GUARANTEES and WARRANTIES -25 -Design Implementation Processes

Post 30 -by Gautam Shah

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Warranties and Guarantees

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.

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On-road repair back-up > Pixabay image by Gerhard Gellinger Nurnberg/Deutschland

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.

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Different objects are warrantied for different uses > Laboratory Glassware > Wikipedia image by (Community College Consortium of Bioscience credentials

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.

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Multiple products, choices But universal guarantee through Food Security System of ISO 22000 > Wikipedia+Flickr image by Elvis Batiz

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.

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Multi vendor work > Umbrellas at Medina Mosque SA > Wikipedia image by Sekretarin

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.

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need comprehensive guarantee to assign the operations and maintenance work > Oasis entering a port at Nassau, Bahamas > Wikipedia image by Baldwin040

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.

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Lifetime Guarantee Card > Flickr image by 3rdparty!

Contingent liabilities are 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.

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25 GUARANTEES and WARRANTIES –part of the lecture series DESIGN IMPLEMENTATION PROCESSES

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LIABILITIES -11 -Design Implementation Processes

Post 29 -by Gautam Shah

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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.

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Abandoned factory > Wikipedia image by Degrootelulu

 The liabilities 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.

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Mississippi river bridge USA > Wikipedia image by Kevin Rofidal US Coast guard

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.

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Land lease contract Sumerian clay tablet 2600 BC > Wikipedia image from Louvre

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.

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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).

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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.

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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.

demand extra for undoing what was done

charge for redoing the job according to the corrected interpretation.

Alternatively

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.

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Specifications and Liabilities > Wikipedia image by Kebabknight

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.

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Multi vendor assembled system > Wikipedia image by Daderot

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.

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Merchant-ability and Fair practices > permission for image use > https://creativecommons.org/licenses/by/2.0/

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.

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Contracts need not be a trap > Pixabay image by geralt, Gerd Altmann, Freiburg/Deutschland

Language: Contract language must 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 Voice is 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.

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11 LIABILITIES –part of the lecture series DESIGN IMPLEMENTATION PROCESSES

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FINANCE -26 -Design Implementation Processes

Post 28 -by Gautam Shah

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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.

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Book Keeping > Pixabay Image by cloudhoreca (Oliver. Budapest/Hungary)

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.

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Courtyard of Stock exchange in Amsterdam > Wikipedia ART by Emanuel de Witte (1617-1692)

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.

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Gold Assets > Pixabay image by anomalnaya

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.

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One of the high value Art work “When will you marry?” by Paul Gauguin (1848-1903)

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 costsHow much did it cost? -while others are predictive or budgetary costsWhat 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.

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Labour and Material costs > Wikipedia image by Bill Bradley

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

  1. 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.
  2. Cost of materials and other inputs required to effect a service.
  3. 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.
  4. Cost of labour for services such as performing, supervising and providing required assurances for the service.
  5. Post production costs are amounts paid to launch a finished product or services in the society, such as: royalties, cess, taxes etc.
  6. Cost of rents or hire charges for plants, tools, equipments to manufacture, erect, install, testing, test operating, transportation, etc.
  7. Expenditure for risks and responsibilities associated with the product generation, installation, operation and maintenance, and conduction of the service.
  8. Cost of investments on resources that are tied up, till about a utilizable product delivered or service is rendered and paid for.
  9. Cost of other overheads such as cost incurred for managing the setup for procurement, production, testing and marketing.

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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.

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Auction at Christie’s > Wikipedia image by Portable Antiquities Scheme from London England

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.

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Cost plus Fees Defense contracts

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.

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Heavy equipments are depreciated and set-off against profit > Wikipedia image by MathKnight

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.

