Introduction
In this world of technologies and changing trends in nature and the way of doing business, it becomes increasingly important to involve economic and management concepts in the day-to-day running of a business enterprise. This becomes imperative due to the escalating cost of doing business, the global nature of business with most businesses getting jobs outside their countries, and the fast pacing world of technological advancements which antiquate current systems as soon as they are developed.
It, therefore, becomes inevitable that technological improvements and sound economic management of business finances, human and material resources are the only way possible to maximize profits as well as optimizing service (and or goods) delivery. Organizing, analyzing, and automating business activities comes at a cost and effective and efficient management of the business resources; therefore becomes a top priority item for business owners and managers.
Business Economics and Management concepts are set tools that can help organizations improve their business performance. It is a framework for organizing, automating, and analyzing the operations of a business, its processes, and systems that improve business performance. Some of the business economics and management concepts include profit maximization, innovation optimization, and management synchronization. In the construction industry, as is true in any other business enterprise, business economics, and management concepts are used extensively.
Construction management, as business economics and management is known in the construction and property industries, encompasses the following fields: Cost Management, Time Management, Safety Management, Quality Management, Contract Administration, Project Management Planning, and Contract Management Professional Practice which outlines the responsibilities and management structure of the project management team, organizes and leads by implementing project controls, defining roles and responsibilities and developing communication protocols as well as identifying elements of project design and construction likely to give rise to disputes and claims.
Therefore business economics and management in the construction industry can be looked at as the study and practice of the sum total of all the managerial and technological aspects that are involved in the construction industry. The aspect includes construction, construction science, construction management, and construction technology. The construction sector is very important for the UK economy. It accounts for 10% of the UK’s GDP and employs 1.5 million people.
It has 2.1 million people working for it and about 500,000 professionals. The company has more than 250,000 construction firms. Some specialize in groundwork, roofing, fabrication, property development, and maintenance of steel reinforcements amongst the myriad of diversifications in the construction business. Some of the companies that have had long time experience (some spanning about 50 years)in the construction industry are Major players are Tarmac, Carillion, Alfred McAlpines, AMEC, Balfour Beatty, Costain Group, John Laing, Kier Group, Mowlem, Taylor Woodrow.
Since the introduction of the Construction Industry Scheme, introduced in about 1971, to bring some order to a chaotic industry which was suffering from the ‘lump’ or excessive casualization, the construction industry has become a big revenue earner for the Government of UK. The latest figures estimate that the construction industry has an annual turnover of about 80 billion UK pounds. Its management is therefore of great importance to the government, who is the largest client in this industry in the UK and takes about 40% of all the products from this industry.
Some of the other key construction clients are the EA, water companies, British Waterways, British Energy, Rail track, the Highways Agency, port authorities, major retailers, and house-builders. It is also of importance to the millions of home and property owners in Great Britain.
Company of Choice
One of the companies that are in the construction industry in Britain is A J Morrisroe & Sons Ltd. It is a private company incorporated in England and commenced trading in 1983. It specializes in Groundwork and Reinforced Concrete Frame construction.
This company is of great interest to me because it not only offers quality work it also provides a number of social incentives and programs for the community. It is involved in mentoring young Engineers. They have linked together with Liverpool University and Mott McDonald to guide 90 students through a series of construction projects. Some of the projects are Naples Shaft and Roof Canopy, Brewery Wharf Cable-Stayed Bridge, Ravenspurn Oil Rig, Millau Bridge (Pfund, M, Dhakona, 1999).
Some of the big projects that Morrisroe Company has undertaken include:
The Piling, Groundwork, Substructure & Superstructure Concrete Frame of Chelsea. Bridge Wharf Phase 5, London, in which their client was Berkeley Homes (Central London) Ltd, and the contract value was £11m are others. Another show of their seasoned work is found in the structure and superstructure concrete frame worth £8.2m for the Carillion. This project is found on 150 Cheapside in London. Also among the list of the company’s achievements is the KX200 found along Bentonville Road, London.
The groundwork, substructure, and superstructure concrete frames brought the company £4.2m from BLFB Ltd of London. Other projects also undertaken by the company are the £5.2m substructure and superstructure for the University College London Hospital, Potters Field, and London, which was commissioned by Berkeley Homes for £4.5m.
