Mirvac School of Sustainable Development

The highs and lows of unbalanced bidding models

David Cattell — Thu, 25 Apr 2013 19:34:42 PDT

The unbalanced bidding models developed in the first 50 years, since Marvin Gates first invented them in 1956, have suffered from a significant common flaw. Typically designed as linear programming models, with the objective being to maximise the contractor’s profits from a project, they have incorporated constraints on the prices for each of the items such that they are each bound by lower and upper limits. The intent of this was to find optimum prices falling somewhere within these limits. Instead, the effect of these models has been that all optimal prices (barring only one) are found to lie exactly on the extreme edge of these limits. In effect then, these models serve only to decide which items should be assigned their lowest acceptable price, and which items should be assigned their highest acceptable price. Tests done on a series of simulated hypothetical projects, created randomly by way of an automated process, illustrate this effect, which has previously not being observed. This effect is suggested as being undesirable – these pricing boundaries are vague and heuristically difficult to determine and hence relatively ‘soft’ in nature, rather than being inelastic and hard-and-fast. The risks - that these limits are designed to avoid – are not of the nature that they are incurred (fully) marginally beyond these limits and yet not incurred at all within the limits. Nevertheless, even though these boundaries are only vaguely definable by nature, these models do somehow need to acknowledge that extreme prices are unacceptable and normal (‘central’) prices are fine. This problem has been solved with the use of component unit pricing (CUP) theory.

Using Bayesian Networks to assess the risk appetite of construction contractors

David Cattell — Tue, 23 Apr 2013 23:13:53 PDT

The pricing of items of construction work using Component Unit Pricing (CUP) Theory requires that contractors have to assess and quantify their risk profiles. Those contractors with a willingness to take on greater risks can then be rewarded with a prospect of greater profits. CUP Theory provides a basis by which this can be accomplished by way of the manner and extent to which contractors spread their overall bid prices amongst all of the constituent component item prices. Conversely, this theory also facilitates that contractors who are wanting to moderate their exposure to risk are able to do so, independently of any adjustment they might choose to make to their overall mark-ups. Contractors are, however, typically unaware of their risk profiles and will not have had these assessed. There are no universally accepted or popular methods established for the assessment of the risk profiles of firms operating within the construction industry.

Bayesian networking is gaining popularity in the financial management arena as a sophisticated statistical approach for the assessment and management of risks. It is envisaged that it might serve well for evaluating and explaining contractors’ risk profiles as well as facilitate a process by which these can be reviewed and modified in line with inevitable changes over time.

This paper serves to outline this idea which is becoming the subject of on-going research

Quantitative methods for risk management in the real estate development industry: Risk measures, risk aggregation and performance measures

Werner GleiBner et al. — Wed, 06 Mar 2013 18:31:50 PST

Investment in real estate is based on dynamic, uncertain and complex assumptions. This is especially true for real estate development given its speculative and entrepreneurial activity. Factors such as unknown future demand, risks and uncertainty are key elements of real estate development (Byrne, 1996; Isaac et al., 2010; Schulte and Bone-Winkel, 2002). Effective risk management is thus a decisive strategic success factor. Though not always evident during periods of strong economic growth, it is undoubtedly of paramount importance during economic downturns. The global financial crisis and the deterioration in real estate markets across large parts of Europe in 2008/2009 clearly demonstrated the significance of the real estate industry for the world economy. Despite the structural significance of real estate to the economy and even though risk management has been widely analyzed in academic research, there remains limited substantive research on risk management that pertains directly to real estate development. Further, even less empirical data exists that can provide an overview of industry practice with respect to risk management by major development organisations (RICS, 2003; Shun, 2000). This paper provides a comprehensive overview of risk quantification, which may be expressed by probability distributions, and the calculation of risk measures, such as “capital requirements” (value-at-risk). A key technique is the aggregation of risks by means of simulation that creates transparency about planning certainty.