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Painting-Polishing are considered not asset creating item or Expenditures and so do not qualify for depreciation > Wikipedia image by Biswarup Ganguly

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 value of 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:

  1. The ideal condition is one where the designer approves bills of expenditure and certifies the payment, client then arranges the payment.
  2. 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.
  3. In case 2, a designer must avoid granting payments to own-self such as for professional fees or other chargeable amounts.
  4. 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.
  5. 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.
  6. All payments to designer own-self, design company or their employees must be made with clients’ own signature on the cheque.
  7. 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.
  8. 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’.
  9. Avoid payments from such accounts that are like investment (including shares, bank deposits or bonds), or speculative spending.
  10. 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 Clients provision 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

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RISK MANAGEMENT – 24 – Design Implementation Processes

Post 26 -by Gautam Shah

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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.

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Train wreck at Montparnasse station at place de Rennes side (now place du 18 Juin 1940) Paris France 1895 > Wikipedia image

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.

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Union Carbide Plant gas leak at Bhopal India > Wikipedia image by Simone.lippi at it.wikipedia 

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.

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Irish Potato Famine Memorial in Dublin > Wikipedia image by AlanMc on en.wikipedia

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 designed and 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.

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Relief supplies for Earthquake disaster for Jan 26, 2001, Gujarat, India by C-17 Globemaster III  aircraft > Wikipedia image

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.

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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
  • ISO/IEC 31010:2009 -Risk Management -Risk Assessment Techniques
  • ISO Guide 73:2009 -Risk Management -Vocabulary
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End to End Risk Management Process ISO 31000 > Wikipedia image by Stuart G Hamilton

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.

indemnity

Dorfman 1997 prescribes four way strategies for managing the risks:

  • Tolerate (retain),
  • Treat (mitigate),
  • Terminate (eliminate),
  • 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

  • Accept,
  • Control,
  • Avoid,
  • Transfer.

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.

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Hierarchy of Hazard controls > Wikipedia image by National Institute for Occupational Safety and Health

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.

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Risk transfer through Leaf springs > Wikipedia image

● 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

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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.

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Saving lives is given higher priority than salvaging goods and equipments > Wikipedia image by Jacoplane

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.

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Wikipedia -NASA image

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.

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Shanghai Cloud Nine shopping Mall – vacant store – China’s real estate failures > Wikipedia image by WiNG

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.

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Collapsed portion of Mississippi Bridge 2007 > Wikipedia image by Kevin Rofidal US Coast Guard

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.

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Governors of the Wine merchants’ Guild sought methods to minimize risks since early times > Wikipedia – ART work by Ferdinand Bol (1616-1680)

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).

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Lloyd’s coffee house London was the first Marine Insurance Company > Wikipedia image

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.

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High value horses may be insured > Wikipedia image by ThebluZebra at En.wikipedia

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.

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Geographical distribution of earthquake risk > Wikipedia image by CC-by-sa PlaneMad/ Wikipedia (Link https://commons.wikimedia.org/wiki/File:India_earthquake_zone_map_en.svg)

 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.

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Hurricane Katrina storm and floods caused widespread damage at a location / Insurance Cos save themselves from such eventualities by Re-insuring > Wikipedia image by Jocelyn Augustino

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.

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24 RISK MANAGEMENT –part of the lecture series DESIGN IMPLEMENTATION PROCESSES

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DECISION MAKING and PROBLEM SOLVING -22 :Design Implementation Processes

Post 23 -by Gautam Shah

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Decision Making for Projects : Project management involves Decision Making. Decisions are taken on factors that are essentially part of the project itself, and also on various presumptions, which may or may not become part of the project. In the first case the decisions are made on factors that are internal, through a process of selection, confirmation, elimination, etc. While in the later case, the decisions are made from external factors, where, not only the relevance, but the entire range of their effects needs to be forecast.

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Problem Solving > Campus party Berlin Europe > Flickr image > http://www.flickr.com/photos/campuspartyeurope/7858311034

When are Decisions taken? Decisions are primarily taken when an action is required or when further decisions are due. Decisions are taken at: conscious level (intellectual) and subconscious level (intuitive). Decision making helps a designer with an analytical base to affirm a belief (intuitive or ‘gut-feeling’), and select a course of action from several nearly equal alternative possibilities.

How are Decisions taken?

