Chapter 2: Material and Plant Management PDF

Introduction The term ‘materials’ refers to: ✓The whole range of goods and services that are purchased or otherwise procured from sources outside the organization and are used or processed in order to provide finished products for sale. A typical construction project requires a v...

Introduction The term ‘materials’ refers to: ✓The whole range of goods and services that are purchased or otherwise procured from sources outside the organization and are used or processed in order to provide finished products for sale. A typical construction project requires a variety of materials. Materials in a project are broadly classified under ✓Capital equipment ✓Construction machineries, and ✓Consumables Introduction Some companies classify their materials under two broad categories ✓Capital items and ✓Revenue items. Revenue items ✓ Heavy tools and tackles Capital items ✓ Small tools ✓ Plant and machinery ✓ Consumables ✓ Vehicles ✓ Electrical items ✓ Office equipment ✓ Construction materials ✓ Land, and ✓ Special/one-time items ✓ Buildings ✓ Spares Introduction The importance of materials management can be gauged from the fact that, for instance, in any typical building project the share of : ✓Material costs is about 55 % ✓ Labor costs, about 25 % and ✓POL (petrol, oil and lubricants), overheads, tax components and profits, about 5 % each The scope of materials management is vast as it begins with ‘award of contract’ and ends with material resting at its point of use.  Introduction Typically, the objectives of materials management are to: ✓Minimize material cost ✓Procure and provide material of desired quality when required. ✓Reduce investment tied in inventories for use in other productive purposes and to develop high inventory turnover ratios. ✓Purchase, receive, transport and store material efficiently and to reduce the related costs. ✓Modify paper-work procedure in order to minimize delays in procuring material. Introduction In summary, materials management aims to provide: ✓The right item of the right quality ✓In the right quantity ✓At the right price ✓At the right place, and ✓At the right time for ensuring uninterrupted execution of works. Material procurement process in construction organizations Materials management functions The functions involved in materials management are: ✓Materials Planning ✓Procurement ✓Custody (Receiving, Warehousing and Issuing) ✓Materials Accounting ✓Transportation ✓Inventory Monitoring and Control ✓Materials Codification ✓Computerization ✓Source Development (Vendor Development) ✓Disposal Materials Planning Normally, purchase of any material is initiated by requisitioning for it. In order to have proper control on material purchase, it is a good idea to have some specific engineer approving the material requisition. Materials schedule should be the basis for raising material requisitions. Materials Planning Materials planning involves: ✓Identifying materials ✓Estimating quantities ✓Defining specifications ✓Forecasting requirements; and ✓Locating. Procurement (Purchase) Purchasing is the process of buying. It involves the five rights of purchasing (the 5Rs) ✓The Right Quality ✓The Right Quantity ✓The Right Price ✓The Right Time ✓The Right Supplier Procurement (Purchase) cont’d… Purchasing procedures are specific course of actions (step by step) carrying out purchase transactions. Purchase procedures are affected and should be aligned with purchase policy and objectives. Purchasing policies are useful for various reasons: ✓Clarify tasks such as what to do and what follows from what ✓Ensure uniformity of purchase activities ✓Assigns and specify authority and responsibility ✓Minimize fraud and duplication of function ✓Promote documentation and control of activities Custody (Receiving, Warehousing and Issuing) The main documents used are: ✓Inward register ✓Material receipt note (MRN) ✓Delivery challan (DC) ✓Indent ✓Dispatch covering note ✓Outward register, loan register ✓Repair register, and plant and machinery movement register. The functions of warehousing cover receipt, inspection, storage, issue/dispatch, materials accounting, valuation and insurance. Materials Accounting The main purpose of materials accounting is monitoring: ✓Inflow and ✓Consumption of raw materials Material accounting involves: ✓Materials stock accounting ✓Materials issue and returns accounting ✓Monthly stocktaking of selected materials; and ✓Materials wastage analysis. Material wastage analyses aims at finding the causes of wastages and rectifying them. Materials Accounting Cont’d… Wastage during procurement can result from various factors ✓Buying materials of wrong specifications ✓Buying more than the actual requirements ✓Unnecessary buying of items to cater for unrealistic and unforeseen eventualities ✓Untimely buying of short-life materials ✓Improper and unnecessary handling of materials; and ✓Wastage while transportation.  