The words are often used in lieu of the other, because both are promises that manufacturers or sellers make to customers. Each is a promise, but, offers different legal rights. A guarantee has no actual ‘legal’ transport, whereas a warranty does. Guarantee, are commitments, and Warranty is the assurance made to buyers by the producers. In the case of a product guarantee is a promise that it will work as they claim it will. A warranty is a promise (or guarantee) that they will fix it if it breaks within a certain period of time. A warranty is usually a written guarantee for a product that makes the producer responsible for repairing or replace a defective product or its parts.
A warranty is in its simplest form a simple contract. Some warranties run with the product, so that a consumer who is distanced (by wholesaler, distributors, dealers) from the manufacturer also gets it. A warranty may be express or implied. Express warranty is explicitly provided (written) with indication of the jurisdiction. Implied warranties are unwritten promises that arise from the nature of the transaction, and the inherent understanding by the buyer. Here the goods are expected to be merchantable that is to confirm to ordinary expectations of the buyer. Limited warranties are time limited, whereas performance warranties have set parameters (like kilometres). Warranties often exclude abusive usage, malicious destruction, acts of God or nature, and parts or other inputs that wear out (rubber plastic goods) and replenishment (tires, lubrication, fuel, coolants). Warranties are often limited to the first consumer (buyer) and original location of delivery.
Warranties and Guarantees are mechanisms of assurance. When one procures a consumer item, some degree of assurance in expressed and implied form is automatically available. Entities that are formed of several components are assured by the assembler. Complex structures like buildings, however, come-up through works of several assemblers, and lack comprehensive assurance.
Comprehensive or Compounded Assurance : Concepts turn into Designs + Specifications + Contracts, and ultimately into a deliverable entity. If the deliverable entity is deficient, than everyone concerned for its conception, design and production, is held responsible. But in reality this is very difficult, as there are many persons, agencies, materials, technologies etc. involved in the process, with very indistinct and overlapping roles. Often, the extent of individual responsibilities and mode for verification of their compliance, are not properly defined. In some instances’ delivery occurs as compounding of many entities, where the individual share of responsibilities need not match with the physical scale of contribution. Compounded entities do not automatically offer a comprehensive assurance. Here all individual assurances must be assimilated into a comprehensive assurance which then must be transmitted to the owner or operator of the project.
Creating – Providing own Guarantees : Dynamic Users employ raw materials (materials, parts, components) in forms and conditions beyond the original manufacturers’ provisions. Guarantees provided by the original manufacturer for the few definite end-uses are rarely of any help for dynamic users. Even where materials are employed in the manner prescribed by the original manufacturer, the output process could make it impossible to relate a particular inadequacy to a certain material or procedure. People who assemble complex entities cannot hope to dilute their responsibilities even by involving people like suppliers of materials, etc., System creators must evolve their own guarantees.
Comprehensive Guarantees: In some jobs several vendors come together to a site, and create a System. Designers are not equipped to check or test run the system, or in such instances the system is not completely verifiable. Often there is no Master Agency to assure that the system so assembled will function according to the parameters set by Designers.
Owners (of buildings, structures and systems like ships, aircraft) however, need a comprehensive guarantee to assign the operations and maintenance to agencies concerned with working of the whole entity, such as Insurance companies, Safety (fire, security) Engineers, System Operators, etc.
Processes required for Comprehensive Guarantee to materialize: Specifications for Turn-key Jobs invariably include ways and means for assimilating and interpolating individual guarantees into a composite form for the individual part buyers or users. Specifications are also provided for appointment of third party agencies to manage the guarantees and warranties for the life cycle of the entity. Such additional mechanisms provide an uninterrupted cover for all the resultant liabilities and an operandi for the management of risks thereof.
Lloyds Register of shipping: Lloyds is one such organization that began in 1760 in London, It provides standards for construction and maintenance of merchant ships, and provides necessary technical help. Shipping agents, governments, bankers, insurance cos all depend on the certification provided by Lloyds.
Contingent liabilitiesare commitments that may give rise to a cost as a result of a future event. They often result from indemnities, guarantees, warranties and certain liability caps in contracts. Contingent liabilities are generally used to allocate risk between parties to an arrangement. The Commonwealth’s policy is that risk should be managed by the party best placed to manage it.
A liability account that reports the estimated amount that a company will have to spend to repair or replace a product during its warranty period. The liability amount is recorded at the time of the sale. (It is also the time when the expense is reported.) The liability will be reduced by the actual expenditures to repair or replace the product. Warranty Payable or Warranty Liability is considered to be a contingent liability that is both probable and capable of being estimated.
25 GUARANTEES and WARRANTIES –part of the lecture series DESIGN IMPLEMENTATION PROCESSES
In any venture risks of under-performance, non-performance exists. These are due to mis-match with the expectations, circumstances and inadequate foresight and care during planning, execution and operations of projects.
Theliabilities in ventures manifest, at many different levels:
● Designers’ Liabilities: Project conceiver, planner or designer, are all liable for the inadequacies of conception resulting in poor definition of performance requirements, for having inadequate processes of verification for the offerings of the contractor or vendor and for establishment of operations mechanisms that is ineffective and lacks coordination. Designer’s take-on liabilities of sub-consultants, by agreeing to work with under-qualified experts.
● Contractor or Vendor’s Liabilities: Contractors’ or Vendors’ liabilities are more defined and so always restricted, in spite of all-inclusive clauses that may have been integrated in the terms of contract. The liabilities of the contractor generally relate to correcting the defects or complete replacement. The liabilities may also include making good the loss of profit and loss of opportunity during the period of inadequate working. In some conditions it may include the cost of misuse of materials, site facilities and loss of life and damage to other properties.
● Operations’ Liabilities:Liabilities arise from the operations of the project or system. Designers and Contractors usually preempt such situations with appropriate provisions in the contractual relationship with the client. Operations specifications, in recognition of such situations provide for setting up of appropriate Risk Management Systems. A risk management system recognizes the role of regular maintenance. Guarantees and warranties help in diluting the level of apparent risks and thereby reduce the Cost of Risk-Management (insurance premium).
● Circumstantial Liabilities are mainly from external conditions like, disasters, calamities, political situations, changes in law, rules, perceptions, trends, fashions, etc. Some of these are natural and involve designers for inadequate perception and provisions. But other external liabilities depend on political, economic and social changes, and so many not attach a designer.
Liabilities for designers arise from what they professionally deliver. These include specifications, observations and supervision of a job. The specifications include 1 Drawings, Graphical representations, 2 Literary or oral explanations, 3 Models, samples, surrogate representations 4 Formal or tacit acceptance of happenings related to design.
Quality of Expression in Specification Writing: Writing Specifications is the most important way of facilitating a product or service. Specifications writing is an extended activity of contracting, so here too all the contract fundamentals are strictly followed. As per the natural law ‘a contract has to be enforceable, and whatever is specified must be doable. Specifications cover all valid and essential requirements of the job. A major danger in writing specifications is to include unnecessary information. So choosing, what to exclude is as important, as choosing what to include. Specifiers (Designers) must eliminate any requirement that adds no value to the Product or Service being acquired. The Specifier (Designer) must state clear conditions in a complete language, and yet remain brief.
Defects in Specifications and Liabilities: Very few specifications are totally free from defects. As a fundamental principle of law, a specifier (Designer) is responsible for the consequences of the specifications. Designers usually put in a disclaimer (in the contract with their client) for errors found in their work. The Insurance companies that cover the designers for Professional Liability (Professional Indemnity Insurance) insist upon it.
Most of the specification writers (Designers) incorrectly presume that their text of specifications is read and interpreted by comrade technocrats only, with whom they share similar experience and mind-set. During a dispute specifications are, however, more attended by non technocrats like the administrators, lawyers, jurors and judges.A contractor interprets the specifications, as long as the interpretation is commercially reasonable (an earning proposition).
The Notion of Deconstructionism: A French philosopher, Jacques Derrida originated the Notions of Deconstructionism. It is a whim of finding alternate interpretations of text. He contended that the meaning of a text is dependent on the context in which it is interpreted. All writings in some degree can be interpreted differently from what was intended. Deconstructionism doctrines, from Jacques Derrida and his colleague Michel Foucault, were a rage in many universities during the 1980’s. A quotation from Thoreau, ‘The mass of men lead lives of quiet desperation’ was attacked by a feminist deconstructionist in words like: ‘….. real intention was to say that most women lead lives of noisy elation.’ Here the writer’s unintentional gender-specific wording was interpreted differently.
Faulty Specifications and a Contractor’s Attitude: A contractor works with sheer sense of profit, and so deals with faulty specifications in any one of these ways:
1 A contractor charges by doing the prescribed work according to the personal interpretation.
2 demand extra for undoing what was done
3 charge for redoing the job according to the corrected interpretation.
1 a Contractor may refuse to execute the work causing delay, or
2 take a legal recourse on the grounds of impossibility of performance or commercial impracticability.
