has not entirely taken effect, the uncertainty of skilled immigrants staying in the UK is changing the day to day operation of Carillion. Besides the weakening of the British pound has led to a write-down of many contracts that the company is engaged in resulting in massive losses. (Financial Times, 2017).

1. Project Management

Project management in construction projects requires an understanding of modern management technics to realize the specific objectives for which such plans are designed. Aspects such as definition, scope, cost, time and quality all fall in within the overall project objectives and targets. For instance, an Engstrom auto mirror plant is an example of a company that depicts project management problems. It was reported that in May 2007 the Auto mirror plant which is a small supplier in Indiana. It was also indicated that the business was under crisis in its second years downturn. The alarm rang in 2005 when the company when the sales volume changed drastically in 2005. Also, a year later, the manager was compelled to lay off around 20% percent of the labor force which was the primary cause of the drop in the productivity. Laying off of a substantial number of employees made the remaining workforce to lose morale for the company, and hence the product output began to surface. This article seeks to point out precise information on the challenges that the Engstrom Auto Mirror plant before the bad times, in the right times and after the bad times (Galvin, 2014). Therefore, a project cannot be deemed a success if the pre-set standards of the Project initiation documents, costs, time and quality and ultimate satisfaction have not been met.

Unlike many other sectors (such as manufacturing) where the end products are the final delivery. For instance, at Engstrom, it was reported that the incentive plant of the plant proved to be in a critical situation towards enhancing the morale of the workers, increasing the productivity, the product quality and later made Engstrom to a turnaround ((Hussin, 2013). The workers of Engstrom had been receiving regular Scanlon bonuses, but then they stopped early in 2006. Ron Bent had to find ways of returning the company to its track to make the productivity of the company to be at the initial position before the bad times in 2006. In most cases, if a given employees of a particular group are passed through practices that result in a cut down in the incentives that were used before the good, bad times, the workers usually cut down on their productivity, and hence they affect the output (Galvin, 2014). The need to make changes in the sabotage plans that undermine the company.

When Engstrom project was laid down, there were enough incentives that were given to the labor force hence made the plan to show a vast outcome and the best output. The low morale that was evident in the workers displayed the need for Bent to apply a supportive model that was outlined in the Organizational Behavior book. The management of Engstrom was planned to promote the performance of the employees and not explicitly supporting the benefits of employees. Before the termination of the incentive plan that was given to the workforce and which was called Scanlon, the workers had enjoyed the motivation for a long time to the extent of thinking that the plan was to the right (Galvin, 2014).

On the other hand, products are readily governed by time, quality and cost mainly because they come from a proven source of an assembly line where this product is replicated every day. The construction industry is entirely different from this and is measured by scope creep, late or failed delivery and issues with sub-contractors and their suppliers. In a study conducted by Hussin (2013), it was found that 29.45% of private sector projects experience 0% percent overrun while 18.2% percent of public sector projects did not experience delays. On most cost overruns the same study (2006) reports that 9 out of 10 projects suffered cost overruns ranging between 50% and 100% which are huge. This suggests that the construction industry can be precarious and in a very uncertain environment. Possibly one of the best ways to study what causes a project to fail is to examine projects which have already failed. For this reason, a thorough understanding of the success factors for successful completion of projects will help project managers achieve excellent results in project execution and delivery.

2. Portfolio Management

A portfolio is a bundle of investment within an organization. It is prevalent investment practice where companies take advantage of investment opportunities to make and maximize profits. When a construction company makes investments in a variety of projects the combination of all the projects can be called a portfolio (Sanjay Bulaki Board 2009).

The purpose of holding portfolios is to diversify risks hence the need for portfolio management. Portfolio management seeks to improve the production output of construction companies so that they can meet the delivery deadlines at the least cost to time or finances. Portfolio management lays down a framework to which resources are to be allocated for current projects and for those that will be carried out at a later date. Therefore, a construction companys portfolio is used to increase efficiency by using resources to manage the risks that are associated with construction projects.

3. Risk Management.

Risk management recognizes that risks occur naturally in all construction of projects. Construction projects like any other projects involve the monitoring of danger from the beginning of the project to the end. There are four risk strategies risk avoidance, risk transfer, risk mitigation, and risk acceptance, for treating risks in a construction project. (Risk management in Construction projects 2012). It is challenging to pinpoint specific risks that are not part of the usual day to day tasks being carried out on a project. Therefore, a plan must have various methods of recognizing and mitigating against risks to ensure the project is delivery and execution is on time, on budget and with the quality expected of the stakeholders.

Risk has been defined and a variation of the expected outcome. However, in construction projects, for instance, the adverse effects of risk are more relevant. In other words, negative effects are what all project managers get concerned about when managing construction projects (Schieg, 2006). These results are difficult to predict and can end up with scope creep, late schedule and impact on the cost budget. Because of these risks, it is essential that the risks are managed so construction companies can provide delivery in time on budget and with the desired quality. For construction projects, risk management involves the evaluation, identification, control, and mitigation of risks to minimize the project losses. The overall risk process of risk management requires risk planning, identification, assessment and monitoring (Scheig, 2006). This risk process enables project managers to allocate the correct resources at the beginning of a project to avoid the massive losses or worse failure. Risk management entails deliberate actions by project managers to avid losses which arise from adverse risk. For a construction project, it involves fast evaluation and identification of the dangers to minimize risk and the damages it can incur. Heavy losses will endanger the life of a construction company. I also jeopardize the interest of the stakeholders. (Risk management in Construction projects 2012)

4. Stakeholders.

The success of projects in the construction industry largely depends on the input of stakeholders in the execution process of the project (Scheig, 2006).It matters a lot when the project manager acknowledges the contribution of the team while implementing the targets set out by the client. It is also critical that the pr...

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