Lo Tsz Lung, CEG98/6 (CED Intake)

16 September, 1999

Essay Topic Applicable to the 1999 Chartered Professional Review

An Understanding of the Financial Implication of Decisions

made by Civil Engineers is Crucial. Discuss.

The role of civil engineers in construction projects is to ensure all resources

are wisely allocated and managed. Financial control of civil engineering projects is
one of the main responsibilities of civil engineers. There are many aspects of financial
management in construction projects, such as planning and design, tender pricing and
assessment, arrangement of labour, plant and materials. No matter at what stage, the
decisions made by civil engineers may have substantial financial implications on the
project. In the following paragraphs I will discuss the financial implications of the
decisions made by the design engineer at different stages of a construction project.

The scope of civil engineering construction includes various infrastructures such

as land formation, drainage, highways, water supply and geotechnical works. For any
project, there are usually many requirements for the engineer to comply with. At the
planning stage, the engineer need to evaluate and compare different alternatives that can
meet the requirements. In making a decision, it is usually based on comparing the benefits
and deficits of each option. Besides taking the time, safety and technical matters into
consideration, he needs to compare the costs of each alternative, including the initial
construction cost and the recurrent maintenance cost. For example, an engineer was
responsible for planning a road junction in a transportation network in a new town
development. He had several options to choose that allow smooth operation of traffic and
prevent congestion. These options included construction of roundabout, signal-controlled
junction, grade-separated bridge or fully enclosed tunnel. It should be stated that
choosing the most appropriate system not only provide the required level of service, but
also affect the construction cost and determine the future operational and maintenance
fees. Moreover, the subsequent design of remaining road systems and thus the associated
cost might be influenced by his decision.

At the design stage, an engineer should choose an appropriate analysis method

whilst ensuring sufficient accuracy of his design. For example, in structural analysis of a
bridge, different methods can be adopted such as finite element method, grillage method
or frame method. Complicated and sophisticated analysis methods will often give
relatively accurate results that can be used for design with saving in materials. On the
contrary, simplified methods usually save time but may incorporate too many assumptions
resulting in over-design of structural members or under-estimation of adverse effects.
Additional provision of material is required for adjusting the inaccuracy in analysis.
Therefore, the method adopted by the engineer should attain equilibrium among the
required computing time, accuracy and use of material so that the design cost and
construction cost could be minimized. In this way, his decision on applying the integrated
or simplified approach during the design will invariably influence the final cost of the
project.

To provide a higher quality standard for the society, civil engineers will from time
to time amend or incorporate updated research information into specifications,
ordinances, codes of practice and legislation. A minor change in certain values may
already have a significant implication to the construction sector, thus affect the financial
management of construction projects. For example, a change in factor of safety in

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building design will affect the adoption of structural member sizes and associated
foundation requirement. Then all new buildings shall follow the new criteria in design and
construction, and so the construction costs of new buildings in the society will be
regulated which will directly affect the economy of the society.

Sometimes, the engineer will be responsible for tender pricing and tender
assessment. In assessing the tenders, he needs to consider the technical competence of
the tenderers in executing the works, the financial background of the tenderers and the
history of the tenderers in addition to the tender amount. These factors will all have direct
bearings on whether the contractor can complete the works on time with required quality
and in turn affect the project cost. Hence, in recommending the first tender, the engineer's
recommendation is particularly important because his advice can affect the client decision.

For an engineer involved in tendering, he has to use his expertise in financial

management and to understand the availability of resources within his control. Also, he
has to price the tender reasonably in order to get an acceptable profit margin in executing
the works without losing the chance of winning the tender. To prevent any possible loss
due to unexpected risks encountered during construction, sufficient contingency should
be allowed in rating of the items. He needs to programme the works and estimate the
resources such as materials, plant and labours required for completing the construction
works within the stated contract period. In doing so, he has to assess the output rate of
each resource and then estimate the resources required, otherwise construction cost will
be built up due to mobilization of additional resources in speeding up the works progress,
such as construction plant. In order to submit a competitive bid and get a healthy cash
flow, he may sometimes adjust the rate of individual item. His decision on pricing different
items will undoubtedly affect the profit of the contractor.

During the construction stage of a construction project, an engineer needs to

prepare a works programme with consideration given to construction time, the
available construction plant, materials, labours and the current cash available. He
should order the required materials at appropriate times and suitable quantities to avoid
high fluctuations so as to maintain a relatively steady cash flow. Also, the engineer
involved in construction is usually responsible for the temporary works design and
falsework design. In the course of design, he shall fully utilize any available materials in
his control and allocate them for use in different active sites or store them up in depot.
His planning and decision in this regard can reduce the costs of temporary works and
falseworks by maximum use of available materials and minimum order of new materials
or idling of equipment. Also, in designing these works, he needs to have an
understanding on the material properties and the standard of workmanship so that he
can allow sufficient safety factors in his design. Effective temporary works and
falsework design can enhance savings in construction cost without lowering the quality
of works or safety required.

In reality, site conditions may not be so desirable as expected at the design stage.
Changes in design are necessary upon verification of design assumptions during the
course of construction. An engineer needs to review the situation quickly and give
instruction promptly to the contractor so as to prevent the possible idling time or abortive
works. The construction cost will be reduced if the problem can be identified at an early
stage and the engineer can make the decision punctually. Besides, the progress of works
and thus the completion date may be badly tampered by any adverse weather conditions
or minor modifications that are incorporated into the original design to cater for the
changing site conditions. The engineer needs to assess the contractor’s entitlement of

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extension of time and claims that arise under the provision in the conditions of contract
for time or cost reimbursement. Unreasonable and biased decisions on valuations or
granted extension of time will lead to unnecessary argument between the contractor and
the engineer that might affect the cash flow of the parties and induce further
administration costs.

The decisions made by civil engineers at planning, design, tender and construction stages
will all have financial implications to the project cost. In performing duties, an engineer
should have considered the consequence of his decisions and have assessed the relative
advantages and disadvantages of various alternatives in terms of cost other than time,
safety and technical aspects. Therefore, it should be emphasized that an
understanding of the financial implication of decisions made by civil engineers is
crucial.

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