BU609 : Angela Gutierrez is a Construction Project Manager with Betta Construction - Management Assignment Help

Assignment Task:

Task:

The Situation

                Angela Gutierrez is a construction project manager with Betta Construction.  The company has been in the asphalt construction business for years, focused on paving smaller roads, driveways and parking lots. Looking to 2021, Angela was asked to consider bidding on a new line of projects: multi-use pathways and separated bike lanes.

                To improve cycling infrastructure, Municipalities in Southern Ontario have been constructing a growing number of separated bike lines and asphalt multi-use pathways instead of concrete sidewalks. Instead of owning and maintaining a construction fleet, municipalities typically complete these construction projects by tender.

Construction Tenders

In a tendered road or pathway project, the government announces a tender to build a specific segment of pathway with specifications clearly laid out (including the length, any road crossings, etc.). The government then requests that private companies submit bids to complete the project, along with documentation proving the company is able to do the work. All interested competitors submit these bids secretly and all at once.

The lowest bidder that also meets some technical government requirements (such as having access to a bank loan of a sufficient size, being safety certified, etc.) is awarded the contract. The winning company must pay for all construction costs, and then receives the value of its bid as revenue from the government upon completion. For example, if a company estimates their constructions costs to be $300,000, they might submit a bid of $350,000, so that they expect to make a profit of $50,000 on the contract.

Historical data for projects from municipalities across Southern Ontario are listed in “Betta Construction.xlsx”. The data includes the bid amounts from up to the lowest 5 bidders. Angela has also found the price of oil around the time each project went for tender.

The Opportunity

                In the region where Betta Construction operates, Angela has identified two projects she would like to bid on. They are listed in the table below:

Assume the price of Oil is $50/barrel right now (you can also use this value as the forecast for the near future). Angela estimates the construction cost of a multi-use path to be $20/metre for labour, and (Price_of_Oil*0.6) $/metre for materials. For example, a 1000 metre pathway with oil at $50 per barrel would cost: $20 + ($50)*0.6 = $50/metre, for a total construction cost of $50/m * 1000metres = $50,000. There is no cost to prepare the bid.

                She has a similar formula for the construction cost of a separated bike path: $50/metre for labour and (Price_of_Oil*0.7) $/metre for materials.

                In some municipalities, the number of road/driveway crossings might impact the production cost, as they might require reinforced construction at the crossings. However, the requirements where Betta construction operates are not onerous, so Angela has not explicitly included them in her construction estimates.

                Angela really wants to win at least one of the two projects, to keep her construction crews busy over the next few months. In addition to the loss of potential profit, she thinks she will have to lay off some staff, then hire new employees when the company finds new work. The cost of training these new staff will be ~$10,000. To be clear: if she does not win either project, she incurs a cost of $10,000.

Questions

1. Explore the data. Make at least two scatter-plots that show interesting relationships. Interpret the graphs.                

2. Develop a model that helps predict the winning bid for these construction projects. Then predict what the competitors’ winning bid might be for the two projects listed above.

HINT: While you can make a model that directly predicts the winning bid, you might also consider a model that predicts the winning bid in $/metre. Both have their merits…

3. Is your model valid or reliable? How do you know?

4. How do you feel about Angela’s decision to not include the number of crossings in her cost estimate? Do you have a different recommendation?

Angela is thinking of making aggressive bids, with markups of $25/metre over her cost of construction, typical bids, with a markup equivalent to your prediction in Q2, or conservative bids, with markups of $45/metre over her cost of construction.

5. To maximize long-term expected profit, how much should she bid on the first project? Then, depending on the result of that bid, how much should she bid on the second project? Keep in mind the $10,000 cost of losing both bids.

HINT: You can use Decision Analysis, Simulation, or your intuition to answer this part. Take care, your recommendation here carries a lot of weight, but it must be consistent with the work you have done in the first part of your report!

Prepare your answers to these questions in a well-organized report. You can answer them in numerical order, or draft up a management style report. Both styles can be effective.  

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