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Decision Making in Construction Project and Contractor Selection

RoadmapIndian construction industryUnderstanding ground realityDecisionProject ComplexityTypes of decisionsModels of decision makingThe decision making processSelection of contractor

Indian construction industryConstruction as backbone of developing nationAs economic activity contributing 10 % to national GDP, growing at a compounded annual growth rate (CAGR) of about 11.1 per cent over the last eight years.

Indian construction sector Characteristics and challenges

Fragmented, with a handful of major companies No long-term relationships between the contractors and clients leads to poor economies of scale. Organized and unorganized sectorThe organized segment consists of firms and independent contractors who manage their business (design, financing, execution, etc.) On a professional basis. Unorganized segment primarily consists of standalone contractors that operate at a small scale.Construction activities of smaller firms in the organized segment and contractors in the unorganized segment are mainly focused on simple construction projectsbuilding houses for individuals, repair, and maintenance for smaller buildings. Construction activities for larger firms involve higher complexity such as process industry and mega construction .

Developing country construction challengeGeneral situation of socio economic stress, Chronic resource shortage, Institutional weakness and general inability to deal with key issue like skill developmentconsidered as 3 ds ie, dirty, dangerous and demanding rather than 3 ps ie professional, productive and progressive.Problem Encountered during executionRelated to decision makingLack of ownership in contractor team

Resource planning or availability during execution by contractor team Site management by contractor team

Managing work by Break up of the job into small packages by contractor

Problem Encountered during executionClaims and contractor

Risk analysis

Man power Requirements planning

Estimation

People management

Decisions and Decision MakingDecision = choice made from available alternatives

Decision making is the process of identifying and choosing among alternative courses of action in a manner appropriate to the demands of the situation.Alternative courses of action must be Identified, Weighed, Weeded out.Major Decision in construction projectContractor selection for construction project

Vendor selection in a supply chain environment

Material selection for a given engineering application Robot selection for a given construction application

Selection of material handling equipment such as crane, truck, trailer

Selection of construction equipment such as form roller, excavator, plastering machine,

Selection of software for project applications

Integrated project evaluation and selection

Facility location selection

Operational performance evaluation of competing contractor There is no single definite criteria of selection but large number of criteria fro various area such as

Technological, Economic, Ethical, Political,Legal, Social

Example Material selection-Toughness, density, thermal expansion, Thermal conductivity, specific heat, weight, cost, durability etc.

There is a need for simple, systematic, and logicalmethods or mathematical tools to guide decision makers in considering a number of selection criteria and their interrelations.

objective of any selection procedure: to identify appropriate selection criteria, and obtain the most appropriate combination of criteria in conjunction with the real requirement. Conditions For Efficient Decision MakingUnderstanding the current and upcoming eventsFactors influencing the whole construction environment Exploring the nature of decision-making processes and the reach of different typologies of methods and techniques, Structuring the decision-making approach based on a wide range of issues related to construction systems design, planning, and management.Decision makers frequently face the problem of assessing a wide range of alternative options, and selecting one based on a set of conflicting criteria.Exercise 1Problem faced in decision making at your work areaProblem In Decision MakingCriteriainformation

Project Complexity

Simple SystemStraight forward

Problem defined properly and completely in beginning

Easy monitoring and control due to less interdependency and clarity in interaction

Remedial action bring project to goal path

Controlled to Chaotic project

What Is a Complex ProjectMany elaborately interrelated or interconnected ComponentsNumerous tasksHigh riskLeading-edge or rapidly changing technologiesMultiple partners and/or vendorsGeographically dispersed organizational entitiesProject implementation across many locationsMany agentsGreat uncertainty about how to conduct the project from start to finishNonlinearityNon-linearity or Difficulty in Linking Cause and EffectNonlinearity :It result from Complicated information pathways in many large projectsMultiple decision pointsMultiple players Cyclical chains of events that reinforce each other, as opposed to predictable, linear chains of cause and effect. Factors for non linearity Technical complicacy, Unclear or untimely decision-making, Unexpected environmental changesA significant delay in one activity effect many activities due to high levels of interconnectivity and interdependence that produce cycles of rework , difficult to anticipate at the outset of a project.Complexity Factor: Project SpecificKey personnel (executive sponsors, clients, user representatives, project managers and project team members) Capabilities and behaviourMotivation Commitment Causal factors: physical nature of the project SizeOrganisation structure Technical challenge How the project is affected by deadlines and time-related issues.Multitude of authority with contradictory requirementPublic visibility of projectPublic concern over related environmental issuesLack of appropriate support structure in place within owner organization Complexity Factor: Project SpecificPerceptions of the complexity of the project are more likely to be influenced by an interaction of these aspects.Example- project with theoretically avoidable complexity, became complex due to poor cost and time estimationPressure from senior executive to start the projectCulture of optimismUnwillingness by seniors exec. to acknowledge identified risk severity Sponsors lack of understanding of the need for highly experienced project support personnelPutting head in sand is not the option with complex projectProject Complexity

uncertainty Reduce confidence which reduces ability to deliver and adversely affect the trust in those on whom you depend. When uncertainty prevails and trust diminishes, otherwise competent leaders and managers can behave poorly. People start running for cover and blame begins to be hurled in all directions

