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Questions and Answers
What is the term for the process of estimating the future amount of costs of a construction project?
What is the term for the resources that may be used again and again, such as manpower and equipment?
What is the term for the ratio of the total present value of cash inflows to the cost of the initial investment?
What percentage of the cumulative retention is released on project completion?
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What is the term for the difference between the present value of the cash inflows and the amount of the original investment?
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What is the term for the rate of return at which the initial amount of investment equal the present value of all future cash inflows?
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What is the markup percentage for the contractor’s project budget?
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What is the interest rate for calculating the additional cost of financing?
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What is the term for a contractual agreement by the borrowers to pay the holder of the instrument fixed amounts of money at regular intervals until a specified date?
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What happens to the amount of capital required by a firm when the interest rate increases?
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What is the purpose of preparing a worksheet of cash flow calculations for both monthly and bi-monthly measurements?
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What is the term for the amount of money retained by the owner from every invoice before a payment is made to the contractor?
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What is the purpose of preparing graphs of cumulative cash in and cash out?
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What is the relationship between the quantity of money demanded and the interest rate according to the demand curve for money?
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What is the term for a financial analysis by which the size and timing of cash inflows is compared with the size and timing of the cash outflows used in the activity?
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What happens to savers' behavior when negative real interest rates are imposed on the national currency?
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What method can be used to rank projects in terms of attractiveness to the company?
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What is the period after which the remaining half of the cumulative retention is released?
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Which of the following statements is true about risk in project management?
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Why does the owner propose to make measurements and payments every two months?
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What is the correct formula for Project Total Cost?
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What happens to the incentive for lenders to provide borrowers with funds when real interest rates become negative?
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Which of the following is a characteristic of commercial risk?
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How can risks be quantified?
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Study Notes
Construction Management Terms
- Direct Costs: Costs directly related to a specific project activity, including labor, material, equipment, and subcontractor costs.
- Cost Forecasting: The process of estimating the future costs of a construction project.
- Simple Linear Regression Analysis: A statistical analysis that establishes the relationship between independent and dependent variables to evaluate the impact of independent variables on dependent variables.
Resource Management
- Non-Consumable Resources: Resources that can be used again and again, such as manpower and equipment.
- Key Resources: Resources that are most important, expensive, and scarce, such as skilled labor or equipment.
- General Resources: Resources used by all or most activities on the project.
- Resource Smoothing: Modifying resource profiles to reduce fluctuations in resource usage during project implementation.
Financial Analysis
- Cash Flow Analysis: A financial analysis comparing the size and timing of cash inflows with cash outflows used in the activity.
- Retention: The amount of money retained by the owner from every invoice before payment is made to the contractor.
- Net Present Value (NPV): The difference between the present value of cash inflows and the amount of the original investment.
- Profitability Index (PI): The ratio of the total present value of cash inflows to the cost of the initial investment.
- Internal Rate of Return (IRR): The rate of return at which the initial amount of investment equals the present value of all future cash inflows.
- Bond: A contractual agreement by borrowers to pay the holder of the instrument fixed amounts of money at regular intervals until a specified date.
Financial Concepts
- Interest Rates: The higher the interest rate, the greater the incentive for individuals to reduce current consumption and increase saving rates.
- Keynesian Theory: Claims that the interest rate is determined in the money market at the intersection of the demand curve for money with the supply curve for money.
- Nominal Interest Rate: Does not accurately reflect the cost of finance due to inflation.
- Negative Real Interest Rates: Leads to savers' reluctance to save in the national currency and directs savings to a foreign currency.
Risk Management
- Risks: Can be quantified by multiplying the likelihood of failure by the impact of the failure.
- Technical Risk: Highest in the earliest phase of the project life cycle, especially with unproven technology.
- Commercial Risk: Inability to accurately predict the market's acceptance of a new product or service.
- Financial Risk: Exposed by a large up-front investment of capital.
Problems and Solutions
- Project Budgeting: Total cost = direct cost + project overhead + general overhead.
- Cash Flow Calculations: Worksheet preparation and graphs for both monthly and bi-monthly measurements.
- Additional Financing Cost: Calculation of extra funding needed due to bi-monthly measurements.
Project Evaluation
- Ranking of Projects: Based on maximum capital needed, profit, and payback period.
- Project Attractiveness: Determined using net present value, profitability index, and internal rate of return.
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Description
Test your knowledge of construction management terms, including cost estimation, forecasting, and analysis. Identify key concepts and their definitions.