Specifications and Enforcement: A neat contract is one where things are delivered for consideration, but strictly in a one-way transaction. However, contracts are very complex. Certain jobs require clients to provide information, materials, equipments, facilities or services to the contractor (as per the terms of a contract or job specifications), and an obligation is incurred. Even if such things are offered with or without a return consideration, the contracting parties get tied up in the Reverse Transaction. A client, failing to deliver as promised, takes the blame for missed schedules and cost overruns. Specifications causing such Reverse Transactions are prone to enforcement difficulties.
Accuracy and completeness of Contract Specifications: A Contract is in force the moment it is signed, or dated to be effective. Once a contract comes into force, any thing has been left-out, or not properly defined, can be only corrected through a Negotiated Supplementary Agreement. A Contract and Specifications must not leave out any aspect, as something to be agreed or determined later on (e.g. a clause like: plastic paint of x quality, but colour shade to be approved later).
In design offices specification-writing is a last moment compilation, and as a result it is common to see specifications of items that do not exist, or have been eliminated from the project. Specifications of only intended items and required quantities of work should be provided to the contractor. Otherwise, the bids will reflect the necessity of being prepared to handle Intended items and Quantified work.
Holistic Products and Site Assembled Systems: Job assignments for Structures, Architecture, Interior Design, etc. consist of both, Holistic Products and Site Assembled Systems. It is often easier to handle Holistic Products, fully or substantially through Performance Specifications. However, Site Assembled Systems inevitably have some form of Design Specifications.
Specifications and Fair Trade Practices: Avoid specifying a particular product, agency, tool, equipment, or a patent process. Favouring one, to the exclusion of others would mean Unfair Trade Practice. It is a good business sense to encourage competition to achieve better prices and quality. Competition also provides optional and reliable sources of supply. Mentioning a particular product, provides an unintentional warranty of its suitability for the purpose. It is better to confine Specifications to Requirement Statements.
Property Disposal: When Writing Statements of Work, the Contractor must be told How to dispose of residual materials, garbage, sewage, emissions, etc. Such Disposal Procedures have to follow the local regulations, often at cost. The liabilities arising out of compliance and the cost operations need to be specified. If the residual materials are to be handed back to the client, then handling and storage must be specified. If disposal of such items is likely generate an income, who takes the money must be mentioned. The Tax liabilities of expenditure, income generated, or sales done for disposal, also requires clarification.
Valid Claims: A Designer and Client realize shortcomings of the work being executed, and request alterations or corrections. Such changes are not executed unless formally requested. The cost of such constructive changes is to be paid by the client and is considered a Valid Claim. Contractors also make mistakes. A contract specifies modalities for notifying mistakes and what is considered to be improper communication of information or reportage by the contractor. Contracts also list modalities for corrective action and settlement of costs.
Language: Contract languagemust be simple and for that reason sentences should be short. Long sentences do not provide any sensible meaning. Throughout the document for the sake consistency and even at the cost of creating dull and a simplistic write-up, use the same words, phrases (rather than exploiting a thesaurus). Use category numbering system and avoid inter-document referencing such as ‘see xxx page, ref to yyy sub item, see above-below’, etc. Avoid acronyms, If must, use the commercially known abbreviations, and provide a reference index with expanded meanings. Avoid ambiguous words, or phrases that reflect more than one meaning. Refrain from phrase constructions that due to their sequence of placement, context or grammatical relationship could be interpreted differently. Conflicting Requirements often result from using totality words (such as: all, always, never, every, and, none, etc.) in statements, when something else in another sentence makes an exception to the totality.
Writing in Passive Voiceis always superior. The object of an action gets precedence and thereby the required special attention. In specifications the emphasis must rest on the product being described. It also removes the mention of the actor. Government servants favour passive voice because it does not require the mention of the actor, and thus avoid the responsibility. Avoid using gender nominating words like he, she, his, her, him, man, men, woman, women, etc.
Grammatical Errors:There are three levels of grammatical errors. At primary level such errors do not affect the meaning being conveyed. (X ate less apples than Y vs. X ate fewer apples then Y). At next level the grammatical mistake renders the sentence totally meaningless. Such errors can be corrected through meticulous proofreading. But the most dangerous grammatical blunders are those that alter the intended meaning of the expression, to something different. These get passed over by most literary proofreaders and software like word processors’ grammar checks. Such mistakes can only be checked by an expert Specification Writer, or a Seasoned Contractor. The last levels of errors are most exploited by a lawyer in case of a dispute.
11 LIABILITIES –part of the lecture series DESIGN IMPLEMENTATION PROCESSES
Design professional and Finance: A designer needs to involve own-self where financial viability of a project is discussed. For this designer is expected to have some understanding of basic finance terms. Some of the documents like project reports, estimates, schedules, invoices, etc., generated by the designer must meet the requirements of an accounts department of clients.
Some terms of finance are explained here > Capital, Working capital, Investments, Expenditures, Return, Interest, Dividend, Money, Wealth, Assets, Depreciation, Value, Cost, Price, Costing, Valuation, Cost-based fees, Value-based fees, Cost-plus fees, Managing clients’ money.
Capital is any amount that is spent for creation of wealth in a business. It includes all possible material, non-material, and human inputs. There are two forms of capital. Money, is a fluid and intangible form capital that is used as investment. The other capital is in the form of physical things such as: buildings, machinery and equipment employed for production of other goods and services, talent and experience, i.e. wealth.
Capital Creation occurs through, personal savings, borrowed from some source with attached obligations, or one that can be availed of by selling, renting, transferring in any other manner, whole or part of any tangible or non tangible property. Capital can be in cash, rights (ownership, tenancy, membership, citizenship, patent, copyright), abstract things (prestige, goodwill, expertise, knowledge, skill, information), etc.
Capital or the advantage out of it, are primarily used in creation of assets like fixed assets. Other uses include investment for the purchase of inputs, rents, etc. till an output is readied: working capital. The income earned by capital is profit.
Types of Capital: Capital comes as debts or borrowings, and must be repaid intermittently or in future, as Interest. Capital also comes as participatory investments in the form as equity which may not involve a direct obligation to repay the funds, but requires compensation in the form of a dividend.
● Fixed capital is usually defined as that which does not change its form in the course of the process of production, such as land, buildings, and machines.
● Circulating or Working capital consists of goods in process and operating expenses, raw materials, and stocks of finished goods waiting to be sold.
Return on Investments:Interest and Dividend: Investment is any sum that is not used by a person in buying assets but allowed to be used by others for the same purpose. The other party provides some return for the sum allowed to be used for such a purpose. Generally investments are arranged with a fixed rate of interest, but sometimes these are linked to rate of inflation, risk perception, period of borrowing, etc., often called a floating rate of interest. Compared to these when a lender agrees to share the profit and / or loss (but may not participate in matters of other party’s affairs or business), called a dividend. The dividend is dependent on the share of profit being generated from the investment, so it is uncertain and risky, but provides greater advantage.
Assets are resources with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. An asset is a physical or non-tangible entity with some value of sale, purchase or even possession. Normally we procure entities, with some value now or in future. To ‘own’ here include rights of exclusive possession (traditional ownership), rights of utilization (lease or rent), and other rights (visitation, guardianship).
Assets are capital: ‘It is any entity formed out of capital, and any entity that can be converted back as capital’. In account books, such assets are accounted as capital. Projects on completion become physical assets for the clients. Assets, in economics are stocks of resources that are used for production of goods and services. In classical economics there are three factors of production: Assets, Labour and Land.
Design Practice and relevance of Value and Cost : Design practice includes dealing with works of art, artefacts, craft pieces, and many other precious things. It involves identifying objects, judging their true worth, acquiring, producing and sometimes even disposing off such articles. When a designer helps in handling such precious entities, the benefits accruing to the client are several times more than the cost of creation or acquisition. It is very important for a design professional to be able to differentiate between the cost and value.
Cost is the amount of price (money or something else) paid to buy, or produce a thing. Cost of buying includes the cost of production and cost of delivering the thing to the location of use. It also includes any costs of financing the purchase. Cost of production is little more complex, as it is composed of elements such as: cost of materials, labour, and a proportion of the costs for the capital investment required to produce the good or service. Certain costs like rent (for plant, equipment, buildings etc.) remain consistent, no matter how much one produces, and are commonly referred to as the overheads or fixed costs. The variable costs are inputs like materials and wages, these vary according to how much is produced.
When the product is unique or first ever, two categories costs are recognized: Primarily labour and materials’ costs are considered, whereas average overhead cost, predetermined for some production volume are added. However if the product is reasonably known, the overhead costs are actual and exact.
Costing (cost finding) is a tool to derive the cost of a product, providing a service, performing a function, or operating a department. Some of these are historical facts or historic costs –How much did it cost? -while others are predictive or budgetary costs –What will it cost? Cost has relevance primarily to the person, who wishes to acquire or dispose off the item. But often a person to assess the ‘value’ of an object’ wishes to determine its worth through the costing. Cost of a product is the total expenditure (cost of raw materials, labour, rent for plants, and producers’ profit etc.) incurred to produce or procure an item, or its exact replica. Costing can be conducted through two routes: Cost analysis and Rate analysis. Cost analysis and Rate analysis have very thin differentiation, and so some consider them to be the same.