Decisions are taken through:

  • Analysis:     Dissecting a whole into parts so to understand it better.
  • Synthesis:   Combining several things to form a whole to see if it is pertinent.
  • Holism:        Conceptualizing the whole thing.
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For decision making it may be necessary to prioritize the information > Wikipedia Flickr image : Information overload by Jorge Franganillo

Quality of Decision : The Quality of Decision is governed by the decision makers’ state such as: physiological fitness, mental alertness, personality traits (daring, fear), information, training, experiences, opportunities, time, resources (human, equipment, finance, circumstances), etc. A decision is a subjective process that offers the best course for a given situation,

Efficiency of a decision is judged, on what it accomplishes. A reasonable decision always takes one closer to the goal, however, slightly. Decisions do not have mathematical sharpness or uniqueness. There is never a perfect decision. There usually are many different ways of achieving the same goal. A decision is the best course for a given situation, and the context within which it occurs are important clues of the process. Decision makers are fully aware of the process, and invariably have the capacity to improvise or correct the situation as decisions actualize. The course corrections are required because original conditions change by the time actualization occurs.

Decision makers ask questions like :

  • Is the objective defined ?
  • Is sufficient information available ?
  • How many options are available ?
  • Have these options been evaluated ?
  • Are all risks identified and provided for ?
  • Does this decision feel right, now that actions are being taken on it ?

Decision making comprises of :

1 Forecasting the most opportunity moment and the most obvious conditions, for consequences to occur or even not to occur.

2 Determination of probabilities of occurrence or follow up actions.

Decision making and consequences thereof (actions or further decisions) are often so interlaced that it is not possible to view them separately.

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Problem Solving

Problem Solving : Decision making involves some degree of problem solving. Alternatively it can be said that problem solving itself is a decision making process. In decision making some intuitive and alogical processes are operative, but problem solving occurs in a more realistic situation. Problem solving can be defined as an exercise of observing situations, vis a vis change causing elements.

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For solving a problem its subsections are recognized by identifying their dependencies > Wikipedia image : Decentralization.jpg by Adam Aladdin / Author Kes47 (?)

Solving a Problem : For solving a problem, it is necessary to, severe all the connections and dependencies, and deals with it as a unique entity or separate event. Problem solving leads to a solution or a course of action which may require solving new problems. Problem solving includes steps like: Defining the problem, searching and evaluating the alternatives and Implementing the solution. Problem solving is finding when products or processes may fail, and preparing for a preventive action.

‘Each problem that I solved became a rule, which served afterwards to solve other problems’ -Rene Descartes

Types of Problems

Mysteries : A mystery is an unexplained deviation from what is expected. It is necessary to understand as to what is a deviation (size, scale, measure, range etc.) and what forms a standard condition. A deviation is not necessarily a bad or foul thing, it may be an advantage or even a gain. Efforts should be directed in finding out, what has caused the deviation. Mysterious problems get tackled as soon as the deviation causing elements are identified.

Assignments : These are enforced exercises, or problems handed out as part of work or duty. An assignment is like a contract, where in goals or tasks must be properly defined, resources allocated, and delivery standards identified. Assignments deal with known things, but involve application of skill and management techniques. It may lack a creative effort but productivity and sincerity are important factors.

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Maze at St. Louis botanical garden > Wikipedia image by Bachrach44

Difficulties : A difficulty occurs for two reasons, either, we do not know, how to manage a situation, or feel we lack the resources. Difficulties are subjective or objective. In the first case, the person has the capacity, but is unable to accomplish a task. In the second case, the person may not have the talent, know how, motivation, resources etc. Difficulties, if subjective require human resources, whereas objective ones need other physical inputs.

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Difficult problems may get resolved with time, arrival of new technology but that is very costly as a process

Opportunities : Opportunities need to be perceived in the context of ‘time’ and as early as possible. There is a period of its manifestation, obsolescence or being irrelevant. Evaluation in terms of the potential benefit or loss leads to solution of a problem. Opportunities self presumed where a person or group perceives a condition as the problem, or situational offerings, where a larger environment (social, political, academic) seems worthy of a reassessment.

