Planning, Tendering and Finance Processes - Assignment Example

Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: (3065 WORDS) Question 1 Executive summary The report analyzes the possible risks that the company is likely to face when venturing into new sectors in an economy while considering the aspects of planning, financing and acquisition of tenders. Every contract entered is an executory legal entity that seeks to bind one party to accomplish a task given by another party. This report seeks to analyze the view of the company’s board regarding tendering, financing and planning of contracts other and the view of the managing director regarding risk control with an aim of anticipating high levels of profitability. It brings into conclusion the two arguments after considering the managing director’s opinions and the board’s opinion. The report has been prepared after doing a research on the company’s performance on previous contracts, financial powers, the power of planning and resource control and ability to acquire tenders. Introduction The ability of the company to achieve full contractual capacity is a separate legal feature that defines its uniqueness. However, contracts are executory legal bindings that bound the company to the other depending on terms and conditions required by one party. Planning and proper financial process are the key success factors towards attaining high level of profitability in the company’s tenders (Breuer and Nadler). Like any other entity, Subsidiary company is given mandates by the parent company to enter legal contracts that can enable them to achieve high levels of profitability (Beaton). However, risk and uncertainties becomes a major field of concern to most tendering companies. A subsidiary company is evaluated by the parent company’s board of directors to establish its viability when entering into construction contracts. There is a possibility that one party may default to accomplish its task within the agreed time or the construction contracts will lead to financial losses. Being aware with common contract risks enables you to design better risk management strategies to control them. The aim of entering into contracts is to reduce the price of the contract while maximizing on profitability acquired from the contracts. Increased cost of tenders depreciates the profitability of the firm. Findings: Planning, Tendering and Finance Processes. According to the research done, client’s fears that unnecessary risks regarding subsidiary firm entering into construction contracts may lead to losses associated with finance, planning and tendering options. Subsidiary firms are given the mandate to enter executory and legally binding contracts by the parent company. However, we should acknowledge the fact that every contractual entity strives to minimize the price of the contract while minimizing profitability levels. The greatest risks in tendering and finance process are the lack of clarity that can lead to uncertainties and losses (Breuer and Nadler). Tenders are bound by its terms and conditions which act as a guideline to execution of tenders. However, terms and conditions of a contract may not define major quotes that exempts and binds a contract. A subsidiary firm may faces several risk when entering other contracts apart from construction. Such risks include law compliance risks that may result if a subsidiary company fails to adhere to laws set to govern business contracts. Contracts are legally binding entities that needs to be clarified regarding time of execution, the course of action to be taken in case one party defaults to accomplish the task, giving clear description of tender documents while describing the major parts to from the contract, defining contract pricing mandatory, stating clearly the processes used to deal with alternative tenders, how to end a contract and describing rights to terminating a contract (Beaton). Tender documents contain disclaimers that often define the part of the tender that is not included in the contract. It is also clear that a subsidiary firm may incur financial risk when entering into new tenders. Allocation of funds to various sectors of the contract may not earn attractive rates of return. Contraction contracts require funds to hire machines for construction purposes and labor, purchase of materials to be used in execution of the contract. The major aim of entering construction contract by subsidiary company is to reduce the cost of the contract while reaping high benefits from the contract. Due to contract inefficiency, the company may incur huge financial losses if the contract is not binding (Breuer and Nadler). Strategic risks may occur if proper tendering process is not formulated to allow smooth running of the contract. A subsidiary firm has to define clearly how to achieve its tendering objectives, how to allocate resources regarding other tenders and how the contract should be terminated in case one party defaults (Brueggeman, Stone and Hoagland). During the construction process, the subsidiary firm ought to work closely with contractors to evaluate the contract process delivery. It is also clear that operational risks resulting from various activities during contractual process with other sectors may lead to huge losses by the company. Poor administrative