Bioenergy project appraisal in sub-Saharan Africa: Sustainability barriers and opportunities in Zambia

Ian Duvenage et al. — Tue, 05 Mar 2013 22:55:31 PST

Although there is continuing debate surrounding biofuel cultivation (especially in developing nations) in relation to issues of exploitation, land grabbing, poverty alleviation and energy security, there is a lack of empirical evidence to assess how these debates are playing out in practice on the ground. Drawing on political ecology discourse, this paper examines case studies of biofuel production in Zambia and the effects they have on environmental and social sustainability. During April and May 2011, data were collected on two case study projects involving Jatrophacurcas feedstock cultivation in Zambia. Semi-structured interviews were used to ascertain views from affected stakeholders (local farmers, local environmental, social, and agronomic experts, and investors) on the biofuel projects and their environmental and social impacts. The findings suggest that the uneven distribution of costs and benefits are brought about by imbalances in knowledge, access to resources and the allocation of social and political influence (often associated with broader discourses of development), and this provides a likely rationale for a lack of sustainability in biofuel projects. Drawing on these viewpoints, as well as on field observations, this paper outlines the barriers and opportunities linked to Jatrophacurcas project sustainability.

Affordable and sustainable housing: An empirical study of options for redevelopment in central Australia

Yvonne Maher et al. — Tue, 05 Mar 2013 22:39:17 PST

There is a huge unmet demand for affordable housing in Australia, and the severe shortage of such accommodation has led to persistent long term homelessness for many families and individuals. Whilst the shortage is nationwide, the situation is particularly severe in regional Australia and, for indigenous people, their plight is even more extreme. Whilst all Australian states and territories have a statutory responsibility for housing provision, the Australian federal government is also adopting a range of strategies to address this critical situation, with indications of successful outcomes providing hope for long term amelioration of this pernicious problem. Within the context of the partnership framework, this paper reports on an initiative in Alice Springs which is proposing an affordable housing development project catering to the needs of indigenous communities, is environmentally conscious, and provides investment opportunities for the potential partners. This vision is shared by many community-based and non-government organisations as well as by the Australian government, and all parties are very sensitive to the urgent attention demanded by this growing problem. After reviewing economic, environmental, and social indicators framing the need for affordable housing at the national scale, the study applies these metrics to a property in Alice Springs which the current owners, the Anglican Church, are keen to redevelop in a manner consistent with socially responsible outcomes. More specifically, the paper reports detailed proposals for indigenous community housing and applies a financial model to test the financial viability of the proposals. This exercise is not only providing a financial feasibility of the specific proposal and site, but offers an economic model that focuses on all three aspects of sustainability and is of more general potential application for indigenous community housing.

A preliminary study of cognitive failures in open plan offices

Brian Purdey et al. — Tue, 05 Mar 2013 22:09:11 PST

The purpose of this paper is to describe the application of a new method using instruments with increased ability to objectively assess and quantify the performance impacts on office workers in built environment settings. A Distractibility Index (DI) was calculated for sample employees, who then used a computer-based instrument in two settings to evaluate cognitive impairment. There was measured cognitive impairment in higher distracting work environments. There is potential to use DI to predict performance detriments and aid better workplace design/management. The study employed only a small sample size. The level of noise and other distractions in the settings studied need to be measured objectively. There is a need to differentiate between various sources of distraction in terms of their impact on cognitive impairment. The findings of this paper can help to improve workplace performance, with less reliance on physical design solutions. Workplace performance evaluations typically use subjective measures and self-assessments. Modern work is increasingly cognitive, and hence new computer-based and more objective tools are required. The tool used in this research has been highly validated in other applications.

Portfolio management: The Australian experience

Aileen Koh et al. — Wed, 19 Dec 2012 15:18:13 PST

The increasing use of projects and programs by organizations to achieve business strategy and goals has led to the need for understanding project portfolio management. Along with the increasing diffusion of portfolio management, a new managerial role has evolved: the portfolio manager. This new role is pivotal in planning and controlling complex project landscapes more effectively and efficiently. This study investigates the governance structures and the roles, responsibilities, and practices of portfolio managers. A sequential mixed-method approach under a realism paradigm is used. This article presents the first-stage qualitative study, using an inductive interview-based approach with six portfolio managers from six organizations in Australia. The results of six case studies from the qualitative study are used to validate the research model developed based on previous research. It developed the constructs for the concept of portfolio context and the roles, responsibilities, and practices of portfolio managers.

Comparing international construction performance

Craig Langston — Wed, 28 Nov 2012 18:32:37 PST

The measurement of construction performance is a vexed problem. Despite much research effort, there remains little agreement over what to measure and how to measure it. The problem is made even more complicated by the desire to benchmark national industry performance against that of other countries. As clearly construction cost forms part of the analysis, the mere adjustment of cost data to an ‘international currency’ has undermined past attempts to draw any meaningful conclusions. This paper proposes a new method for comparing international construction performance, and in so doing integrates cost with time and quality to determine ratios capable of ranking projects, building contractors, cities and even entire industries – not only today, but retrospectively over time.