Cost analysis takes into consideration all factors that form an item or service. Cost analysis is more effective, for whole items, that is when an item is at a design or conceptual stage, and its parts have not yet been perceived. Yet it requires fairly clear perception of the system. Unless external conditions change, a product of cost analysis is specific, fairly stable, and may not need frequent revisions.
Data Input for Costing
Cost of materials, including cost of royalties, taxes, mining, procuring, producing and all those expenses required to convert the materials into a utilizable raw material.
Cost of materials and other inputs required to effect a service.
Cost of labour required to modify the materials, assimilate into a product, to transport, store and protect it, market it and in some cases trial run it.
Cost of labour for services such as performing, supervising and providing required assurances for the service.
Post production costs are amounts paid to launch a finished product or services in the society, such as: royalties, cess, taxes etc.
Cost of rents or hire charges for plants, tools, equipments to manufacture, erect, install, testing, test operating, transportation, etc.
Expenditure for risks and responsibilities associated with the product generation, installation, operation and maintenance, and conduction of the service.
Cost of investments on resources that are tied up,till about a utilizable product delivered or service is rendered and paid for.
Cost of other overheads such as cost incurred for managing the setup for procurement, production, testing and marketing.
Rate analysis is comprehensive application of various costs (arrived through cost analysis). Unlike cost analysis, the rate analysis takes into consideration the optimum costs of production or supply (economics of volume, batch sizes, packing unit), wastage, residues, etc. External conditions affect a rate, extensively and often unpredictably. Costings made through rate analysis need to be continuously improvised.
Application of Rate Analysis : Items that have not been well detailed, or vaguely or partially conceived, various cost parameters like cost per unit of length, area, volume, or unit of the entity derived from the known situations, are applied. Often cost of a known thing is considered a typical rate and applied to nearly similar things, with accommodation of the variations, as plus or a minus factor. Costing done through rate analysis provides a generalized picture. Rate analysis is preferred for task-based items (assignments that have universal identity).
Value : Designers often help their clients to acquire or dispose off entities in their completely prepared form. When the transaction originates at producer’s end, it is little above the cost, at a price. Price, reflects the value a producer attaches to the entity. Later transactions may not in any manner relate to entity’s cost.
For a thing to have a value, it must be transferable. A latent value becomes potent when it is perceived that someone needs the entity in some time and space, for a utilitarian or hypothetical purpose. A demand for a perishable commodity, if does not occur within its life span, is irrelevant. Similarly demand for something in a far off place cannot be satisfied, due to transportation hazards and handling problems. Air has a lot of utility but is not scarce. Rotten eggs may be scarce, but hardly have any utility. Friendship is very useful and scarce, but is not transferable or marketable.
Historic cost of creating a painting may be few drops of colour, a canvas and artists’ few moments. But once the fact is accomplished, the painting gains a very high value due to its extra ordinarily high relevance to the society. Relevance of a product in terms of its utility is (more) likely to degenerate over a period of time, but its value may appreciate or depreciate depending on its relevance to the owner or the society.
Price and Value : Prices are effected in money. Prices go up or down depending on the fall or rise in the (universal) value of the money. Any change in money (monetary value) affects the prices of all things across the board. Value of a thing, however, is specific. There cannot be a general fall or rise in value of all things. Value of a thing goes up, when we can acquire or aspire for more or superior things in exchange. Value of a thing goes down, when we can acquire or hope for less or inferior things in exchange. Value is relative, referred in terms of something else.
Value of a thing, cannot be always measured in money. Value has many different connotations, typically, it has relevance in terms of, emotions, remembrances, associations, ageing, maturity, heritage, rarity, ecological, environmental, social, etc.
Valuation, in functional sense, is done to determine what one would gain by acquiring, or forgo by disposing the item, but not necessarily doing so. Value of a product means an addition or deduction to wealth, Cost at the moment of transfer may or may not reflect the value of an item, but it helps in a better judgement of the value.
A rare painting or an antique may have an indeterminable cost, but will have a probable value. Value could be several times more or less than the actual cost of the item. Value is considered to be the true worth of an item, more lasting, but not necessarily reliable. Cost and price are very realistic and reliable, but not always representative of the true worth of the item. Both, perhaps, are required to gain a full insight of the situation.
Monetary versus Non-Monetary Valuations. Monetary valuations are not very different from costing exercises. Value of a thing, cannot be always measured in money. Though here utility, desirability, scarcity, availability and marketability etc. of an item are assessed in monetary terms rather than market equivalent costs of such items.
Valuations of non-monetary type are made to check adherence to values, customs, traditions, ethos, rules regulations, laws, etc. Greater adherence to these issues results into higher value realization for the product. Often negative or repulsive aspects of an entity, such as Hitler’s memorabilia, black magic tools, due to their rarity, invite a connoisseur’s favour. Non-monetary valuations have a relevance only to people who are concerned with it in some way. Non-monetary valuations based on one aspect or few concerns are not very useful, desirable, or even reliable. Non-monetary valuations based on too many aspects are not comparable, so must be scaled into some economic or monetary component. These makes, a valuation very complicated process.
Costing versus Valuation: Costing is a logical (mathematical) process, and any technically proficient person can carry it out. Costing process must always remain justifiable, and requires many exact inputs, including latest market costs etc. Valuations, however, involve many hypothetical judgments, are very subjective, and so may not seem rational. It is the experience of the valuer that imparts some degree of objectivity and also reliability to the valuation. Valuation on the other hand is a subjective judgment, and no explanations may be asked for.
Costing helps a designer in planning, budgeting and auditing the expenditures. Valuation is used to confirm or justify expenditures, indicate non monetary savings, and to convince a client for quandary options.
Design Practice and Cost Determination Methods: Designers choose entities, increase or decrease their usage by predicting the costs. Designers develop their own cost determination methods, appropriate for the jobs they handle, and for types of items specified in their projects. Input data like market rates for materials, parts, components, labour etc. are continuously updated or sought as and when estimates are to be prepared. Updating feedback is also available through the historic estimates conducted on completion of a project.
In design offices predictive cost analysis is made through Rate analysis. Average prices of all commonly used materials, operations, etc. are collected routinely, reformatted and stored. These are presumed as standard rates, and form the basis for the cost analysis. To simplify the process of cost analysis, number of items and their individual rates or prices are reduced by approximation (through definition of a factor for variation) in quantity and quality.
Routine jobs and jobs with substantial intellectual effort : Routine jobs have a determinable cost (and by adding a customary margin of profit, etc. one can derive the price). However, jobs with substantial intellectual effort accomplish more than the cost of implementation. So, dilemmas occur, should one charge a professional fee on the total cost of the job, or value accruing out of the job? Authors of creative efforts must know how to value their accomplishments, and thereby demand a fair compensation for it. Designers need to know both the cost and value of their professional services.
Cost versus Value for Designers : The understanding of Cost versus Value of an entity helps a designer at TWO distinct levels:
1 Determination of Fees: Cost-based, Value-based, Cost-Plus
2 Helping a client for the value-assessment of their possessions.
Cost-based Fees : Design practice follows age-old traditions of Architectural practice. Jobs are generally executed by appointed contractors or selected vendors. These third party (away from the Architect and the Client) business entities present an invoice, which reflects the nearly true cost of the job. Architects base their fees on this foundation after adding certain percentage amount to account for miscellaneous expenses, (such as on power, water, etc.). Substantial part of Designer’s work follows a similar path.
Value-based Fees are charged for jobs like renovation, extension, addition, conservation, etc. that make substantial change to the existing environment, upgrading the commercial value, or advantages deriving out of it. A unique concept that costs very little to implement, provides a substantial benefit to the client. Should one charge a fee on the cost of a job or on the value of the completed job? Here determining an appropriate cost base for fees is very difficult.
Value Assessment of Possessions : On some sites there are pre-existing structures which are to be only reformed or reused. The design cost of continuing or protecting such structures is difficult to compute, and so must be value-based. Cost of works or supplies by third party vendors and contractors are accountable, but items supplied by the Clients from the existing stock are difficult to document. Cost of Retained Structures, Antiques, Curios, used in a project are often indeterminable, instead their values, if available need to be used. On sites where several Professionals operate simultaneously, exclusive authorship to a creation is disputable, so cost of a patent idea is disputable.
Cost Plus Fees : Fees for very complex jobs, or jobs that are unique, and without any precedents are very difficult to pre-define. A Client wishes to see the job properly done, and the Professional wants a guaranteed, but a fair amount of income. Such jobs are executed on Cost Plus Basis.