procedure and tendering processes, results from poor assessment criteria and decision making process by the management team of the company. Other contracts are legal binding entities that should be accomplished within a specified period of time. Slow administrative and tendering process weakens the implementation process adopted by the Company. Subsidiary firms incur additional cost for re-tendering, insufficient funds, time factor and increased cost of materials (Beaton). Breakdown of machines during construction process may require additional capital for maintenance purposes. Market risks affect a subsidiary firm if natural circumstance that a company cannot control occurs. Natural disasters such as storms may cause huge losses if the property acquired is destroyed. Competition from other firms globallypossess many threats to subsidiary company. The major aim of a tendering company is to offer the best services to their clients. Subsidiary firms are small entities with less market strategies, less market size and growth as compared to big real estate companies (Brueggeman, Stone and Hoagland). High competition from big construction firms leads to low market size thus few chances to acquire contracts from clients. Recommendations Venturing into other sectors may require the following recommendations to be implemented by the company. The parent company should formulate effective planning and tendering process policies to be used by the subsidiary firm to implement its changes when entering into new sectors of the economy. They should clearly state how the subsidiary company should enter into new contracts with other sectors, how they should execute the contract with other sectors and course of action to be taken incase contracts entered with other sectors fails. The greatest problem in entering contracts with new sectors in an economy is lack of clarity on how to execute the contract (Coombs and Palmer). The board of directors in parent company should acknowledge the fact that the major aim of the company is to reduce the prices of contracts with other sectors while maximizing the profitability of the company. Contracts are legally binding entities that needs to be clarified regarding time of execution, the course of action to be taken in case one party defaults to accomplish the task, giving clear description of tender documents while describing the major parts to from the contract, defining contract pricing mandatory, stating clearly the processes used to deal with alternative tenders, how to end a contract and describing rights to terminating a contract (Halpin). Thus clarity on how contracts should be executed with other sectors is a key factor towards achieving success. Effective risk management strategy that will prevent losses that may occur as a result of entering into new contracts with other sectors of the economy. Risk management involves designing proper control measures that are geared to prevent any occurrence of losses. Risks such as operational risks, financial risks, strategic risks, market risks and law compliance risks should be control to achieve high levels of profitability (Halpin). Venturing into new sectors of the economy requires adoption of better risk management framework that will not only reduce risk occurrence but also increase the value of the Company. Adopting good tender procurement model is a necessity towards achieving high levels of performance. If subsidiary company is to be involved with tendering other sectors apart from construction, then it should adopt better tender evaluation techniques that establish the value to be earned when a company enters a contract with other sectors in an economy (Jowsey). This process will require certified tender evaluator with qualified skills to analyze any contract before a subsidiary company enters into. Evaluation of contracts with external parties allows the company to know the rates of returns associated with certain contracts. It enables it to determine whether the contract is profitable or not, legal or illegal, executory or non –executory etc. Market competition is a key aspect that board of directors in parent company should consider before embarking on investing in other sectors. The rate at which firms are competing in the market is higher that small and medium term enterprises may be eliminated from the market by major firms. Investing in other sectors requires proper evaluation regarding market competition to establish its returns (Jowsey). The firm must strive to reach its global customers by adopting modern technological marketing techniques. Such techniques may be too expensive for small and medium term business firms. If other sectors are less competitive than construction industry, then the company should consider investing in other sectors and vice versa. Conclusions Contracts are legal entities that bind a company to accomplish a given task from another party. However, many Company’s contracts faces many risks such as operational risks, financial risks, strategic risks, counterparty risks, law compliance risks and market risks. Construction contracts are among the best tenders that can earn high rates of return for a subsidiary company. However, diversifying company’s operations into other formal sectors in an economy requires the parent company to formulate