Business Economics and Management as Employed in a J Morrisroe Company
Advertisement
One of the business’s economic and management concepts applied by A.J. Morrisroe is an advertisement. Advertisement can be defined as a paid-up commission of an organization that is directed towards consumers and society as a whole. The classical advertisement channels are TV, radio, billboards, and print media. Today every business must inform the general public of its existence, and this has given a lot of money to the advertisement industry.
This branch of business has, with time, expanded and rolled out greater innovations resulting in more efficient and better services. One of the most recently introduced products in this industry is product branding. In product branding, companies to be advertised pay up movie and video firms so that their products are incorporated within the movie. Another form is through engagement in many forms of social events and online advertisements through websites (Slack et al., 2007).
Good advertisements provide both information and persuasion to the general public. Such an advertisement influences almost all phases of the decision-making process to the customer. Investing a lot in the advertisement also has the advantage of placing one’s product edges ahead of competitors. This is instrumental in reducing the level of substitution. With time, it becomes quite open that proper investment in an advertisement has more than modest returns. Morrisroe also engages in direct mail. This is done in the form of monthly newsletters and catalogs, especially the advertisements put in cups, T-shirts, jackets, and other goods.
Morrisroe has also invested in institution advertisements by involving young students in community service. This also offers the young potentials a chance to interact with the local people and also have wide knowledge in the company and its policies. This company has reserved a big portion of its capital in the advertisement. Advertisement is also used by companies to analyze their performance.
Consumption
Consumption is another tool used in business economics and the management of the construction industry. Consumption is defined as the value of goods and services brought by the people. Individual buying acts are mostly aggregated under space and time. Any business is judged on economic performance based on its consumption levels and dynamics. Consumption by a company is in most cases proportional to the output that the business has.
Even though high expenditure is undesirable in businesses, the uniform or standard ratio of the expenditure versus profit is not deprecated. Consumption in a business enterprise can be used to gauge the performance of the business. If expenditure is low and the turnover is high, the management would certainly know that the business is on the right path to prosperity. However, this is not secure enough because a lack of investment will automatically translate into low profits in the future. High profits will be realized from such a business only for a short time. The best direction to ride on is when the company has relatively high expenditure and high profits at the same time. Such a company is considered stable and has reached a break-even point.
Consumption is another sign of asset ownership by a company.AJN announced a capital investment of £ 1million. This was due to the growth of the business, which required more materials and plants to serve their projects. This money was against the total turnover of £ 33 million. According to the newsletter of July 2007, the total turn over for the year 2007 was £ 33 million. This represented consumption and more increase in the value of the business in general. Tracing the records from the past seven years shows that the firm had an increase of 500%. This is an indicator of success and growth in the business (Pfund, M, Dhakona F, 1999).
Cost
Cost is another measure of the performance of a company. Cost can be looked at as the burden sustained by the company in order to accomplish some of the tasks and assignments that the company is entrusted with. Costs always raise the commercial liabilities that have to be settled by the company. It is important to note that costs are different from payments. The aspect of costs is further divided into many categories. One of them is actual costs, and this represents the value of a real transaction. Opportunity cost, on the other hand, refers to an alternative choice taken such that it is the best option that minimizes costs.
Another type of cost is called secretory costs. This type of cost is not so necessary, but it influences the company’s outlook and, in the process, reduces the advertisement costs. In most cases, a firm has to sustain certain costs before any production takes place. These costs are called investment costs. Another type of cost is called sunk cost. This type represents the initial cost of an investment and is usually realized before the onset of the business. This amount of money can never be recovered even if all the assets acquired through them were sold. These costs make investment irreversible.
All the mentioned costs are necessary for the performance and success of the business. As known by all business firms, the sunk cost plays a big role in sustaining the business because this money is never recovered in the event of an exit. The business firms are therefore encouraged to stay longer with their investments without exit. The investment cost is also necessary because it s used for the initial production and running of a business enterprise.
Innovation
Innovation is another economic and management concept. The broad description of innovation entails breaking of dominance. Innovation means going against the old routine of doing things and, in the process, introduce a new and superior product. Most businesses envisage innovations as a way to pose themselves strategically in order to grab opportunities. Innovations also have a cost element in them. The more innovative a product is, the more it took to hatch and develop it. This, in turn, is equivalent to the sunk costs. This also has a corresponding interpretation that the more innovative a project is, the more difficult it is to abandon it (Dinhomanis, 2004).