Complexity Indicators: Trust and blame gameUncertaintyDelivery abilityTrustBlame GameManagers ChallengeMany decisions that managers deal with every day involve at least some degree of uncertainty and require non programmed decision makingMay be difficult to makeMade amid changing factorsInformation may be unclearMay have to deal with conflicting points of view

Managers Challenge in decision makingMultiple criteria: Number of conflicting criteria representing the interest of different group

Value Judgment: Bias factor based on perception

Unintended Consequence: Positive, negative , Frankenstein monster effect :Man Creates Dinosaur, Dinosaur Eats ManEx- signal jammer, fund for eradicationhurried and/or narrowly focused decision makers typically givelittle or no consideration to the full range of likelyconsequences of their decisionsCertaintyInformation is fully available, no doubt about factual basis, outcome predictable accuratelyRiskDecision has clear-cut goalsInformation available but has poor reliabilityAlternative are subject to probabilityUncertaintyInformation about alternatives and future events is incomplete and not reliableAmbiguityGoals to be achieved or the problem to be solved is unclearAlternatives are difficult to defineInformation about outcomes is unavailableConditions Affecting Decision

Conditions that Affect the Possibility of Decision FailureOrganizationalProblemProblemSolutionLowHighPossibility of FailureCertaintyRiskUncertaintyAmbiguityProgrammedDecisionsNonprogrammedDecisionsCategories of DecisionsProgrammed Decisions: Routine , SOPSituations occurred often enough to enable decision rules to be developed and applied in the futureMade in response to recurring organizational problems, e.g. hiring, billingNon programmed Decisions Non routine, in response to unique, poorly defined and largely unstructured, and have important consequences to the organization e.g.: replacement of contractor in middle of the project.

The Principle of ExceptionOnly bring exceptions to the way things should be to the managers attention. Handle routine matters yourself.

Programmed DecisionsNon programmed DecisionsTopLevel in OrganizationBottomIll-structuredType of ProblemWell-structuredAvoiding Decision TrapHuman tendencies that are capable of eroding the quality of decision making. Framing error: Tendency to evaluate positively presented information favorably and negatively presented information unfavorably. Glass 50 % full or empty. Framing influences interpretation and intended behavior. Advertisement to create frame , major problem in perception Overconfidence: It expose managers to unreasonable risks. With business conditions constantly changing and innovations often seem to be the only constant, no one can have all the answers for long. Being crisp and decisive tend to settle issues so quickly that they have no opportunity to grasp the ramifications . already have all the answers, they have no way to learn new answersWhenever something truly important is at stake, push for rapid closure, allowing no periods of uncertainty, even when uncertainty is appropriateAvoiding Decision TrapEscalation of commitment :Tendency of individuals and organizations to get locked into losing courses of action because quitting is personally and socially difficult. Reason to hold on to failing decision/business : sentimental value, false hope, and culture

Steps in the Managerial Decision-Making Process

EvaluationandFeedbackDiagnosisand Analysisof CausesRecognition ofDecisionRequirementDevelopment ofAlternativesSelection ofDesired AlternativeImplementationof ChosenAlternativeDecision-MakingProcessGeneral Decision Making Model

Decision makers in an organization areFloating in the stream, jostled capriciously by problems Popping up, and finding anchors through Action at a given time in a given placeDecision making process(Non Programmed/Strategic)Decision may be considered as

Operational decision: Concerned with managing operation, Focus result on short term basis, Outcome is known quickly Strategic decision : Prediction pertaining to important issue on a long term basis, Lot of uncertainty in consideration, Choice is among significantly different alternative, Involve payoff far into future

Elements Of Decision Quality

Elements Of Decision QualityAppropriate frame: clear purpose, conscious perspective, Well defined scope.Creative, doable alternatives: explore all possibilities understand fully different alternativesQuality achieved with number of innovative and realizable alternatives consideredMeaningful, reliable information: establish correct and explicit information based on appropriate facts. The uncertainty involved can then be expressed in the form of a probabilistic judgment. Elements Of Decision QualityClear values and trade-offs: explicit statements of fundamental values need to be established.Logically correct reasoning: consequences of each alternative on the value measure to be evaluated comprehensively.Commitment to action: full commitment to put the action plan into implementation is a significant of ensuring success. Without commitments from all parties involved, it is unlikely to obtain any useful and beneficial results, even with the most sophisticated and comprehensive action plan in hand.