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The Tower 18 (Lake-Wells) junction > Wikipedia image by Author R36

Puzzles : A Puzzle is a situation where one knows a correct solution exists, but sufficient efforts have not been made to discover it. Puzzles are of THREE types: soluble, currently insoluble and ever insoluble. Soluble puzzles can be tackled with current knowledge. Currently insoluble puzzles will be hopefully solved, when adequate resources and information are available. Puzzles, however, remain insoluble, when certain important sections are irretrievably lost. Puzzles have such inbuilt solution that in real sense, there is no need to solve any thing, but locate the solution and identify the ways to reach it. Puzzles are solved as soon as the end itself or the means to the end are in sight.

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Chinese puzzle > http://de.wikipedia.org/wiki/Mechanische_Geduldspiele

Dilemmas : Dilemmas offer two or more choices, each of which seems equally fitting. Dilemmas remain in-force only for a particular time span, situation or value judgment. When a dilemmatic situation is probed further, one of the solutions is likely to be just slightly more superior or less inferior. Dilemmas if handled by a different person, attended at another time, or dealt in another situation, may not be a problem at all.

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Detective fiction character Parry Mason and Ms street solving puzzling problem

Problem Solving Strategies : Thesis, reports, and fictions have a strategic issue to be studied and postulated. The handling of the strategic issue reflects the methodologies of problem solving. Authors and fictional characters like Sherlock Homes, Agatha Christie, Perry Mason etc. raise and solve problems.

problem-solvingForecasting : Since the outcome of a decision is always in future, it needs to be forecast. For a better decision, one needs to forecast the inherent risks and consequences of all the competing alternatives. Forecasting involves determining the chances, frequency and intensity of occurrence or non occurrence of an action.

forecastig

Most often a decision is valued on what it achieves, and how efficiently. However, when the quality of outcome or approximation to a goal with all the possible range of actions is nearly the same, one needs to bring in a value judgment.

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Shuffle for averaging the possibilities > Wikipedia-Flickr image by Johnny Blood

Probability : Forecast-able situations are inherently probable. A human being cannot perceive a situation that is not probable. However, probabilities are either deterministic or in-deterministic.

Deterministic probability: A hill station is likely to be a cool place, because all our experiences have taught us that height and coolness of a place are correlated. Determinable probabilities have fewer operative factors, so chances of probability are much focussed.

Indeterminable probability: An oil well may spud oil, which however, may or may not occur. And, the oil, if it occurs may not have a commercially viable quantum. Such situations pose many uncertain factors.

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22 DECISION MAKING and PROBLEM SOLVING -Design Implementation Processes –part of the lecture series DESIGN IMPLEMENTATION PROCESSES

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JOBS or ASSIGNMENT HANDLING in Design Organizations -05

Post 13 -by Gautam Shah

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Projects in Design Organizations : A project is a comprehensive work module, offered by a client. A project is accepted, if analogous to the policy goals of the organization. In Design organizations a project requires distinctive human skills. In Manufacturing organizations there is a heavy dependence on tools, equipment and plants, so the projects are identified for their efficient use. Service organizations are governed by time as key element, so thrive on projects that are time intensive. Projects are divided into smaller units or jobs that are mainly based on routine efforts. Jobs also arrive from internal users like departments.

640px-pieter_bruegel_il_giovane2c_estate_02
Pieter bruegel il giovane Estate > Work by sailko > Wikipedia image

Job or Assignments in a Design Organization : A Project is first dealt by a single person, a core group of partner experts or by the entire team of owners. The project may then be handed over to a team leader for further definition. A Job is a trade, skill or schedule specific work modules. It allows individualized attention and effective use of the available resources. Its efficiency of execution or operation can be examined and upgraded independently of other jobs. Jobs are handled on continuous as well as batch bases.