Innovation is a complex circle of discoveries and inventions which are introduced into the market with the hope that they are adopted by the new users. Innovation, therefore, is uncertain and costly since the cost extends even during the introduction where they are used. Once the innovations have been introduced in the market, they are then developed and further improved. Successful innovations are embraced by the stakeholders from where more publicity can be done. Statistics reveal that good inventions have always brought more clients to the mother companies.
There are three basic kinds of innovations. Product innovation is the first in the category. Product innovation is the introduction of a new product in the market. The new product is meant to add value to similar goods in the market. A totally new utility can also be introduced in the market.
This can be to create more substitutes for the goods that are already in the market. Another type of innovation is called process innovation. This type of innovation mainly focuses on changing the way a product is produced. This is very common in the service sector and is aimed at reducing the production costs of the goods. Behavioral innovation is the last type of innovation. This type embraces the replacement of activities and routines of an organization.
Vibrant companies are identified by the number of inventions that they provide. These inventions must not only be in the production sector but also within the company itself. A higher level of recognition is always given to companies that have introduced new ways of interacting with their immediate environment in the form of corporate strategies. These are evident through offering services to the community like drilling boreholes and sponsoring students to schools.
AJM has introduced many innovative products. An example is an introduction of a new accounting package called to connect, which is developed by integrity software solutions. It is hoped that the new platform will help in the high-level implementation of management. This software will be installed extensively in the firm, and it will provide a complete reporting structure for contract costs. The installation of this software is underway, and it is expected to pick up operations from next year.
Proactive construction and administration practices are the major promoters to the success of AJM company. Because of this, AJM has been asked to be among the few contractors to pilot a new online management system. This technological system is to be used to control the supply of concrete and oversee the accounting practices, all of which have been proposed by Tarmac LTD.
Employee care satisfaction
Employees are the chief asset of any focused business enterprise. This drives the company to greater heights when proper coordination is done. Evaluation of a company based on this reveals either success: for a company that takes good care of employees and has a good management protocol. Failure is always evidenced by the companies whose workers are complaining of many things like dismal pay, poor working conditions, and overwork. The proper management structure is an aspect to be looked into when a business enterprise is being evaluated. The roles of every officer in the company should be well stipulated and the various bosses unto whom they are accountable. This well-outlined flow of authority will enhance accountability and hence profitability.
Even as the structure is well developed, the company should be able to take care of the concerns of its employees without then complaining. This helps in motivating the employees and hence guaranteeing great output. Firms that don’t take good care of their employees are bound to fail. Also, those that lack a proper outline of protocol could be on their way down depletion because of duplication of roles by some officers. This is a very important element to consider when evaluating the economic and management status of a company.
Profit
Economic business management also considers the profit of the company as one aspect of analyzing the status of the company.
Profit is the cash difference between revenues and costs incurred. The main objective of all firms is to maximize profits. Profit maximization does not translate to avoiding expenditure but rather has more emphasis on reduction of maintenance costs, decretory costs, and investment costs. These areas of expenditure are, however, necessary for the sustenance of the business and for maintaining its competitiveness. Maximizing the profits does not necessarily mean maximum profitability.
Profitability can be defined as the percentage of the profits to turnovers. Many factors can affect the profits of an organization. These include rising prices of competitors, better sales conditions and skills, lower costs of production, incentives from the government, among the rest. One other parameter of profit is the level of innovation. Suppose there are the firms that are selling the same product, then should one firm decision to purchase a machine that has a faster production of their good, some changes will be evidenced. The most evident change will be the reduction of the product cost in the market. Production of many units will result in a small increase in the profit of the company.
The small profits will be realized because management shall still be paying for the cost of purchase of the new product. However, upon successful completion of the payment installments, the company will begin accumulating huge profit margins. The revenue of the company will increase all over time. This shows that profit is the only simple and sure way of analyzing the performance of the company (Dinhomanis, 2004).
Product differentiation is the process of offering products that have different variants of the same product to a particular target market. This product that is offered must differ from others offered in the same market by competitors and brands of the same product. The main reason why a company offers products is to get a competitive advantage over its competitors who sell the same product. Products may differ over quantity, quality, functional features, or design Ignorance of a buyer regarding essential characteristics of the same goods purchased and difference in availability.
its main advantage is that it reduces direct competition. It is through this process that many multinational products firms build their own supplied range of products from the primary competition. Multinational firms have a competitive advantage based on price to non-price factors. The target group of customers, in the process of product differentiation, generally have a lower sensitivity to other features of the product.