Materials Accounting Cont’d… Some other reasons of wastage of materials are: ✓Breakages and damages during handling ✓Lack of pre-work preparation and coordination ✓Inferior quality of materials ✓Improper accounting and poor storekeeping ✓Negligent and careless attitude of the supervisor ✓Unforeseen circumstances like accidents, fire, etc. ✓High rate of deterioration due to long storage at the place of work ✓Failures to return unused surplus materials; and thefts and pilferage  Transportation Construction materials used at project sites undergo considerable movement right from their point of origin to storage point, to the actual point of consumption. In some construction companies, materials are first received in central stores, from where they are dispatched to the project stores located at project sites and then finally to the workplace. The construction materials could be in the form of raw materials such as aggregate, sand and plywood Or they may be in semi-finished form such as mixed mortar, mixed concrete and dressed stones Transportation Raw materials procurement is within the scope of materials management team, while the procurement of semi-finished material comes under the purview of construction team. Proper care should be taken while planning for transportation of raw and semi-finished materials so as to avoid any adverse effect on the characteristics or performance of materials. Inventory Monitoring and Control Inventory may be defined as ‘usable but idle resource’. If resource is some physical and tangible object such as materials, then it is generally termed as stock. Thus, stock and inventory are synonymous terms, though inventory has wider implications. It is very important to have a check on the inventory level. Across industries, there is a substantial potential for cost reduction through inventory control. Inventory Monitoring and Control Cont’d… Inventory being a symptom of poor performance, one can reduce inventories through proper design of procurement policies By reduction in the uncertainty of lead times by variety reduction and in many other ways. Materials Codification cont’d… Codification is an important function in materials management, especially for construction companies where thousands of different items are used all along the project duration. There are different systems of codification followed by construction organizations—namely: ✓Numeric ✓Alphanumeric, and ✓Color codification. Materials Codification cont’d… As the term suggests, in numeric codification numbers are used, While in alphanumeric system both letters and numbers are used. Color codification uses different color schemes to codify different items. Materials Codification A proper system of material codification serves the following purposes: ✓Proper identification of items by all departments concerned ✓Avoiding use of long description of items ✓Avoiding duplicate stocks under different descriptions ✓Material accounting and control ✓Ensuring receipt and issue documents are posted in appropriate records ✓Helps in mechanization of records Computerization Computers are being used increasingly in the application of construction materials management. They find wide application in almost all the functions of materials management, including: ✓Forecasting the prices of materials based on past data and analyzing past trends. ✓Planning of different materials. ✓Developing the specification of materials. ✓Purchasing of materials. ✓Inventory control Source Development (Vendor Development) Source development is a continuous activity. As a policy, for every major item, more than one source should be identified. The vendor’s performance should be evaluated regularly and only satisfactory vendors should be encouraged. It has become imperative and strategically important to manage vendors by considering them as partners in the business. Source Development (Vendor Development) Initiatives such as vendor-managed inventory (VMI) can play an important role in containing and managing the costs To trace new sources of supply and to develop cordial relations with them in order to ensure: ✓continuous ✓reliable and ✓quality material supply at reasonable rates, has become an important item in the agenda of professional materials managers. Disposal Every year, old and used items that are not economical to use have to be disposed off in a planned way. For this, the quantity and quality of materials to be disposed off should be assessed. The reusable items from the scrap can be retained for further use. The remaining scrap is disposed off either by selling it to some scrap dealer or through the process of floating enquiry, collecting quotation, and awarding to the highest bidder. Inventory management Inventory management Inventory is usable but idle resource. The problem of inventory management is of maintaining an adequate supply of something to meet an expected demand pattern for a given financial investment. This could be raw materials, work in progress, finished products, or spares and other indirect materials. Inventory is one of the indicators of management effectiveness on the materials management front. Inventory management Cont’d… Inventory turnover ratio (annual demand/average inventory) is an index of business performance. A soundly managed organization will have higher inventory turnover ratio, and vice versa. Inventory management deals with the determination of optimal policies and procedures for procurement of commodities. Thus, inventories could be described as ‘necessary evil’. Inventory-Related Cost Inventory related cost has the following broad cost components. ✓Cost of carrying inventories (holding cost) ✓Cost of incurring shortages (stock-out cost) ✓Cost of replenishing inventories (ordering cost) The three types of costs are the most commonly incorporated costs in inventory analysis There may be other cost parameters relevant in such an analysis including inflation and price discounts.  