The office work of the professional and the site work of the project, both are executed in a very transparent setup. All the expenses at the Professional’s Office (salaries, stationary, conveyance, rents, service charges for equipments, etc.) and at the Project Site (on raw materials (stationary), wages, and salaries, rents for equipments, conveyance, postal and telecommunication charges, taxes, etc.) are well monitored, documented and audited. The Professional is then allowed a percentage over the Audited Costs.
Investments and Expenditures : Design jobs create assets through substantial investments, or are maintained at their optimum operational conditions through expenditure. Designers need to be aware if their decisions relate to ‘investment’ or ‘expenditures’ in accounting terms. Nominally assets are large physical entities with some life of utility, whereas small things, services, repairs, maintenance activities do not create assets and so are accounted as expenditures.
Depreciation : Assets once created lose their value, gradually over a period of time even while, being used, not used at-all, under-used, or over-used. Assets, also lose their value suddenly on sale or through accidents. The sudden reduction in the value of an asset is easy to note but the gradual diminution is often not perceptible, and is difficult to account for. The value degradation could be for external or contextual reasons like changed relevance. The value decline for intrinsic causes could be due to the reduced utility of the asset.
Dilution of Value :Normally dilution of value in an asset can be ultimately adjusted when a less useful object is sold off (at discounted value) or disposed off (at zero or debris value). However, in accounting procedures such loses are discounted on a year to year basis. Normally the income earning capacity falls due to increasing inefficiency arising from physical deterioration. Some assets like adornments go out of fashion very fast whereas electronics see technological obsolescence.
The gradual dilution of valueof an item occurs for many reasons:
Physical deterioration of the item affecting the possible benefit accruing out of it.
Availability of a similar product at a lower price (obsolescence).
Fall in value due to changed relevance.
Appreciation of Value of Assets. An upgraded or reconditioned item can once again achieve higher yields. Some items with associated values are considered rare, and become a treasure with high value. The value of a land is due to the location but more due to the circumstantial surroundings.
Some Methods of calculating the Depreciation
These methods or formulas are found in excel or other spreadsheets like programmes. There are many such methods but some basic-simple ones are provided here.
● Straight line method:The rate of depreciation is constant for the entire working life of the capital assets. This is based on three aspects, 1 assets’ cost, 2 the salvage or the book value of the asset at the end of assets’ useful life and 3 the period of useful life of the asset.
● Sum of the years depreciation, to be calculated: This is based on four aspects, 1 assets’ cost, 2 salvage or the book value of the asset at the end of assets’ useful life, 3 the period of useful life of the asset, 4 period for which depreciation is to be calculated.
● Double declining balance method: This method recognizes the substantial consumption of some assets’ service potential in early years. This is based on four aspects 1 assets’ cost, 1 period of useful life of the asset 2 salvage or the book value of the asset at the end of assets’ useful life, 3 period of useful life of the asset, 4 period for which depreciation is to be calculated.
Design Professionals deal with Money, to conduct own commercial organization (professional practice), and sometimes to help a client to implement a project. The second case like situations are rare (but occasionally do happen with small clients). Here a designer gets a free hand, to spend someone else’s money. In a professional practice, however, it is the management of these sums that provide great comfort to the client, but causes discomfort to the tax authorities.
Managing Client’s Expenditures for the Project: Designers can get involved in spending money for and of the client, knowingly and inadvertently. For managing project expenditures some precautions are necessary:
The ideal condition is one where the designer approves bills of expenditure and certifies the payment, client then arranges the payment.
Next option is to operate a joint signatory bank account. This must be operated in the name of client with client as the main operator, and the designer as the authorized signatory. Alternatively a single operator bank account, in the name of a client, but operated by the designer as the power of attorney signatory.
In case 2, a designer must avoid granting payments to own-self such as for professional fees or other chargeable amounts.
Client’s money (in any form) meant for the execution of a project must never be deposited in a designer’s personal account or design company’s account, even for a short duration transfer.
For case 2 (as above) All other transactions must be through cheques drawn to party receiving the payment, and no third party or bearer cheques. No self-cheques for cash withdrawal be made.
All payments to designer own-self, design company or their employees must be made with clients’ own signature on the cheque.
When a bank account as per 2 above, for project expenditure is operated, it is meant for expenditure on the project such as payments for labour, services, materials, other consultant’s fees, etc., but may not include payments for site rent and taxes. For the later, a separate clause must be added to the authorization deed.
The power of attorney or authorization must be for specific period (if necessary with provision for periodic renewal), but not with non-specific mention such as ‘till a project is completed’.
Avoid payments from such accounts that are like investment (including shares, bank deposits or bonds), or speculative spending.
All payments (by client or by designer as an authorized signatory) must be over invoices or vouchers made in the name of the client. Avoid accepting any invoices made in the name of the designer or designer’s company. Write cheques only in the name of the (suppliers, vendors, contractors, etc.) party who generates the invoice (to avoid third party payments).
Project Expenditure by Small and Large Clients : There are some basic differences how small and large clients (and corporate) manage their project expenditure.
● Small clients have the budgeted amount almost ready for investment, as if the entire sum is to be spent immediately, and in one lot. Projects, however small, consist of items that occur in phases, and so do the payments for them. If a designer takes care to prepare, a schedule of expenditure, in addition to the nominal schedule of estimates, a client can be advised on ‘When and What sums will be required’. By properly scheduling the purchases of independent systems to later part of the project one can delay the investments. Such delayed purchases also help in taking full advantage of guarantee and warrantee provisions, and also delay the expenses on risk management costs like insurance. Date of purchase also affects the amount of depreciation (a purchase made during the last few months before the year ends, qualifies for full year’s depreciation).
● Large and Corporate Clientsprovision money for expenditure as a strategy. They may arrange money for a project from different internal account heads, and also from outside sources like financial institutions. Outside borrowing have to be planned and sanctioned (committed), even before the project is launched. A service charge of 1 to 3 % is levied on the sums sanctioned (but not actually borrowed) as loan (in addition to the interest on the amounts as and when actually borrowed). For this reason loan sanctions, and consequently heavier borrowing are differed as much as possible. Stand alone or complete systems like ACs, elevators, etc. are procured, as late as feasible, but sometimes a little earlier to take advantage of depreciation accounting during a financial year. Such clients usually need not only an estimate but also a very detailed schedule for payments.
26 FINANCE –part of the lecture series DESIGN IMPLEMENTATION PROCESSES
Data is raw collection of facts. Data is categorized into sets by the class of its contents, such as the character, text, words, numbers, images, etc., and by the interconnections of the substance. These two are the factors that colour the data, which otherwise is neat collection of facts. Data must be further organized, structured, interpreted, and presented to be meaningful as information. Same data can be had by many people or agencies, but the way it is used it begins to be proprietary information. Data gains context during processing. Raw data is useless, and has no value except the cost of identification, collection and storage. Data once collected is preserved, as the same data may offer new vision or information in future.
In nominal usage, data refers to facts, posed to our receptive faculties or sense organs. Data is perceived, when it is within the limited perceptive (sensory) capabilities, and if has some relevance to our needs. Data perception is affected by the mental and physical state. Our mind (and other organs) processes the data into Information. Data processing refers to acts like gathering, manipulating and transmitting for specific objectives.
Data is open knowledge, but when perceived in some context or for a probable purpose, it becomes information. Information, on the contrary is a personalized property. One person’s information becomes another person’s data. To work efficiently, and within the personal biological capacity, one retains only relevant sections of data.
Data can be processed manually, mechanically and electronically. And with each of the processing data gets structured differently providing new insights. A machine (mechanical, electronics) processes data according to set parameters, so is more objective then any manual processing.
Electronic or digital systems have better receptors and larger storage capacities (and improving day by day). Such systems, like their biological counterparts, invariably include barriers or filters to select only relevant things. A computer during the receiving and recording phase converts relevant things into a storable representation or a surrogate form.
The information stored in the mind or thins out with time, so must be either communicated or recorded. Recording is formatting information over a medium. In-forming implies that a form is impressed onto -a medium. The formatted (recorded) expression on a medium is less likely to get lost with time. Recorded and communicated material is already processed, but as we re-communicate it, it gets further processed. During each process of expression, perception, recording or retrieving, information corruption occurs.
Methods and modes of ‘formatting’ the informationare like: writing, printing, transmitting, receiving, storing, retrieving, etc. However, formatting, ‘conditions’ the data, and often ‘corrupts’ it. The forming mediums are physical, such as: paper, magnetic tape, etc. and formatting tools are: languages, images, graphics, metaphors, etc.
The information expression and formation (on a medium), both are acts of communication. The originator, though, has less control on how the expression will be perceived or recorded (in-formed). The Information originator accessing own records at some other time-space level cannot revert to the original physical and mental state, and so re-experience or reestablish the original. The communicated information manifests slightly differently, yet it is a ‘knowledge transmission process’. For communication to occur the originator and the accessing user both must follow common modalities.