AJM, as one of the competing companies in the market, is highly involved in product differentiation. The company management sets out its strategies by first working on a thorough groundwork. This groundwork encompasses site clearance and preparation. The company is also involved in substructure, which is the realization of track beds and other structures such as tunnels and viaducts. Moreover, the company also constructs superstructure concrete frames.
Superstructure work includes laying of ballast bed, the sleepers and rails, cabling, and all other activities that lead to completion of a building. A observed in the aspect of product differentiation many come to create new and better services which put them on upper edge compared to their competitors. In this way, the company can create a niche for itself in the construction industry. Product differentiation also allows multiple companies from at least one of the three products that the company offers.
PFI/PPP
Public-Private Partnerships (PPP) are government schemes that involve the business sector in public projects. The Private Finance Initiative (PFI) is a form of PPP. The public and the private sector have one thing in common. They join in the Design, Building or Refurbishing, Fund and Operate (DBFO) new or improved public facilities.
The private sector runs the facility for about 25-30 years, and the private sector provider is paid an agreed monthly fee by the public body for the use of assets that, at the same time, are under the ownership of the private service provider. The advantage of PFI is that the public gains by receiving quality service; however, should the service deteriorate, the government can withhold the monthly fee amongst other heavy penalties which are drawn up in the concession contract. AJM is not involved in any PPP programs or PFI projects (Tomasi. 1999).
Corporate Social Responsibility
CSR can be defined as the voluntary involvement of the business in the neighboring society. A major concern of CSR is how to make a profit with minimum harm to the environment, human rights, and social concerns. The major concerns of CSR in the construction industry are the impact on the community, sustainable development, and possible climate change. It is estimated (figures in 2002) that dwellings in the UK accounted for about 28 percent of the total Carbon dioxide emission.
This leads to extensive industry guidance such as Housebuilder Sustainability Guidance which was prepared by WWF. The negative impact of the construction industry, as has been postulated, can be reduced if other sources of renewable energy are used. Other measures that have been used are the signing of CSR principles as a prerequisite for winning a contract and procurement procedures recommending the use of certified timber. On the other hand, CSR delivers reputational advantages which somehow contribute towards opening new markets as well as allowing access by companies to finance (Lughard, M 2005).
AJM is involved in a number of CSR-related activities. The AJM has been an ardent supporter of CSR and spearheads a number of return-to-community initiatives. One of the activities it is involved in are the constructionism project which involves young civil engineering students who are trained in construction management. There is also an annual Morrisroe Health and Safety award which is awarded every year to those who have demonstrated the best consistent performance in terms of health and safety. These are just a few among many programs.
Government Incentives
In the UK, the construction industry is regulated by the secretary of state for the development of the environment, transport, and the region. There was also a division called Construction Sponsorship directorate, whose aim is to help all sectors of the construction industry. The sectors included are like building products and materials sectors. One of the incentives the government of the UK has offered is help to UK exporters to win business and UK firms to invest overseas through the Export Credit Guarantee Department Act of 1991.
It does this by providing export finance, credit insurance, and overseas investment insurance. There are also other numerous laws and regulations that guide the sector on all the caliber of issues from how to pay the subcontractors to the compensation made to persons who lose property or life due to negligence of the construction company and how to handle casual workers. These are among the many incentives given to the various persons in the construction industry (Everret, T. 2002).
Conclusion
Business management and administration is the key to the success of any organization. A successful business is characteristic of many items, most of which are good news both to the employees, management, clients, and the general public. Some areas of evaluation include rates of inventions and innovation, advertisements, a measure of profits, response to the tough competition on the marketplace, strategy towards corporate and social responsibilities, among others.
High-performing companies will have positive results in all the named areas of evaluation. A flopping company, on the other hand, will display dismal performance, and this is a characteristic of a firm that is going to collapse. A construction company called AJM is used in this paper as a model company, and it is evaluated based on the above areas of analysis. Companies should always carry out an audit of themselves so as to assess their performance. This will help the management to organize strategic plans of how to stay in the upper zone in the highly competitive market.
Reference
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