The aim in this paper, therefore, is to outline the new model and test it using what is understood to be one of the largest samples of construction project data ever assembled across two sample countries: Australia and the United States. The research comprises 337 high-rise projects of 20 storeys or more, completed between 2003 and 2012, throughout the five largest cities in Australia and the United States and representing two-thirds of the known population of such buildings in these locations. The ensuing analysis not only demonstrates the practical application of the model, but provides new insight into the efficiency track-record of the construction industry in Australia and the United States by city over the last decade.

Cost is measured as the number of standard ‘citiBLOC’ baskets necessary to construct a project, where a standard basket comprises common and globally-applicable construction items priced in each city in local currency, removing the need to apply currency exchange rates that otherwise introduce volatility and erroneous outcomes. Time is measured as the quantity of finished gross floor area completed per month, inclusive of delays related to the construction process on site. Quality is measured as a function of unit price and implicitly includes factors such as complexity, innovation, building height, extent of fit-out, environmental performance, compliance, standard of finish and supervision levels. Construction efficiency is extracted and defined as the ratio of construction cost per month, and is used to comment on the relative performance of the procurement process in different locations.

It is concluded that, based on data from the largest five cities in each country, efficiency on site is improving in both countries. The growth in baseline cost/m² suggests a possible rise in project complexity over time. While the trend in efficiency improvement is similar, there is evidence that base costs in Australia have outstripped the United States, meaning that ‘real’ construction efficiency in Australia is relatively less. If Australia held an advantage in the past, then it seems that advantage might be disappearing. Notwithstanding the larger number of projects found in the United States (251) compared to Australia (86), the top 10 US performers in terms of construction efficiency have higher scores that the top project found in Australia, and the reasons underpinning this clearly demand future project-level investigation.

Rising sea levels: an evaluation of the projected impact on real property rights

John Sheehan et al. — Mon, 05 Nov 2012 16:29:04 PST

The predicted rise in sea level and associated increasing storm action over the next half century is colliding with settled property law for tidal properties much of which is held on the Australian coast in private ownership. Faster change to the climate is reported with more serious risk than anticipated, with implications for sea level rise now expected at the upper end of projections by the Intergovernmental Panel on Climate Change (IPCC) of around 0.8m by 2100 along the Australian coastline.

In response to the threat of sea level rise, the six Australian States have attempted to provide information to local government and development aspirants regarding adaptation to rising sea levels however unsurprisingly there are cross-jurisdictional differences in sea level bench marks which is of concern given that much existing development along the Australian coast is of very high value.

In evaluating this phenomena, it will be suggested that long settled property law particularly the common law doctrine of erosion and accretion will need to be revised to accommodate the impending collision between climate change and tidal private property. Further, the Australian Constitution at s.51(xxxi) sets out guarantees of compensation when private property rights are commuted, but the colonial drafters of the 1890s would similarly never have envisaged climate effects. The tantalising prospect will be raised of whether increasing inundation of tidal private property could be construed as invoking the payment of compensation.

Building capability for disaster resilience

Lynn Crawford et al. — Wed, 31 Oct 2012 00:03:39 PDT

All levels of government recognise the widespread devastation of communities by natural or other disasters. They have responded with emergency management arrangements and policies to enhance government and community capacity to anticipate, withstand and recover from disastrous events. Although the construction industry has a significant role to play, particularly in recovery and reconstruction, it has not generally been considered as a key stakeholder in building capability for disaster resilience. One barrier to more active involvement of the construction industry in disaster response and management is that traditional methods of construction project management have been criticised as too time consuming and inflexible for use under circumstances of high uncertainty, requiring rapid response in complex multi-stakeholder environments. The 2011 Queensland floods represent one of the most disastrous extreme weather events of recent times. Using this event as a case study, this paper presents results of analysis of institutionalised discourse concerning structures, policies and procedures for disaster management, and official inquiry reports providing details of response and recovery activity. The aim of the research is to identify the positioning of project management in the disaster management discourse as a first step towards earlier and more proactive involvement by the construction industry and use of project management approaches that contribute to disaster resilience.