Cost of Carrying Inventories (Holding Cost) This is expressed as Cost/item held in stock/unit time. This is the opportunity cost of blocking material in the non- productive form as inventories. Some of the cost elements that comprise carrying cost are cost of ✓Blocking capital (interest rate) or opportunity costs ✓Cost of insurances ✓Storage cost; and ✓Cost due to obsolescence or depreciation, pilferage, deterioration, etc. Cost of Carrying Inventories (Holding Cost) For example, if the fraction of carrying charge is 20 % per year and a material worth Birr 1,000 is kept in inventory for one year, the unit carrying cost will be Birr 200/year. Cost of Incurring Shortages (Shortage Cost) It is the opportunity cost of not having an item in stock when one is demanded. It may be due to: ✓lost sales or ✓backlogging. Lost sales cost (LSC) is the cost of the sales lost when we are not able to satisfy customer demand. Backlogging means not meeting a certain demand immediately from stock. The customer is assumed to wait until the demand is eventually met after some delay. In the case of backlogging (or back ordering), the order is not lost but is backlogged, to be cleared as soon as the item is available on the stock. In lost sales, the order is lost. Cost of Replenishing Inventories (Ordering or Set-up Cost) This is the amount of money and efforts expended in procurement or acquisition of stock. It is generally called ordering cost. This cost is usually assumed to be independent of the quantity ordered. Ordering cost is a set overhead expense that doesn't change throughout the year. Shipping fees, unforeseen transportation charges, inspection fees, and other costs associated with acquiring inventory items might all be included in these ordering expenses.  Functions of Inventory An organization may be carrying inventory for the following reasons: ✓Demand and lead-time uncertainties necessitate building of safety stock. ✓Time lag in deliveries also necessitates building of inventories. ✓Cycle stocks may be maintained to get the economics of scale so that total system cost due to ordering, carrying inventory and backlogging is minimized. ✓When the demand is seasonal, it may become economical to build inventory during periods of low demand to ease the strain of peak period demand. Functions of Inventory Cont’d… ✓Inventory may also be built up for other reasons such as quantity discounts being offered by suppliers, discount sales, anticipated increase in material price, and possibility of future non-availability Different functional managers of an organization may view inventory from different points, leadings to conflicting objectives. This calls for an integrated systems approach to planning of inventories so that conflicting objectives can be scrutinized to enable the system to operate at minimum total inventory-related costs. Inventory Policies We have the following common types of inventory policies i. Lot size reorder point policy ii. Fixed order interval scheduling policy iii. Optional replenishment policy iv. Two-bin system In practice, there may be other policies that may be special cases of the policies mentioned or may be a combination of these policies. Inventory Policies Some of the factors affecting the choice of an inventory policy are: ✓ The nature of the problem ✓ The usage value of an item; and ✓ Situational parameters.  Lot Size Reorder point policy The inventory status is continuously reviewed. As soon as the inventory level falls to a prescribed value called ‘reorder point’, a fresh replenishment order of fixed quantity known as Economic order quantity ‘EOQ’ is placed. Fixed Order Interval Scheduling policy The time between the consecutive replenishment orders is constant. A maximum stock level (𝑆) is prescribed and the inventory status is reviewed periodically with a fixed interval (𝑇). At each review an order of size (𝑂) is placed, which takes the stock on hand plus an order equal to the maximum stock levels. The order quantity could vary from period to period. In this policy, when the level of stock on hand is high at review, a smaller-size replenishment order is placed. Optional Replenishment policy This policy is also known as (𝑠, 𝑆) policy. The status of stock is periodically reviewed and maximum stock level ( 𝑆 ) and minimum stock level (𝑠) are prescribed. At the time of review, if the stock on hand is less than or equal to 𝑠, an order of size 𝑄 is placed so