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Chocolate making > Wikipedia image by Oriel

 Job or Assignment Handling : Organizations that repeatedly handle very large and complex assignments develop specific departments. Such specific job handling capacities are universal across that class of organizations. So spare capacities are offered to others, and excess work is outsourced. Jobs of routine nature are handled productively within the organization, but novel needs are better outsourced.

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Work Places > Wikipedia image

Elements of Jobs in Design Organizations : Design organizations operate with jobs, which have SIX basic elements:

1        Person/ s who assign the tasks, determine roles, perform the tasks, oversee or supervise the task performers.

2        A job consists of Non physical things like, concepts, ideas, themes, and physical things like parts, objects, raw materials.

3        A job requires Information or data as external inputs from clients, internal inputs from organization’s own search, archived data, evaluations, judgments, employees’ know-how, site reports, feedback, by manipulation of various inputs.

4        A job is based on ancillary facilities like Tools, plants, equipments, space, location facilities, methodology, formulations, processes, schedules, acquisition and disposal systems.

5        A job needs Services like conveyance, transport logistics, communication, storage, data management, welfare, resources management, public relations, goodwill.

6        Jobs are dependent on Time as Schedules of delivery, servicing, rate of operation, rate of returns.

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Other activities of the organizations : Prime activity of any organization is to earn a gain, but simultaneously many Conventional activities also occur within the organization.

1        Activities for the Sustenance of the organization as a functional entity.

  • Determination and Evaluation of aims, policies, goals.
  • Planning and deployment of financial resources
  • Planning and Acquisition of other facilities
  • Procurement and Upkeep of assets
  • Personnel Management.

2    Peripheral Activities of the organization that add to the advantages for the organization.

  • Public relations
  • Client relations
  • Other relations such as the contractors, suppliers, co-professionals, associates, consultants, free lancers, etc.
  • Facilitating the execution of assignments like raw material procurement, materials handling, erection, execution, manufacturing processes, testing.
  • Tasks’ evaluations like quality controls, testing, certification.
  • Marketing of goods, services, billing, money collection.
  • Servicing like post execution or delivery, servicing, maintenance, guarantees.

 3        Activities for Efficiency and Productivity of the organization

  • Determination and definition of procedures
  • Standardization of inputs, outputs and procedures
  • Information collection, Inquisitions, investigations and surveys,
  • Installation and management of information storage, manipulation and retrieval devices
  • Publications and dissemination of organization’s output (data, concepts, ideas) material.

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05 JOBS or ASSIGNMENT HANDLING in Design Organizations –part of the lecture series DESIGN IMPLEMENTATION PROCESSES

DESIGN IMPLEMENTATION PROCESSES -Introduction

DIPBW

Proposed PG Level course. Faculty of Design, CEPT University, Ahmedabad, INDIA Monsoon Semester 2016

DESIGN IMPLEMENTATION PROCESSES ● INTRODUCTION

Brief excerpts

00 DESIGN MANIFESTS

  • as a scheme, idea-concept formation or advice
  • as scheme, plan, documented actions, strategies
  • as a service, installation, execution, building, erection

 01 ORGANIZATIONS : An Organization is generally a formalized entity or an ongoing effort that is adaptive to many different purposes. Whereas an Enterprise mean a one time effort, or set of individualized activities.

02 ESSENTIALS of ORGANIZATIONS : Organizations are set for :

  1.  Producing physical things like goods, structures and commodities.
  2. Managing and Servicing various types of systems, projects and setups.
  3. Designing and Distinguishing the means, procedures and objectives.

03 DESIGN ORGANIZATIONS : Design organizations are run as ‘professional’ entities. The professionalism is set by: Person own-self, Professionals themselves (professing similar skills) as a group, Society or by an Authority or Government through law.

04 PROJECTS : Projects with acute time and size dependency occur when conditions are abnormal and survival of an individual or the entire race is threatened, such as during war, a natural calamity, a catastrophe, etc. Best or most successful projects emerge in crisis like acute conditions.