effective strategic plans on how to execute contracts by subsidiary company, to develop effective risk management strategy and to come up with better marketing strategies that will add more value to the company. Investing in other formal sectors in an economy does not only increases revenue generation but also increase market size of the company. The board of directors in the parent company should consider investing in other sectors of the economy. Question 2 MEMO To : Director of business development. From : Commercial manager Date :12/05/15 Subject: “Gamesmanship’ in business. It has come to our attention that the director of business development raised an issue regarding the use of dubious means by commercial mangers in preparation of the budgets. Indeed, gamesmanship is unethical practice that does not only lags the financial structure of the company but also leads to understatement or overstatement of financial information. I preparation of project budgets, every financial manager is required to adhered to generally accepted accounting principles of reporting and translating of information to benefits the shareholders, government, creditors and even company’s customers in making informed decisions. Due to allegations made by the director of business development regarding my department, I will like to clarify the fact that our senior managers and accountants uses the generally accepted accounting principles to report on financial budgeting of projects. Our techniques includes the aspect of collecting information from several departments from our company, analyzing the information to establish their validity, record all financial information regarding the company, put them into coded data and translate it to suit the needs of all stakeholders in the company. Gamesmanship is unethical and illegal process in our company that perceives the aspect of personal interest at the expense of interest of the company (Jowsey). Commercial managers in this company has fiduciary duty to protect the rights of the company, not to act contrary to the rights of the company, not to show personal interest at the expense of the company and not to gain personal profits from the company. The company act requires companies to provide annual financial reports and statements regarding the operations of the business. We provide semiannual statement of comprehensive income, statement of financial position, statement of equity and cash flow statements. Such statements reflect the daily operations of the business over a given financial period. Accounting principles applies when collecting, evaluating, recording and translating financial information (Peterson). Financial statements are produced semiannually and an external auditor is employed to verify whether the results from commercial managers are right. An auditor will establish annual revenue and expenditure and obtain the profitability of the company which is compared to those of the company. The accounting department uses past information to predict future results. Over the past decades, the growth of the company has been substantial. This implies that, accounting department have been working tirelessly to ensure that budgets regarding various projects are executed. They have ensured proper financial control towards achievement of company’s goals and objectives. Finally, budgeting process defines the future plans of the company. Such plans depends on financial control by financial managers. They establish the objective of the cash inflow against cash outflow. Financial managers in this company provides estimates on revenues and expenditures that serves as a basis of business appraisal and decision making process. We aim at providing coordinated business procedures and cycles and formulation of effective financial policies that add short term and long term value of the Company. We also provide effective methods of control that assist in comparison and evaluation of actual results. Provision of daily project budgets motivates people to participate and enhances proper communication among management team, employees and other stakeholders. In this regard, we clarify that financial managers in this company works according to set accounting and generally accepted principles to report daily activities of the company. There is no dubious means used to misstate the information (Salin). Subcontractors are full of skills and energy and therefore suitable for small startups. They can formulate effective marketing strategies that enables our company to anticipate high growth rates. Thank you for your commitment to address this issue. Regards, James Tomlin, Commercial manager. Question 3 MEMO To :Managing director. Date : 12/05/15 From : Commercial manager. Subject: Contractors need to use better subcontractors and suppliers. It has come to our attention that there is need for our contractors to use better subcontractors and suppliers to enhance cheap services to our clients. This issue was raised in a meeting by the facilitator who emphasize on reducing the cost incurred by a company when achieving its objectives rather than focusing on quality and performance. Employees in supply chain department and subcontractors are important drivers of the company that gears the company towards achieving its objectives and goals. We should strive to