A systems model of a construction firm

[Extract from Chapter 1] Construction management includes the management of various resource and management information systems. The resource systems consist of production systems involving direct and indirect labor, and construction equipment, as well as finance and time systems. Common information systems are: estimating, payroll, accounting, labor analysis and project planning, scheduling monitoring and control. Some production and information systems emphasize the general firm operation, and others relate to each individual project. This investigation is concerned with those systems related to general company management and not those concerned with the individual projects. The objective of this study is to develop a dynamic, realistic general systems level representation of the major constraints and major policies of a construction firm such that the effects of various different policy parameters, initial conditions and external influences can be analyzed. The development results in a computer simulation model. The systems model is recommended as a simulation tool to construction firms which would provide an evaluation of different policies and an analysis of future contingencies. The approach assumed the policies of a growth-oriented construction firm. This implied the firm attempted to maximize use of its available resources. The management of assets such as construction equipment and long-term investments was not considered. The basic framework of the systems model is the set of working capital accounts in the typical construction firm cash flow statement. This research is particularly significant to construction management because it is concerned with the overall systems level. Other research efforts have concentrated on the individual systems, for example, bidding models and project management computer programs. The system definition of Koenig et al. (1967) is assumed in this investigation; namely, a system is a set of interacting components. The systems model, then, represents a set of interacting systems. The systems included in the model were: working capital cash flow, bidding information and constraints, overhead acquisition, short-term investment and external financing. The conceptual approach utilized was that of Forrester (1968a, 1968c). More specifically, emphasis was placed on information and the feedback characteristics. The model was structured using basically two types of variables; those representing levels or states, and those representing rates of change in the flow between the levels. The analysis of the results included the use of computer simulation experimental design techniques. Two designs were used and they both involved two factors, each with two levels and two blocks. One model employed analysis of variance whereas the other model used analysis of covariance with a quadratic regression model. One factor consisted of two levels of markup and the other factor had two levels of short-term investment monthly return rates. The two blocks represented two initial starting conditions: one with a strong working capital position and liberalized bonding constraint, and the other initial condition represented a moderate working capital position and moderate bonding constraint. [Extreact from Conclusions] The simulation model was found to be very helpful in revealing the structure of a construction firm. The basic feedback loops within a construction firm were identified and the behavior observed. It is recommended that the systems model be employed by a firm to study the structure and behavior of their policies. Various parameter values can be substituted and the best policy such as markup or overhead deduced from the simulation runs. In addition it is recommended the model be used in contingency analysis, for example in studying policy in anticipation of labor strikes and different markup situations.