Documents are ‘lots of related knowledge’, which when referred to, provide the intended information. Once information is perceived from data set, it is placed or linked to a document. In other words like other storable units it is modulated according to what it is to contain, and stacked (stored) according to how it is placed, referred and retrieved.
Traditional documents are like: letters, reports drawings, specifications, procedures, instructions, records, purchase orders, invoices, process control charts, graphs, pictures, etc. Such documents’ ‘pages’, chapters or sections are placed together to maintain order of placement. Sub units of documents also carry a positional identifier like page, chapter or section number. Documents are stored in their order of arrival, category, size, nature (paper, books, tapes, etc.), author etc. Traditional documents as sequential data storage system are also created in the form of index cards, punched data cards, magnetic tapes, etc. A digital document stores information in pre-sized lots of bytes and bits. These may offer random access, such as with floppy disks, CDs, HDs, etc. A file allocation table FAT as a dynamic index system manages the access to it.
Files are the most common units of information transfer. Filed information has: a title, a description of contents and the mass of content. Additionally it occupies a space, so size, and the birth context (date/ time/ location/ other circumstances of origin). Beyond these primary endowments, a file may be given different attachments (links and references). A file carries many identifiers such as:
time (of origin)
size (of storage, transmission time & effort)
content (index, key words, summary)
place of origin
place of destination, identity recipient
authority to create, read, write, alter and delete the contents of a file
affiliations, linked documents, preceding and following documents
mode of communication
limits and conditions of relevance
It is through such identities that a file begins to be relevant or worthy of access. A simple file is nominally static, because its data entities are allocated specific physical space. A complex file may contain variable size space allocations. There are often filters that decide which of the data entities are to be allocated afree or variable space.
Data entities in a file remain permanent or are changeable. The conditions that cause a data to remain permanent or be variable could be external or internal. The internal conditioners are inseparable parts of information files. In a static file, the structure remains unaltered even while data entities are changed. The meaning deriving out of that file however, may change. Static files are easy to process, but are incapable of providing qualitative information. Static files usually contain data that is mathematical or substantially logical. In dynamic files the structure of a file gets altered along with the nature of data entities. Dynamic files are complex to process.
Hard copy vs Soft copy: Substantial quantity of information is generated as hard copy, i.e. written or printed. It is possible to copy these type of documents in parts or whole, through processes like carbon copying, scanning, lithography, screen printing, transfer printing, photo and Xerox copying. Some of these processes require specific media. Few processes are capable of enlarging or reducing the scale (micro films). But contents cannot be edited, revised or manipulated. A digital data file is often called a soft copy because its contents can be manipulated with much ease. It can also be linked as a whole or by its parts, to other files or their parts. It can be analyzed, dissected, reassembled, rearranged or restructured. Through such manipulations even ordinary looking data takes on different forms, and new meanings can be established.
Most printed documents are opaque. It is very difficult to superimpose or merge two or more such documents. Digital documents, on the other hand can be treated as set of layers or even three dimensional matrices. Digital documents can be treated as transparent and miscible. Auto-CAD creates files as transparent layers. Digital files could be made interactive (such as with spreadsheets), i.e. a change in one file can be made pervasive in all other linked files.
Information Resources of Organizations: Data arrives in organizations, at periodic intervals or on a continuous basis, but it arrives in parts, that will:
– probably form a whole,
– automatically create a structure with definite boundaries (close ended)
– form an ever growing matrix (open ended).
Organizations receive and generate lot of data, which have two sets of relevance. Information with distant use is strategic, and will be used for planning and forecasting. Strategic information is more general than any tactical information. Information with immediate use is tactical, and is used for decision making and problem solving. Operational uses of information are very occasion or situation specific.
Prime Internal Information Resources, IIR for organizations are: experience and knowledge that comes with owners, employees, consultants, etc., and data generated from the routine activities. The External Information Resources, EIR are: input and feedback from consultants, suppliers, contractors and clients. These are media-based such as books, periodicals, internet, CDs, tapes, etc. External information once procured by the organization, if properly stored can be a great internal asset.
Internal information is personal, departmental or organizational. Internal information resources are nearly free, require only processing at a negligible cost, but are ignored. Organizations thrive and proliferate on the quality and quantity of data within their reach. Organizations by continuously processing their data generate synergies that in turn sharpen their data processing capacity.
External information is inter-organizational, fraternity level, society, community, national, or of a universal domain. External information is acquired for a payment of compensation in proportion to its quality, quantity and acuteness of need. Organizations, as a result, end up paying a stiff price for sourcing external information.
Cost of information: Information as a commodity can have an ordinary cost, if it is universally available and not urgently needed. However, information of rare or proprietary nature and that requiring immediate access can have a high price. Information is also available without any obligations in many free domains. Cost of information is also formed by absolute factors like the cost of acquisition, processing, storing, retrieval and transmission.
Information systems and emerging forms of business organizations: Information systems affect the structure of organizations and design of the workplaces. Information networked organization are more dynamic because the workers communicate among themselves, and with other firms. These provide for greater coordination and collaboration in projects’ handling. These strategies have also ‘led many organizations to concentrate on their core competencies and to out-source other parts of work to specialized companies’. ‘The capacity to communicate information efficiently within an organization has also led to the deployment of flatter organizational structures with fewer hierarchical layers’.
Organizations with clustered information systems are built around portable computers, mobile telecommunications, and group-wares have enabled employees to work virtually anywhere. ‘Work is the thing you do, not the place you go to’. Employees who work in virtual workplaces outside their company’s premises are known as Tele-commuters.
Two forms of virtual organizations have emerged: network organizations and cluster organizations. A network organization of individuals or geographically widely dispersed small companies working with internet and wide area networks, can join seamlessly through specific protocols to present a multi disciplinary appearance of a large organization. The subsets operating in all time zones seem to be operating 24 x 7. In a cluster organization, the principal work units are permanent, complimented by multiplicity of service providers or temporary teams of individuals. A job or project begins to percolate within the cluster and different sub units begin to react to it, providing their inputs. A solution begins to emerge from apparently fuzzy and often unrelated ideas or concepts. Team members, are connected by intranets and groupware.
‘Data is abundant, but mostly redundant. Information exists in data, if one is inclined to derive knowledge out of it. But for wisdom one may not need any knowledge’.
Knowledge is acquisition involving complex cognitive processes, such as perception, communication, and reasoning. Knowledge is a familiarity, awareness or understanding of someone or something, such as facts, information, descriptions, or skills. These are acquired through experience or education by perceiving, discovering, or learning. Knowledge can be implicit (as with practical skill or expertise), or explicit (as with the theoretical understanding of a subject).
Knowledge is learning from experience, observation and perception. The learning from information resources is an ever evolving process. Observation and perception are subjective, but information resources offer verifiable opportunity. The information resources offer simultaneously several points of views, strategies and solutions.
Application of Artificial Neural Networks : Most of the traditional processes, including the computer programmes are linear or sequential. Execution occurs in a step by step process and sometimes with circular commands that use iteration. A neural network processes information collectively, in parallel mode. It changes its internal structure based on the information flowing through it. It is a complex but adaptive system.
Artificial neural networksare applied to speech recognition, image analysis and adaptive control, to construct software design tools and autonomous robots. Most of the currently employed artificial neural networks for artificial intelligence are based on statistical estimation, optimization and control theory. Application areas for Artificial Neural Networks also include system identification and control (vehicle control, process control), game-playing and decision making (backgammon, chess, racing), pattern recognition (radar systems, face identification, object recognition and more), sequences recognition (gesture, speech, handwritten text recognition), medical diagnosis, financial applications, data mining, visualization and e-mail spam filtering.
Artificial neural networks are applied to following categories of tasks:
Function approximation, or regression analysis, including time series prediction and modelling;
Classification including pattern and sequence recognition, novelty detection and sequential decision making;
Data processing, including filtering, clustering, blind signal separation and compression.
Fuzzy Logic : Fuzzy logic is an organized and mathematical method of handling inherently imprecise concepts. It is specifically designed to deal with imprecision of facts (fuzzy logic statements). For example, the concept of coldness cannot be expressed through an equation, because it is not quantity like the temperature is. There is no precise cutoff between cold and not so cold. Whether a person is inside or outside the house is imprecise if one stands on the threshold. Is the person slightly inside or outside the house? While quantifying such partial states (xx % inside and yy % outside) yields a fuzzy set membership.
Fuzzy logic is derived from fuzzy set theory dealing with reasoning that is approximate rather than precisely deduced from classical predicate logic. Fuzzy truth represents membership in vaguely defined sets and not randomness like the likelihood of some event or condition. Probability deals with chances of that happening. So fuzzy logic is different in character from probability, and is not a replacement for it. Fuzzy logic and Probability refer to different kinds of uncertainty.
Fuzzy logic is used in high-performance error correction systems to improve information reception (such as over a limited bandwidth communication link affected by data-corrupting noise). Fuzzy logic can be used to control household appliances such as washing machines (which sense load size and detergent concentration and adjust their wash cycles accordingly), refrigerators, rice cookers, cameras focussing, digital image processing (such as edge detection), elevators, Fuzzy logic is used for video game artificial intelligence, language filters on message boards and for filtering out offensive text in chat messages, remote sensing, etc.