05 JOBS or ASSIGNMENT HANDLING : In Design organizations a project requires distinctive human skills. In Manufacturing organizations there is a heavy dependence on tools, equipment and plants, so the projects are identified for their efficient use. Service organizations are governed by time as key element, so thrive on projects that are time intensive.

06 DELIVERABLES from DESIGN ORGANIZATIONS : Design organizations deliver an entity to a client, who is external and compensates for it. Design organizations also serve an entity to an internal person, department, or an external agency, which was deliberately (planned) created, but for which no definite compensation may be available. Design organizations allow entities to proliferate within the organization (including the sites or at clients’ places) which when properly monitored and exploited improve the efficiency of the organization, its image in the market and core-competence in the field. Such entities could be in the form of products, procedures, styles, judgements, confirmation, rejections, or assurance that every thing operates at desired or predefined level.

07 DEALING WITH A CLIENT : While dealing with clients, what kinds of behaviour, actions or attitude are considered as unethical, malafide or bad, varies from country to country, region to region, profession to profession, and time to time. In professions where rules regarding behaviour have not been formalized it may vary even from a professional to professional.

08 SPECIFICATIONS : Specification at a very basic level could be a description listing the physical qualities of a thing, such as size, weight, shape, colour, feel, etc.. These also cover changes profiled in ‘time’, in the thing itself and the surroundings. One needs to define the process for occurrence. When a description consists of both, the physical characteristics and the processes, sequenced in time, it becomes a Specification.

09 HISTORY of SPECIFICATIONS : Early measure systems such as weights, lengths, volumes, though natural were mutually incompatible, as each had a different scale of sub fractioning. The problem multiplied when equated with equally varied units and sub fractions of monetary units.

10 STANDARDS : Standards emerge from empathy or as a strategic understanding between two or more persons. Standards are commonly accepted specifications for making, maintaining, using and disposing objects, and mechanics of creation, handling, operations and management. Formation of standards’ is the raison d’etre for being a member of clan or society. Governments gain political power and patronage by administering standards. Regional blocks and International communities achieve efficiency by preventing conflict and duplication of effort through standards. Standards, very effectively and economically raise the levels of quality, safety, reliability, efficiency and commutability.

11 WORLD TRADE ORGANIZATIONS and CONFERENCES : World level conferences under United nations and its bodies, by various geographical blocks, interested groups, by political affiliations, etc. on trade, transit, labour, environment and other social concerns have affected the nature of business and practices.

12 BUREAU of INDIAN STANDARDS (BIS) : National Standards formation, in India began soon after the independence in 1947, as Indian Standards Institution (ISI). It started a product certification scheme in 1955. This was recast by Indian parliament in 1986 as Bureau of Indian Standards (BIS) and has since then taken over the functions of Indian Standards Institution.

13 INTERNATIONAL STANDARDS ORGANIZATION (ISO) : ISO is a voluntary, democratic and non governmental organization for international cooperation. It is now a Network of National Standards’ Institutes of 162 countries of the world. It is formed on the basis of one member per country. ISO is a non governmental organization and so cannot regulate or legislate. It has no legal authority to enforce its standards. It evolves standards by consensus.

14 ISO 9000 and OTHER MANAGEMENT STANDARDS : ISO 9000 series provisions, how one conducts own work rather then the quality of the end product, because if the process is rational, it will naturally affect the end product. ISO 9000 series was to ensure that products not only meet just the customers’ requirements but also satisfy all ‘stakeholders’ expectations’.

15 QUALITY for DESIGNERS : Designers are quality conscious on two counts: their own conscience and the public compliance. Designers are conscious that ‘certain personal quality notions’ must be achieved, and ‘certain other public requirements’ must be complied. But consciousness does not translate as conscience, and conscience does not make for compliance.

16 QUALITY CONSCIENCE : Quality as per ISO 8402 `The concept of quality is the totality of features and characteristics of a project, product or service that bear on its ability to satisfy, stated or implied needs’. Quality is both a perception and a value judgment, concerning human satisfaction; the basis for both is ever changing. The characteristics of a project, product or service, by themselves, cannot determine the measure of quality. A project, product and services when satisfactory in every respect, can fail, if the external use conditions are drastically altered during its execution.