that stock on hand plus the order equals the maximum stock level 𝑆. If stock on hand at review is higher than 𝑠, no order is placed and the situation is reviewed at the next review period. Two-bin System There are two bins kept full of items. Item from the first bin is used first. The moment the first bin is exhausted, an order is placed for items and the second bin acts as buffer or safety caution. Selective Inventory Control As is evident, there is a large variety of items stocked by a construction project site. Applying scientific inventory control for all these items is neither feasible nor desirable. Since applying inventory control across all items may render the cost of inventory control more than its benefits, it may prove to be counter-productive. Selective Inventory Control Inventory control has to be exercised selectively depending upon the ✓Value ✓Criticality and ✓Usage frequency of an item. Selective inventory control, thus, plays a crucial role so that we can apply our limited control efforts more judiciously to the more significant group of items. Name of the Expansion Basis of classification Remarks policy ABC Analysis This is based on Pareto’s Law, which says that in any large group there are ‘significant few’ and ‘insignificant many’. For example, only 20 % of the items may be accounting for 80 % of the total material cost procured by a construction organization. Here, the 20 % constitute the ‘significant few’ that require utmost attention. ABC Analysis Cont’d… Procedure for preparing ABC-type curve. 1. Different materials required for the project are identified and their estimated quantities worked out. 2. The unit rates of materials are estimated. 3. The usage values for each of the materials are obtained by multiplying the estimated quantities and their unit rates. These values are converted into percentage of total annual usage cost or total project cost. 4. The percentage usage cost for each of the materials is arranged in the descending order of their ranking, starting with the first rank, i.e., highest to lowest usage value. The cumulative percentage usage value is also calculated. ABC Analysis Cont’d… 5. A curve as shown in Figure below is plotted, and points on the curve at which there are perceptible sudden changes of slopes are identified. In the absence of such sharp points, cut-off points corresponding to the top 10 per cent and the next 20 per cent or so are marked as a general indicator of A, B and C type of materials. 6. According to an empirical approach, ‘A’ class items account for about 70 per cent of the usage value, ‘B’ class items for about 20 per cent of the usage value, and ‘C’ class items for about 10 per cent of the usage value. In terms of numbers, ‘A’ class items constitute about 10 per cent of total items, ‘B’ class items about 20 per cent of total items, and ‘C’ class items about 70 per cent of total items. These percentages are indicative only and can vary depending on a number of factors. Example A shop dealing in construction goods has seven different items in its inventory. The average number of units of each of these items held in the store along with their unit costs is given in Table below. The shopkeeper has decided to employ ABC inventory system. Classify the items in A, B and C categories. Example Average number of Average cost per unit in inventory Item units 1 10,000 121.50 2 10,000 100.00 3 24,000 14.50 4 16,000 19.75 5 60,000 3.10 6 50,000 2.45 7 30,000 0.50 Solution From Table below, it is clear that total number of units stored in the shop is 200,000 and the cost is equal to 32.025×105. The total cost of inventory is worked out by summing up the cost of storing the given numbers of all the seven items. The percentage share of each item and cost is calculated as shown in Table. From these two values, cumulative percentage values are worked out. Item Units % of total Cumulative Cum. % of % of total item Unit Total total Cost % of total cost cost cost (×105) 1 10,000 5.00 5 121.50 12.15 37.9 37.9 2 10,000 5.00 10 100.00 10.00 31.2 69.2 3 24,000 12.00 22 14.50 3.48 10.9 80.0 4 16,000 8.00 30 19.75 3.16 9.9 89.9 5 60,000 30.00 60 3.10 1.86 5.8 95.7 6 50,000 25.00 85 2.45 1.225 3.8 99.5 7 30,000 15.00 100 0.50 0.15 0.5 100.0 Total 200,000 100.00 32.025 100.00 % of average inventory value (Cumulative) 110 99.5 100 100 95.7 89.9 90 80 80 C 69.2 70 60 5, 6 &7 3 &4 50 40 37.9 B 30 20 A 10 1 & 2 0 0 0 20 40 60 80 100 % of number of inventory item (Cumulative) Solution A graph in the Figure above is drawn between cumulative percentage of cost and cumulative percentage of numbers. From the graph, it is clear that about 70 per cent cost is consumed in 10 per cent of the inventory items. These are for items 1 and 2. Thus, items 1 and 2 are Class ‘A’ items. Similarly, items 3 and 4 have a cost share of about 20 per cent (89.9 per cent - 69.2 per cent) and an inventory share of 20 per cent. Thus, items 3 and 4 are Class ‘B’ items. Finally, we can see that items 5, 6 and 7 belong to Class ‘C’ as their cost share is about 10 per cent (100 per cent -89.9 per cent) and inventory share is 70 per