20 DATA, INFORMATION and KNOWLEDGE –part of the lecture series DESIGN IMPLEMENTATION PROCESSES
Risks and Human Endeavours: A great deal is expected from human endeavours set up with expense of resources, effort and time, be it entities, events or organizations. Human endeavours, when fail to take off, perform adequately, or satisfy its stack-holders, pose risk.
Endeavours fail on two counts : Human endeavours do not work for the conceived functions or the original functions do not remain relevant.
● For the first case, the fault may be that it was not adequately conceived or the functions were not properly defined.
● In the second case, between the planning and operations phase the circumstances change and it is not feasible to recast the programme.
Anthropogenic hazards are those hazards caused directly or indirectly by human action or inaction.
What is a Risk? Risk is any set of such conditions that adversely affect a human endeavour. One can avoid, manage or accommodate, risks to a limited extent, but beyond these, the effects of risks have to be compensated, replaced or transformed in such a way, that there is a sense of equilibrium. One may not be able to reestablish the lost entity, reenact the missed event or resurrect the dead organization, but one may, indemnify against such losses.
Defining Risks : ‘Risk is any factor that affects an activity or object, denoting a likely negative impact from some present process or future event’. Contrary to this some believe risks often have an advantage, like a lottery that may provide unusually large gain for a very small loss. Risk if negative is valued against the scale of loss and frequency of occurrence.
Types of Risks-I : Purchasing a lottery ticket is a risky investment with a high chance of no return and a small chance of a very high return. But since the amount lost is small and the gain very large, lots of people go for it. In contrast investing money in a company involves a large investment, so we take care to find out the identity of the company. A government bond though provides a small interest is considered less risky. In finance the greater the risk, higher is the potential return.
Types of Risks-II : Risks in personal health are reduced by preventive actions, like avoiding illness causing situations. Secondary prevention can come by early diagnosis and perhaps preventive regimen and treatment. Third level of action is directed in terminating negative effects of an already established disease by restoring function and reducing disease-related complications.
Categories of Risks
● Natural Risks: These originate from outside the system due to the context or changes in the environment. This could be perceived as an advantage in a system which can be isolated with a barrier. Some interactive systems must flourish with the environment have to ‘manage’ the environment.
● Circumstantial failures: These are accidental, i.e. unpredictable in scale (size) and time of occurrence. The circumstances, within which an endeavour takes place is continuously variable and unpredictable, so is perceived as a natural failure.
● Intentional Risks: These are due to avoidable or malicious acts. Avoidable acts include adventurism, neglect, destructive tendencies etc.
● Man-made failures: These occur due to faults in conception, observance or operations of the system. These can be set right by foresight, flexibility of approach (such as adopting ‘open system or open-ended architecture’), provisions of additional capacities, and by including escape or safety procedures.
Man-Made Failures occur, because:
1. System is not designed or adequately equipped (technically) to serve the nominally expected functions.
2.System is required to serve functions for which it is not designedand there no processes to regulate the overuse, misuse or under or non-use.
3. System has a rigid design, structure or setup regimen which prevents corrections or improvisations.
4. System is so liberal (loosely or irregularly structured) that a coordinated emergency action plan cannot be enforced.
What is a Risk Management System? When endeavours fail to perform then a fresh effort is required. Risk management deals with such eventualities. It determines the chances of an occurrence, de-intensify the affectations, and create means to mitigate the losses.
Types of Risks
● Determinable Risks are predictable and suitable risk avoidance measures can take care of it. Certain factors trigger such risks, so observance and reportage mechanisms for such conditions can help avoid it.
● Indeterminable Risks have very low probability, or the twin aspects such as scale of affectation and pattern of occurrence are indeterminable. The damage and suffering cannot be predicted. Its mitigation is left to the concerned age and society.
● Probable Risks are predictable but within limits of probability. Here the trigger factors are not easily definable. Historical experiences show us what could be the scale of affectation and pattern of occurrence. Affectation can be spatially isolated and temporally limited, by design of the joints, connections, and by spacing and distancing. The occurrence schedules may be matched with a timed action, or even planned dormancy. Additional capacities (factor of safety, safe margins), are provided for such contingencies.
RISK Management Standard ISO 31000
Risk management processes are applied to project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, and public health and safety. Risk Management has been recognized as a generic standard under series ISO 31000.
ISO 31000:2009 -Principles and Guidelines on Implementation
Managing the Risks : One can avoid, manage or accommodate risks to a limited extent. Beyond these, the effects of risks have to be compensated, replaced or transformed in such a way, that there is a sense of equilibrium. One may not be able ‘to reestablish the lost entity, reenact the missed event, or resurrect the dead system’, but one may indemnify against such losses.
Dorfman 1997 prescribes four way strategies for managing the risks:
Transfer (buy insurance, hedge).
Ideal use of these strategies may not be possible as some of them may involve trade offs that are not acceptable to the organization or person making the risk management decisions. Another source (US Department of Defense) calls this ACAT, for
Risk Avoidance is just one important aspect of risk management. It means ‘controlling all detrimental activities’. But all risks cannot be avoided and thereby managed. Some risks are delayed, hastened, diverted, or even embraced. Avoiding risks also means losing out a very high gain potential situation. Many take a ‘calculated plunge’ for a small or rare risk.
Risks in Business: In business taking on a client (a new project) does not always translate into extra income. Because a new project may entail dealing with an unusual or odd client or requiring additional resources and it may mean less or no profit for the organization. Similarly taking on a prestigious assignment is a challenge, but the outlay on handling could be far more in comparison to a nominal project. Another example would be procuring a non standard product or system (without a full guarantee and warrantees) for an acute need, could mean greater cost of corrective measures.
Ways of managing Risks
● Risk Reduction, involves strategies to reduce the severity of the loss. In buildings this include fire escapes, controlled use of combustible materials, installation of sprinklers with fire detectors, etc. The cost of such risk reduction systems are checked in terms of what it can save or prevent.
● Risk Retention, means the person or the party bears the loss resulting out of an event. This is a viable strategy for small risks where the cost of insuring and getting compensation would be greater, like in minor illness or injuries. All risks that are not avoided or transferred are presumed to be bourn or retained by the person or party.
● Risk Transfer to another party by contract or by hedging (as in betting). Insurance is one type of risk transfer that uses contracts. Risks are transferred to another party, schedule to other time, shifted to different / separate location. The pace of transfer is often hastened or slowed, and the affectations are concentrated or spread. Risk of injury due to local impact (and so intensive) are spread to a wider area by means such as a helmet, a car air-bag, knee pad, a seat belt, etc. Impact buffers and such stopper mechanisms absorb the impact or divert it.
Risk Synergy Systems exist in some biological systems, pliant compositions and pseudo intelligent entities (e.g. some equipment with fuzzy logic and neural networking). These have capacity to self regulate or organize to accommodate the conditions of change. Such systems are inherently restricted or finite in capacity. Their risk sensing and accommodative functionality are available so long as required energy and other inputs are available. Designers strive to emulate such systems by integrating the risk handling features (such as: gas and fire detectors, auto sprinklers, auto open-shut opening systems, burglar alarms, earth quake and heavy wind load absorbers, etc.), into their creations.
Strategies for Handling Risks
Prioritization in Risk Management : A process of prioritization has many facets. Saving lives is given a higher priority then salvaging goods and equipments. Evacuation of human beings has greatest priority then saving a structure. But many countries feel sacrificing a human life may be unavoidable then surrender to a terrorist hostage situation. Risks with greater probability, higher monetary loss (of replacement), are handled first.
Cost aspects of Risks : Risk management include equating the cost of controlling the risk versus the cost of compensating the losses. It also includes the evaluating the cost of recovery against the expense for compensation. Justifying the cost of being prepared over a long duration for an event that has low probability.
Economics of Risk : Risks result into losses, delays, setbacks and deaths (humans, flora-fauna and diffusion or termination of the systems). Ideally, the expenditure on risk management must be minimized, while maximizing the risk-safe zones and periods (MTF =meantime between failures). Yet, sometimes risks are indulged into, or ignored in view of the benefits (often called a gamble or calculated risks).
Commercial Risks : In the commercial world risks are of two types: Inherent risks are part of any business operation, and affect the profits or opportunities negatively. Incidental risks are natural, and not always part of, or due to the business activity.
Intrinsic and Extrinsic Risks in Projects : Projects are work entities to accomplish certain goals, with a set start, process of run or operation and end or termination of the endeavour. Any condition that does not allow these objectives being achieved, is a risk. The risk could be intrinsic or extrinsic. The intrinsic risks could be handled through good design, management, and modalities of accommodation. The origins of extrinsic risks, are beyond the organization, so their nature, schedule, frequency of occurrence and scale of affectation must be identified.