Selection of Desired Alternatives: FactorsRisk Propensity = willingness to undertake risk with the opportunity of gaining an increased payoff

Implementation = using managerial, administrative, and persuasive abilities to translate the chosen alternative into actionSingle, Group-aided Decision Making And Group Decision MakingMoving from single to multiple decision maker bring complexity

Decision making is a highly social activity with committees, study groups, review panels, or project teams contributing in a variety of ways.

In group aided DM, group does everything except make the final decision. Where as in group DM group actually makes the final decision.

Problem of dispersed accountability: in group decision making, it reflect the collective experience and wisdom of all those involved, personal accountability is lost. Blame for a joint decision that fails is too easily passed on to others.

There was a company run by committee, by consensus. No one actually made a decision. When things went well, there would be a number of people willing to take credit. But when things went wrong, it was impossible to fix responsibility on anyone.Advantage

1. Greater pool of knowledge2. Different perspectives3. Greater comprehension4. Increased acceptance: outcome viewed as ours rather than their5. Training ground: learning of group dynamics by less experiencedAdvantages and Disadvantages of Group-Aided Decision MakingDisadvantage

1. Social pressureUnwillingness to disturb(rock the boat) and pressure to conform(due to hierarchy) may combine to stifle the creativity of individual contributors.2. Minority domination: by those who talk loudest and longest3. Logrolling :Exchange favor/reciprocal votingPolitical wheeling and dealing can displace sound thinking when an individuals pet project or vested interest is at stake.4. Goal displacementSometimes secondary considerationssuch as winning an argument, making a point, or getting back at a rival displace the primary task of making a sound decision or solving a problem.5. GroupthinkSometimes cohesive in groups let the desire for unanimity override sound judgment when generating and evaluating alternative courses of action.35Individual Vs group performance: Contingency ManagementNature of task and Insights from researchProblem-solving task: Individuals are faster, but groups tend to produce better resultsComplex task/ Brainstorming task : Best results achieved by polling the contributions of individuals working aloneLearning task :Groups consistently outperform individuals Concept mastery/ creative task: Contributions from average-ability group members tend to improve when they are teamed with high-ability group membersNew Decision Approaches for Turbulent TimesLearn, Dont PunishKnow When to BailPractice the Five WhysEngage in Rigorous DebateBrainstormingDecision Approaches for Turbulent TimesMulti-Criteria Decision MakingIt has become more and more difficult to see the world around us in a one-dimensional way and to use only a single criterion when judging what we see

The Decision-Making Process

Develop DecisionCriteriaAllocate Weightsto CriteriaDevelopAlternativesAnalyzeAlternativesSelect AlternativeImplementAlternativeEvaluate ResultsIdentify ProblemMulticriteria group decision makingApproaches For MCDMSimple additive weighting method (SAW)Weighted product method(WPM)Analytic Hierarchy Process (AHP)

Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS)Entropy MethodStandard Deviation MethodData envelopment Analysis40Each decision table (also called decision matrix) in MADM/MCDM methods has four main parts, : Alternatives, alternatives, ai (for i = 1, 2, .. , N),Attributes, bj (for j = 1, 2, .. , M),Weight or relative importance of each attribute, wj (for j=1, 2, .., M)Measures of performance of alternatives with respect to the attributes. Mij (for i= 1, 2, .., N; j=1, 2, .., M

Decision maker is to find the best alternative and/or to rank the entire set of alternatives. all the elements in the decision table must be normalized to the same units, so that all possible attributes in the decision problem can be consideredMulti-Criteria Decision MakingMeasurement system as basis of effective Decision makingAll organizational system are based on measurement systemBasic Problem : organization has many measurement system in place of a common integrated one, located in functional silos and not well interconnected

Most individual or organization do not get what they want because they dont measure what they wantNo organization can be any better than its measurement systemPoorly measured organization: Chaos and waste proliferateWrong MeasureWrong decisionWrong resultDecision Table in MCDM

Example Using Weighted Scoring Method ObjectiveSelecting a mobile craneCriteriaCapability, Reliability, Fuel-economy

AlternativesCrane 1, Crane 2, Crane 3, Crane 444 Weights and Scores Weight 0.3 0.4 0.3 SiCapabilityReliabilityFuel Eco.Crane 2Crane 3799878968Crane 1Crane 4 67 88.47.67.57.0454Simple Additive Weighting (SAW) Method Weighted sum method (Fishburn)Each attribute is given a weight, and the sum of all weights must be 1. Each alternative is assessed with regard to every attribute. Overall or composite performance score of an alternative is given by equation

Drawback: saw should be used only when the decision attributes can be expressed in identical units of measure (e.G., Only ruppes, only pounds, only seconds, number etc.).