cent. VED Analysis This analysis attempts to classify items into three categories depending on the consequences of material stock-out when demanded. Thus, the items are classified into ✓V (vital) ✓E (essential), and ✓D (desirable) categories. Vital items are the most critical having extremely high opportunity cost of shortage and must be available in stock when demanded. VED Analysis Cont’d… Essential items are quite critical with substantial cost associated with shortage and should be available in stock by and large. Desirable group of items do not have very serious consequences if not available when demanded, but these can be stocked items. FSN Analysis Not all items are required with the same frequency. Some materials are required quite regularly, some are required very occasionally, and yet some others may have become obsolete and might not have been demanded for years together. FSN analysis groups them as Fast-moving Slow-moving, and Non-moving (dead stock), respective. Inventory Models Inventory Models There are a number of computer-based analytical inventory models available (such as economic order quantity [EOQ] model) Most of which are able to generate economic purchase orders, shipping orders, delivery notes and invoices. Most models claim to improve management control by reducing inventory-holding costs without loss of customer service. The basic philosophy behind these models is to use a trade- off analysis by comparing the cost of inventory holding versus the cost of ordering. Economic Order Quantity (EOQ) Model The EOQ model provides answers on how much to order. The ordered quantity derived from this model is known as economic order quantity, EOQ. It is usually less expensive to purchase (and transport) or produce a bunch of material at once than to order it in small quantities. If orders for large quantities are specified, there will be fewer orders placed. For purchasing, this means that quantity discounts and transportation efficiencies may be realized. Economic Order Quantity (EOQ) Model Cont’d... The other side of the coin, however, is that larger lot sizes result in more inventory, and inventory is expensive to hold. EOQ model attempts to specify a balance between these opposing costs. Total cost (TC) = Ordering cost + Carrying cost  Economic Order Quantity (EOQ) Model Cont’d... D = Demand rate; unit/year It is assumed that demand is at a A = Ordering cost; Cost/order uniform rate. Thus, the average C = Unit cost; Cost/unit of item inventory required would be I = Inventory-carrying charges per year H = Annual cost of carrying inventory/unit item Q = Order quantity; number of units per lot 0 + Q) Q Average inventory = ( = 2 2 D The total number of orders placed/per year= Q A D Ordering cost per year = Q  Economic Order Quantity (EOQ) Model Cont’d... Order quantity  Unit cost of item  Annual cost to carry Carrying cost per year = 2 C I Q Carrying cost per year= H Q C I Q H Q Carrying cost per year= = 2 2 H = C I Economic Order Quantity (EOQ) Model Cont’d... Using the notations mentioned above, we can write the expression of 𝑇𝐶 as: AD H Q TC = + Q 2 For optimum Q, one needs to find the particular value of Q which will minimize total cost. This can be done by differentiation, and one gets: 2  order cos t  Demand 2 A D EOQ = EOQ = Inventorycarrying cos t I C Economic Order Quantity (EOQ) Model Cont’d... The derivation of EOQ is based on a number of assumptions such as: ✓Demand is deterministic and continuous at a constant rate. ✓The process continues infinitely. ✓ No constraints are imposed on quantities ordered, storage capacity, budget, etc. ✓Replenishment is instantaneous (the entire order quantity is received all at one time as soon as the order is released). ✓All costs are time-invariant. ✓There are no shortages of items. ✓The quantity discounts are not available. ✓There is negligible or deterministic lead time.  Chapter 3 Human Resource Management Introduction Organizational success is dependent upon the effective management of people. At the heart of this process is an organization’s HRM strategy. The application of theories of organizational behavior to the context of people management has, in the last three decades, led to the development of various schools of thought, such as personnel management, industrial relations (IR), Human resource management (HRM) and, more recently, strategic human resource management (SHRM) Introduction Cont’d… The personnel-management model focused on procedures and control, administration of employment contracts and job grades, and collective bargaining. However, despite a growing recognition that employee welfare was important to organizational effectiveness, the function had little strategic involvement until the late 1980s. During the 1980s organizations came to realize that people were a resource that needed proper management at a strategic level, and it was out of this realization that the term ‘human resource management’, or HRM, emerged. Defining HRM Precise definition of HRM is difficult since the issue has been subject to considerable debate within management literature. In