Risks in Projects: Risks in projects are identified by enacting various scenarios (combination of various possibilities occurring together). The scenario, if risky is further probed to assess its potential severity and extent of loss. These two quantities are simple to measure, and then set as the value of the damaged component. The probability of occurrence, however, is difficult or impossible to assess as an event, mainly due to lack of its history.
History of Risk or Rate of Occurrence : The fundamental difficulty in risk assessment is determining the rate of occurrence, since in many instances the statistical information is unavailable. Furthermore, evaluating the severity of the consequences (impact) is often quite difficult for immaterial assets (with emotional value). Asset valuation is another question that needs to be addressed. Thus, best educated opinions and available statistics are the primary sources of consideration.
Cumulative effect of Risk Measures : Provisions for various risks tend to have a cumulative effect. For example a building foundation is designed to carry the load of the building, with additional provisions for an earth quake, hurricanes, temporary loadings, etc., but not all of these are likely to occur simultaneously. Similarly we provide extra for individual considerations: loads calculations, strength of cement concrete and steel bars. These, if not properly attuned, these can add up to substantial over spending. All provisions for risks need a careful working for the individual, as well as cumulative effect.
Design Projects and Risks: Design Projects fail to satisfy a client, or are commercial losers for a variety of reasons like, shift in taste, changes in market demands, arrival of new technologies, prices, etc. Many of these factors begin to be affective when projects’ execution is long drawn or delayed. Finishing of projects on schedule, eases many such problems. Projects become risky due to poor definition of the project requirements, and lack of complete understanding and acceptance of the project profile report by the client. Interior Design projects often fail due to ironclad specifications, which may not allow correction or improvisation during execution. The risks on this count can be taken care of, for example by keeping ‘open certain windows’ for later formulation or decision. These are often done by hiring other agencies for work that is likely to occur in different time and space.
A Designer must be extremely careful of individual warrantee and guarantee that when read as a combination often cancels out each other. Complex Interior Design projects formed of several systems (offered by equally varied vendors), have conflicting provisions.
Insurance: Insurance is a risk management investment. By paying a small sum, the premium, risks are conditionally insured. The compensation is invariably for providing an equivalent product or commercial value (at the time of loss or more commonly the depreciated value of the original or cost of replacement) in monetary terms. Insurance is an indemnity against loss. It is a way of contracting out of a risk. A person, company, an organization, or government, pay a small amount -premium, to protect own self from a potential large loss. In case of risk insurance, however, only risks that are stated distinctly in the contract are included for premium compensation, all other risks (including unknown and indeterminable ones) are presumed to be bourn by the party (insurer).
Other losses of Risks : Emotional and such other associated considerations (nose of an actress) are often insured, but by determining a fixed value for it, before a contract is made. Value for the loss of life, is an example of similar nature. Loss of opportunity such as earning, business, etc. due to sickness, injury, strikes, riots, war, etc. can also be insured. Loss due to certain happenings like flood, riot, calamity, malicious damage by any person, devaluation of currency, sudden drop or rise in prices, defaulted business services, blames, lawsuit expenses, fines, compensation payments, etc. can be provisioned through insurance.
Distribution of Risks by Insurance company: A typical insurance company working on life insurance has a large clientele consisting of people of various age, vocation, etc. Of these only few will die, in a year, for which compensation is paid. The premium rates are based on historical data, such life expectancy, rate of natural deaths and caused by accident, etc. An actuary is an expert who compiles and analysis’ statistics in order to calculate insurance risks and premiums.
Reinsurance by Insurance Companies : An insurance company can be in a problem zone, if in one locality many people were to die simultaneously. In such an eventuality, the sudden demand for compensation can be very difficult to meet. To provide for such an eventuality, the insurance company re-insures itself with another company that perhaps has no such liability in the same geographic region. This reinsurance strategy spreads the risks, over time and space.
Geographical affectations of Collective Risks: The insurance company operates on the premise that not all risks happen simultaneously and to all the insurers. Insurance companies plan their business in such a way that in comparison to their premium income the amount to be paid out for compensation is less, resulting in meeting the administrative expenses of business and a reasonable profit.
Often for a very large risk like insurance for nuclear power plant or a space craft, the insurance company or some other commercial entity acts as an underwriter. It may not on its own insure any risk personally, but as a professional body with very strict rules of conduct, manages everything about insurance and takes the first liability. It than, divides and transfers the risk, to several insurance companies by sharing the earned premium.
24 RISK MANAGEMENT –part of the lecture series DESIGN IMPLEMENTATION PROCESSES
Systems : When things come together to represent a working whole, it is for two reasons: 1 as realism, where things coexist on a location (space) or are concurrent for an occasion (time); 2 as an abstractweb of inter-connectivity or interdependency of things. Eberhardt Rechtin, defines a system as: “a collection of elements which, interrelated and working together, creates useful results which no part of the elements can create separately”. In both the cases things interpolate to manifest a system. The interpolation could be due to proximity, some commonality or complete suffusion.
Simple and Complex systems : Simple systems are holistic and so balanced or with thermodynamic equilibrium due to little interference from external environment. Compared to this complex systems, affected by many external energies are continuously varying. Complex systems often seem boundless, nested and are effusive. Simple systems have definitive edges, and are like small buildings, newspaper or a computer programme. Complex systems have diffused boundaries due to convergence of other systems. Complex systems are such as our own body, city administration or internet. Nature’s systems are very extensively spread reaching to infinity, and include atmosphere, planetary or food chains.
Systems’ Edges : Systems, be they real, virtual or hypothetical, are all defined by their edge conditions. The edges, when are break-less, create a holistic or closed ended entity. But with nodes or the breaches an open-ended system comes into being (a node= nodus -Latin = knot is either a connection, point of joint, a redistribution point, an end or terminal point). A hypothetical or abstract one is completely suffused and so is omnipresent.
Designed and Natural Systems : In a designed (intentional) system nearly all sub units have a purpose of their in being with the others. In designed systems the sub units are selected, prepared, modified, manufactured, for being together in a particular format. In a complex system only a few sub units are relevant to other units. Here some sub units occasionally and due to their position remain latent. Natural systems are usually large and complex. Here the sub units do not reveal themselves, unless their order is probed.
‘A complex system is one that by design or function or both is difficult to understand and verify’ (Weng, Bhalla and Iyengar).
Familiar Systems of Buildings, Furniture, etc.: Systems in buildings occur both as holistic and components systems. Buildings show convergence of many different systems such as environmental, structural, openings, barricading, etc. Furniture systems emerge due to frequent resetting of arrangement and reassignment of functions. Furniture systems are apparent on count of modularity, utility, typology, styling etc.
Building as a system : Traditional building systems are simpler because the components are individually dealt, drawn, built and serviced. This makes it easier to deal with them in different time, space and by different agencies. Buildings have to operate in a larger context, and so nodes, boundaries, edges, connectivity, modularity, are inevitable. Buildings with very large footprints and strong community concerns have this imprint. But buildings conceived for the sake of systematization are strongly disciplined bound and often sited anywhere, irrespective of climate, orientation, location or terrain.
‘Good architecture may be viewed as a ‘partitioning scheme,’ or algorithms, which partitions all of the system’s present and foreseeable requirements into a workable set of cleanly bounded subsystems with nothing left over. It is a partitioning scheme which is exclusive, inclusive, and exhaustive. A major purpose of the partitioning is to arrange the elements in the sub systems so that there is a minimum of interdependencies needed among them’.
‘The need for complexity in building system occurs due to the pursuit of the unusual. To conceive a system that is complex yet fully integrated requires multi-disciplinary approach. For complex building external experts arrive to offer solutions but without comprehension of the totality’.
Systems approach in building Design :
‘Modular design, or ‘modularity in design’, is a design approach that subdivides a system into smaller parts called modules or skids, which can be independently created and then used in different systems. A modular system can be characterized by functional partitioning into discrete scalable, reusable modules, rigorous use of well-defined modular interfaces, and making use of industry standards for interfaces’.
Biomimicry is one such order that is subsumed in buildings. Complex systems often exhibit hysteresis, a phenomenon in which the reaction of the system to changes is dependent upon its past reactions to change. (Hysteresis = history affects the value of an internal state). This sort of memory retention or recollection (such as of previous exposure to magnetism is the working principle in audio tape and hard disk devices or recovery from complicated deformations in the state of substances) is just one facet of system behaviour. It is sought to be seen as simplistic and stand-alone hysteresis.
Systems Thinking : Systems thinking concept began to emerge post 1920s. It began from realization that small catalytic events occurring in different time and space, cause significant change in complex system. Often identification of such scarce events helps to acknowledge existence and scale of the larger domain. Systems thinking recognize circular causation or iteration, where a variable is both the cause and the effect of another. It accepts the nonlinear and organic interrelationships between things.
Systems Engineering : Systems Engineering is an interdisciplinary approach and means to enable the realization of integrated or holistic systems. It starts very early, usually precedes the planning or concept design stage. It combines the contribution of all technologies, circumstances and human expertise. At another level it considers the business and its various needs like finance, logistics and marketing into one larger perspective.