However, if all the elements of the decision table are normalized, then SAW can be used for any type and any number of attributes. In that case,

where (mij)normal represents the normalized value of mij, and Pi is the overall or composite score of the alternative Ai. The alternative with the highest value of Pi is considered as the best alternative. The attributes can be beneficial or non-beneficial. When objective values of he attribute are available, normalized values are calculated by (mij)K/(mij)L, where (mij)K is the measure of the attribute for the K-th alternative, and (mij)L is the measure of the attribute for the L-th alternative that has the highest measure of the m attribute out of all alternatives considered. This ratio is valid for beneficial attributes only. Ex profit By contrast, non-beneficial attribute (e.g., cost) is that for which the lower measures are desirable, and the normalized values are calculated by (mij)L/(mij)K.

Simple Additive Weighting (SAW) Method Weighted sum method (Fishburn)

Weighted Product Method (WPM)

Similar to SAW. Instead of addition in the model, there is multiplication (miller and starr, 1969). The overall or composite performance score of an alternative is given by equation

The normalized values are calculated as explained under the saw method.Each normalized value of an alternative with respect to an attribute, i.e., (Mij)normal, Is raised to the power of the relative weight of the corresponding attribute. The Alternative with the highest pi value is considered the best alternative

Conversion of Linguistic Term into Crisp Score5 point crisp scaleLinguistic termCrisp ScoreLow0.115Below Average0.295Average0.495Above average0.695High0.89511 point crisp scaleLinguistic termCrisp ScoreExceptionally low0.045Extreemly Low0.135Very Low0.255Low0.335Below Average0.41Average0.5Above average0.59High0.665Very High0.745Extremely High0.865Exceptionally High0.955Analytical Hierarchy Process

Methods: AHPThe analytic hierarchy process (AHP), which provides a proven, effective means to deal with complex decision making, was first introduced by Thomas Saaty in 1970sEvaluation phase is divided into four steps given below;1. Generate pairwise matrices2. Generate the weights of the measures3. Normalize weights to get the consistency among measures4. Calculate the overall ratings

The Fundamental scaleIntensity of ImportanceDefinitionExplanation1Equal ImportanceTwo activities contribute equally to the objective2Weak or slight3Moderate importanceExperience and judgment slightly favor one activity over another4Moderate plus5Strong importanceExperience and judgment strongly favor one activity over another6Strong plus7Very strong or demonstrated importanceAn activity is favored very strongly over another; its dominance demonstrated in practice8Very, very strong9Extreme importanceThe evidence favoring one activity over another is of the highest possible order of affirmationReciprocals of aboveIf activity i has one of the above nonzero numbers assigned to it when compared with activity j, then j has the reciprocal value when compared with iA reasonable assumptionRationalsRatios arising from the scaleIf consistency were to be forced by obtaining n numerical values to span the matrixThanks

ReferenceMichael Crandall, Decision Science, Information school of University of washingtonLaxmi C jain and Chee Peng Lim, handbook of decision science, Vol-1 Technique and application

Determining specification of work Finalizing criteria such asExperienceType of business in terms of similarity, capacity, quanta and complexity o of jobEnvironment and locationFamiliarity to location and culture Availability, Reliability,Record of performance Technical competence, Hse, Delegation of power to site personContractor selectionRecord of poor performanceabandoning the work, not properly completing the contract, inordinate delays in completion or financial failure etc.Over booking beyond capacity

Contractor selectionAdministrative approval

Financial sanction

Technical sanctionContractor selectionThe lowest price isnt always the best value

Fairness of your approach mattersTypical multi objective decision making processTriggering signalRecognition for need for change and diagnosis of the systemProblem definition, with specification of objectives and identification of attribute or objective MeasureConstruction of model( mental, graphis, physical , or mathematical ) together with parameter estimationSet of AlternativeXValue JudgementEstimatingGeneratingValue of attributesf1(x),.fn(X)DecisionImplementation and re evaluationDecision environment and state of natureValue JudgementInitiation set upProblem formulation stepSystem Modeling stepAnalysis evaluation step