evaluate the amount of workload in our business. Hiring independent subcontractors and qualified freelancers can quickly scale up the growth of the company without incurring additional expenses. How to realize how to save from hiring subcontractors and freelancers results from understanding the pros and cons of hiring independent subcontractors in the Company. According to statistic done by business analyst, an employer spends 25 cents more to hiring an employee than a subcontractor. The major factor is the amount of extra money you have to pay for a permanent employee regarding job security, social security and other tax regarding his/her medical expenses. It is much affordable to outsource administrative and accounting functions from qualified suppliers and contractors who charge fewer amounts than employees of the firm. You might need to outsource virtual assistants per hour to assist you to handle administrative and complex jobs for short term purposes at a lower cost. Casual workers are more flexible than employees. Their time varies with the type of job opportunity they are into. Hiring specific subcontractors and suppliers is one way in which the company meets specific needs of their clients. By hiring talented freelancers, you will meet specific requirements of your clients by hiring people who are specialized in particular fields. Subcontractors are experts with right skills and techniques to handle specific job category. It implies that clients will achieve quality services due to job specialization process. Subcontractors can assist the Company to handle complex jobs during off-peak periods when staffs are busy. They help keep the company a going concern by offering skills and techniques to company’s clients and customers. Having a general contractor in the company is a hard way to make an easy living. Due to many jobs on the dashboard, there is a possibility of making several mistakes that affects performance of the firm. Things are never perfect including job conditions, specifications, payments etc. This practice requires jobs to be delegated into small segments that can easily be handled by the right people at affordable cost. A proactive supplier is always on top of his job that they have built contract in. They often don’t wait for customers to call them but they seek for any assignment that customers need to be assisted. Subcontractors are always responsible for their actions done since they monitor and evaluate every job they contract with to ensure perfect performance is achieved. They are always armed with job tools and equipment, it implies that they are always ready to handle every type of job available to them. This does not only make the best options for a Company but also a means of achieving good skills at affordable rates within the company. Most subcontractors treat the jobsites of the hiring companies as their home. They often set the interest of the company higher than their own. Subcontractors strive to achieve the goals and objectives set to him within the specified period of time. This ensures that the job is done perfectly and on time. Every client considers the aspect of time as a core objective towards achieving the goals of the company. Subcontractors use the shortest time possible to achieve set goals and objectives of the task given by contractors. They always obey rules and policies that govern every contract they enter into. Converting the jobsite into a home by freelancers allows them to attend to various jobs by clients within a specified period of time. This practice assists the company to achieve high level of recognition from clients due to better performance by subcontractors. In this regard, the use of subcontractors and suppliers by company’s contractors reduces time used to accomplish a given task, reduces cost incurred to hire experts and employees while maximizing the profitability of the Company. We will appreciate if you take action upon this matter. Regards, James Tomlin, Commercial manager. Reference Beaton, William R. Real Estate Finance. Englewood Cliffs, N.J.: Prentice-Hall, 1975. Print. Breuer, Wolfgang, and Claudia Nadler. Real Estate Finance. Print. Brueggeman, William B, Leo D Stone, and Henry E Hoagland. Real Estate Finance. Homewood, Ill.: R.D. Irwin, 1981. Print. Coombs, William E, and William J Palmer. Construction Accounting And Financial Management. New York: McGraw-Hill, 1977. Print. Halpin, Daniel W. Financial And Cost Concepts For Construction Management. New York: Wiley, 1985. Print. Harris, Frank, Ronald McCaffer, and Francis Edum-Fotwe. Modern Construction Management. Oxford: Blackwell, 2006. Print. Jowsey, Ernie. Real Estate Concepts. Hoboken: Taylor and Francis, 2014. Print. McGeorge, W. D, Patrick Zou, and Angela Palmer. Construction Management. Chichester, West Sussex, U.K.: John Wiley & Sons Inc., 2013. Print. Peterson, Steven J. Construction Accounting And Financial Management. Upper Saddle River, N.J.: Prentice Hall, 2009. Print. Robertson, Luisa, and Amy Laurens. Financial Management. Burlington: Elsevier, 2009. Print. Salin, Denise. Parent Company Influence On Subsidiary Human Resource Management. Helsinki: Swedish School of Economics and Business Administration, 1998. Print. Wiedemer, John P. Real Estate Finance. Reston, Va.: Reston Pub. Co., 1977. Print. Read More