Systems thinking in Design : Designers see the space design as bubbles or doodles of function modules, each recognized with non-material barriers, and of proportional extent. This is a mental process and manual expression, of the intents. It needs conversion to a scaled layout, and workshop or site details. To carry on the original essence of design through dimensioning, material definitions, styling, etc. and more importantly for confirmation by all stack holders is a difficult endeavour. Only clarity that comes through is delineation of space delimiting barriers and space servicing elements. The elements that form these two categories are mutually not exclusive, so a cohesive system without gaps, overlaps or repetition must occur.
Types of Systems : Systems have different connotations depending on who considers it such as people concerned with buildings, architects, interior designers, structural engineers, builders, promoters and occupants. To compound the problem, many different ideologies from other fields are being implicated here. Some of these include: Components and Systems approach, Holistic or Unified approach, Prefabrication and Modular coordination, Dimensional coordination, Dimensional preferences, System building, Industrialized building, etc.
Openness translates into a synergy for collaborative working. Open systems have mass and energy transition across the edges, such as water pond, building or earth’s atmosphere. Closed systems are like the balloon, little transfer for mass, exchange energy across the border. A system is called an isolated or insulated system when it is not dependent on exchange of mass or energy. Some take the classification further, meaning, a self-sufficient system is one, which subsists on its own enthalpy.
Open-ended Systems: In open-ended systems, components designed or manufactured by different vendors are used. The success of such a system depends on the adaptation of measures, standards for materials and codes for procedures. Open-ended systems are wasteful because of the built in reserves or additional capacities. The built in capacities in the open-ended systems do facilitate future replacements, improvisations and up-gradations. Open-ended systems generally result from mature and multi trial endeavours. Where large number of people are involved in design and execution and where these processes are likely to take place in different time spans, the system automatically becomes open ended. Open-ended systems are also called ‘open architecture entities’.
Closed-ended Systems : In a closed ended system the components are not interchangeable or replaceable. Components designed for a particular situation are neither usable nor adoptable in another situation. Closed systems are very wholesome or compact compared with open systems. Later usually have a skeletons types frames structures (infrastructure) and are loosely held. Closed systems are rigid and not easily improvisable, whereas open systems allow up-gradation. Closed ended system being compact, have no redundancy. Closed ended system become totally useless with even minor changes in their environment or working. Close ended systems generally result from first ever (prime) or unique creative effort. Spontaneous and one man creation tends to be closed system, unless a conscious effort is made to make it an open system. Closed-ended systems are also called ‘proprietary systems’.
23 SYSTEMS THINKING –part of the lecture series DESIGN IMPLEMENTATION PROCESSES
Personnel in an Organization : Personnel are the most important asset for any organization. Organizations hire people with required education, skill, experience, inclination and personality trait. Personnel as Human resource are not only immensely manipulable, but up-gradable to seemingly infinite levels of efficiency. And so organizations recognize, support and even reformat these qualities through formal training and by providing opportunistic exposures.
Employment : Employee and Employer enter into a contractual relationship wherein compensation is offered for the type of services to be rendered. At a very basic level the performance of an employee relates to the profitability of the organization. This is more so in Design organizations where human resources are very important assets, unlike in manufacturing units where productivity of machines and raw material costs have greater significance.
Process of Employment : Employment is a process of mutual choice or selection: Employer chooses the employee to engage, and the Employee selects the employer to work with. The extent of choice and the power to make it, are rarely equal. All democratic Governments’ laws, however have a basic tenet that employer and employee have equal choice. In reality, however, inequalities occur due to discriminations of sex, race, region of origin, age, language, social status, etc. Some of the discriminations though scientifically supportable are not tenable in normal law. Our constitution (Indian), overrides, provides, dictates or recognizes ‘reservations in employment’ for specified classes of people, to eliminate and correct certain historical effects.
Selection for Employment : Hiring an employee is both a process of Selection and Elimination. The process is so subtly carried out that often applicants do not become aware of it. The Selection is based on
Objective requirements (intellectual) Skill, experience, training, work related abilities.
Subjective requirements Personality traits, initiative, speed of reaction, temperament, memory, power of reasoning.
Physical requirements Age, height, muscle power, health history, abnormality of body limbs and sense-abilities
Other requirements Past record, references, readiness to accept the terms of employment.
Performance of an Employee : The employment is an evolving process, where the employer and employee both try to prove themselves worthy of their roles. These performance appraisals must not only occur at regular intervals, but sometimes as a surprise too. Once a person is employed, the management body of the organization continuously monitors the performance. Performance of an employee is a product of many factors such as individual ability, personality traits, input effort, sincerity, perception of the role, motivating factors, etc. Yet, performance can be conditioned as the enhanced capacity to deal with more complex or new problems, share of responsibility, greater authority, etc.
Perception of Performance : An Employer sees performance as a tool for future efficiency to be gained at a specific cost, whereas the Employee perceives performance as immediate compensation, personal fulfillment, future promotion and skill gain. An employee can be motivated with additional advantage, comfort, increased learning, or even enhanced motivation. The original conditions of employing a person such as the technological relevance, equipments, nature of projects, economics of resources deployment, personal efficiencies, work-culture, change with passage of time.
Job Discharge or Termination : Job discharge or termination, has two facets: ONE the employee wishes to cease working with the employer, or TWO the employer desires to terminate the employee.
Employee’s perception could be: insufficient motivation, unsatisfactory compensation, lack of promotion, any other personal (psychological or physical) reasons, or better prospects elsewhere.
Employer’s perception could be: inability to reset with the changed circumstances, lethargy of advancing age, technological irrelevance of the skill, lack of experience, unviable pay-structure, lack of scope for promotion, unacceptable social behaviour, or resistance to relocate at a new location.
Employee’s Options for Job change : Employee’s options are two fold: Change of employer or renegotiation of terms of employment. In the later case, age of the employee is an important criteria. A person comparatively young in age must move around seeking various jobs to experience the mechanics of employment. A person not so young, will have to select between reduced appreciation of the role and security of reasonable compensation, or enhanced appreciation and uncertain compensation.
Employer’s Options for Employee’s Discharge or Termination : When an employer wishes to remove an employee, there are many legal hurdles, some are convertible into monetary terms. Instead of wasting efforts to surmount such hurdles, employers try to assign different roles, retrain, relocate, assign different tasks, provide punishments, curtail other advantages, to their employees. When, an employee leaves, the organization loses an asset, accumulated mass of knowledge and experience, personalized contacts, a person with proven mode of communication, secrets, patent procedures and formulas etc. Organizations are nominally unwilling to let a reasonably seasoned employee quit.
Hire, Fire and Retrain the Personnel : Small organizations, Whenever circumstances (projects on hand) change, prefer to fire an employee and hire new talent. Larger organizations have greater capacity to recast the role of employee, so would retrain the employee with different exposures.
Realities of Re-employment : For a person who seeks a fresh position, it is time to take advantage of the real and abstract gains of the past, such as experience, personal contacts, specialized knowledge etc. These can now be converted into materialistic things. Such a plan, however, is related to the age of the employee. Re-employment chances begin to tapper off beyond a certain level of age,. An aged person, though well experienced, has reduced learning capability, reduced reorientation faculties, less motivation, less migration capacity and willingness for re-establishment. An aged person may have out-dated knowledge base. An organization looking for consolidation of their business may promote a person from within their cadre, rather then hire someone, who will takes time to attune to their work-style.
■ Employed Designers under the age of 30: Designers under 30 years of age have many positive operants in their favour, like: Fresh technological background, some experience, highest mobility or capacity to settle at any geographical location, capacity to work under most difficult conditions, and highest learning abilities. These qualities are very appreciated by all employers, and so desire to hire people either as a complete fresher or with less than 30 years of age (i.e. with 5/6 years of experience).
■ Employed Designers in the age segment of 30-35 : Ideal age for job change is less than 32 years, and designers in the age segment of 30-35 should have changed the job, or do so as early as possible. Alternatively renegotiate the terms of employment and move to higher position like partnership or associateship. This is also perfect age to start own design venture. At these age a person is ready to relocate, take a challenging position, is highly motivated and has reasonably good knowledge base.
■ Designers in the age segment of 35-40 : This is an age segment, when a designer is mature with sufficient work experience, personal contacts, and specialized knowledge, but also begin to have Negative operants like: reduced learning capability, lesser reorientation faculties, less motivation, less migration and reestablishment willingness. It is the last opportunity for seeking change in employment.
■ Designers in the age segment of 40-45 : In this age segment chances of re-employment taper off drastically. Only way a designer can hope to shift the position is by joining another organization as partner, senior associate or a free-lancer. Such opportunities, though are very few, and would demand persons with outstanding competence and capacity to contribute.
18 HUMAN RESOURCES –part of the lecture series DESIGN IMPLEMENTATION PROCESSES