essence, personnel management is workforce centered, and therefore directed at ‘employees’ needs, HRM is resource centered, and therefore aimed at meeting management’s human resource needs. HRM is a process which aligns the needs of the organization and those of the employee. Defining HRM Cont’d… Thus, an appropriate definition of HRM could be: A managerial perspective, with theoretical and prescriptive dimensions, which argues for the need to establish an integrated series of personnel policies consistent with organization strategy, thus ensuring quality of working life, high commitment and performance from employees, and organizational effectiveness and competitive advantage. (Huczynski and Buchanan 2001: 673) Strategic HRM One of the aspects that defines the transition from ‘personnel’ management to HRM is the need to integrate HR planning within the strategy of the organization. Considering HRM as a strategic function rest on the belief that an organization’s human assets offer it a sustainable source of competitive advantages. Strategic HRM Cont’d…. So what precisely do we mean by SHRM? It is concerned with the development and implementation of people strategies which are integrated with corporate strategies and ensure that the culture, values and structure of the organization and the quality, motivation and commitment of its members contribute fully to the achievement of its goals. (Armstrong 1991: 81) Strategic HRM Cont’d…. It differs from traditional HRM in its emphasis on relationships between: People Structures Strategy and the Environment external to the organization Models of SHRM In recent years many competing models of SHRM have been developed, which have all tried to capture the ways in which organizations can align HRM practices with their wider strategic objectives. The three models: the Michigan, Harvard and Warwick models of SHRM: which have become known by the locations of the researchers who developed them. The Michigan Model This model approaches the SHRM function in a rather dispassionate manner, treating people like any other resource that should be managed in such a way as to maximize utility whilst minimizing cost. The Michigan Model emphasizes the interaction of functional aspects of the SHRM role, such as selection, appraisal, rewards and development. Recently, the applicability and utility of this model have been criticized as being limited in the context of modern organizations because it treats the SHRM function as a closed system. The Harvard Model The Harvard School has made a major contribution to the development of SHRM by providing a useful open-systems model of how SHRM policy influences other organizational functions and is constrained by stakeholder interests and situational factors. Stakeholders are people who are influenced by or can influence the operations or outputs of an organization. The ability to take account of situational and stakeholder interests is particularly important in construction projects, which employ a wide range of interest groups and often have a major impact upon the general public. The Warwick Model The model comprises five interrelated elements, which allow an analysis to be made of how external factors impact upon the internal operations of an organization. The model recognizes the wider context in which SHRM operates, and emphasizes the full range of tasks and skills that define HRM as a strategic function. The main contribution of the Warwick Model is that it incorporates culture and business outputs into the SHRM framework. Core components of SHRM The first step in developing a SHRM plan should be to clarify an organization’s short-term, medium-term and long-term direction. According to Anthony et al. (1996), SHRM has six key characteristics: It recognizes the outside environment: this comprises a set of opportunities and threats to the organization that must be recognized and taken account of by the strategic decision-making process. They can include social, demographic and labor-market changes, legislation, economic conditions, technology, political forces, etc.  Core components of SHRM Cont’d… It recognizes competition and labor-market dynamics: these affect wage/benefits levels, unemployment rates and working conditions, and define the necessary conditions that an organisation must provide to remain competitive in the labor market. It has a long-range focus: a strategic focus implies that consideration is given to the long-range direction and objectives of the organisation. It has a decision-making focus: this means that the organisation consciously chooses to direct and commit its human resources in a particular direction. Core components of SHRM Cont’d… It considers all stakeholders: a strategic approach demands that the organisation take account of the views and interests of all stakeholders, internal and external. It is integrated with corporate strategy: perhaps the most important characteristic is that HR strategy should be integrated with the firm’s overall corporate strategy. For example, if a company sets out to grow rapidly and a particular market, then the strategy should be rapidly to acquire new human resources with the necessary skills in order to achieve that goal. Where to make changes in an organisation? The first step in developing a SHRM plan should be to clarify an organistation’s short-term, medium-term and long-term direction. Developing policies to achieve these goals then involves analysing an organisation’s human resource strengths, weaknesses, opportunities and threats (a SWOT analysis) and identifying where changes need to be made. Where to make changes in an organisation? Cont’d… Culture change: developing an appropriate organisational culture. Organisation design: developing the organisational roles and relationships to take account of new developments. Organisational effectiveness: developing organisational capabilities in terms of teamwork, communication, productivity and customer service, and improving the ability to manage change. Resourcing: recruiting, training and developing the people required to achieve the organisation’s strategic objectives Where to make changes in an organisation? Cont’d… Performance management: using performance appraisal to monitor the performance of employees. Reward management: developing compensation mechanisms which convey to employees the organisation’s values and performance expectations. Motivation: developing an intrinsically and extrinsically motivated workforce through financial and non-financial rewards.  Where to make changes in an organisation? Cont’d… Commitment: developing a feeling of ‘mutuality’ within the organisation where the needs of individuals are integrated with those of the organisation. Employee relations: developing strategies for reducing conflict between employees and management, and increasing cooperation between different groups within the organisation Flexibility: developing a structure, systems and techniques which allow the organisation to respond flexibly to change.  The operation and implementation of effective SHRM practices in construction The operation and implementation of effective SHRM practices in construction Few construction companies take a truly long-term view and adopt SHRM policies (Drukeret al. 1996). Rather, they adopt fairly reactive approaches to staffing and managing people. The achievement of SHRM priorities is dependent on an organisation creating the right structural and cultural conditions for them to take place. The operation and implementation of effective SHRM practices in construction This involves: Designing an effective organisation structure Staffing the structure with suitable people Managing the employment relationship effectively Designing an effective organisation structure An effective SHRM policy can only take place within an effectively designed organisational structure. This can be viewed at two levels: The overall operation of the organisation in terms of how it manages and distributes work amongst various employee groups and functions in pursuance of the strategic goals The design of the organisation in terms of the hierarchies, roles and relationships. Staffing the structure with suitable people This staffing function is also known as ‘employee resourcing’ and forms one of the most challenging aspects of the SHRM function. Employee resourcing activities aim to ensure that the right numbers of employees with the right skills and competencies are in the right place at the right time. The major components of employee resourcing are recruitment and selection, deployment and team formation, performance management, retention and training, career development, dismissal and redundancy. Managing the employment relationship There is a need for the organisation to take great care in balancing organisational and individual employee needs if it is to successfully fulfil its strategic objectives. Psychological contracts: Formal employment contracts can define many aspects of the employee–employer relationship. However, they cannot delineate every aspect, but socially constructed expectations and obligations fill the gaps that are left. Managing the employment relationship These less formal expectations are known as psychological contracts, which describe the beliefs of each party as to their mutual obligations within the employment relationship. The implication of psychological contracts is that, in addition to the ‘hard’ areas of the employment contract that has to be met, a ‘soft’ set of expectations held by the individual also have to be organised and managed. Managing the employment relationship Issues covered in a psychological contract include: Individual differences Interpersonal interaction Motivation Leadership and management style Group/team dynamics Change and empowerment. Managing the employment relationship From a functional perspective, psychological contracts accomplish two tasks: They help to predict the kinds of outputs which employers will get from employees, and What kind of rewards the employee will get from investing time and effort in the organisation Psychological contracts are extremely powerful if used effectively but extremely dangerous if abused.