17 CONSUMERISM : Stakeholders represent bridges of social connections, which if properly cultivated help public acceptance of designers’ works. The acceptances include new clients, approvals, grants, loans. The social bridges can act as buffers, to tide over the shortfall, on quality expectations, delivery schedules, budget over-runs and professional competition. Stakeholders increase the business credibility of the organization, and personal social reliability.

18 HUMAN RESOURCES : 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.

19 LEADERSHIP : Leadership is the ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members,’ a person in a position or office of authority, such as a President or a Chairperson.

20 KNOWLEDGE AND INFORMATION RESOURCES : Organizations receive and generate a 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.

21 DESIGN PROCESSES : During the last few centuries, a series of products has been ‘improvised’ upon the existing ones. Many of these products were very successful in the market, and to remain ahead of competitors had to be continuously upgraded. One needs to be aware of how others are innovating with radical technologies, styles, additional functional provisions, compactness, energy efficiencies, superior handling, ease of repair and servicing. And one has to absorb these, and deliver it fast.

22 DECISION MAKING and PROBLEM SOLVING : For solving a problem, it is necessary to, severe all the connections and dependencies, and deals with it as a unique entity or separate event. Problem solving leads to a solution or a course of action which may require solving new problems. Problem solving includes steps like: Defining the problem, searching and evaluating the alternatives and Implementing the solution.

23 SYSTEMS THINKING : Traditional building systems are linear, 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.

A system need not be a realistic structure, but could be a perceived ideology. In the first instance the system has to be web of interconnected-interdependent parts or subsystems, whereas for the second instance it is just necessary to perceive a hierarchy of relationships between several things. These ‘several things’ may not be concurrent in location or occasion. A system is composed of regularly interacting or interrelating groups of activities / parts which, when taken together, form a new whole. In most cases this whole has properties which cannot be found in the constituent elements.

24 RISK MANAGEMENT : 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.

25 SOCIAL CONCERNS, RESPONSIBILITIES : ISO 14000 EMS improves operational efficiency, Cost savings, Energy conservation, Rational use of raw materials and other resource, Better recycling processes, Reduced waste generation and disposal costs, Pollution prevention. Minimize organization’s impact on environment, Reduces environmental liability and risks, Improves community goodwill and societal images, compliance with legislative and regulatory requirements, Improved Industry Government relations, and provides Competitive advantage for `Green’ products. It also offers a range of approaches for Environmental Labels and Declarations, including self declared environmental claims, Eco-labels (seals of approval), and Quantified Environmental Information about Products and Services. It allows environmental aspects to be taken in account in the Design and Development of products.

26 FINANCE, ECONOMICS : A Design professional deals with money mainly to conduct own commercial organization (professional practice) and sometimes to help a client implement the project. The second case like situations are rare, (but occasionally this do happen with small clients) here the designer gets a free hand, to spend someone elses money. However, in a professional practice it is the management of these sums that though may provide a great comfort to the client, but causes problems with the tax authorities.

Index of proposed Lectures

DESIGN IMPLEMENTATION PROCESSES

  1. ORGANIZATIONS
  2. ESSENTIALS of ORGANIZATIONS
  3. DESIGN ORGANIZATIONS
  4. PROJECTS
  5. JOBS or ASSIGNMENT HANDLING
  6. DELIVERABLES from DESIGN ORGANIZATIONS
  7. DEALING WITH A CLIENT
  8. SPECIFICATIONS
  9. HISTORY of SPECIFICATIONS
  10. STANDARDS
  11. WORLD TRADE ORGANIZATIONS and CONFERENCES
  12. BUREAU of INDIAN STANDARDS (BIS)
  13. INTERNATIONAL STANDARDS ORGANIZATION (ISO)
  14. ISO 9000 and OTHER MANAGEMENT STANDARDS
  15. QUALITY for DESIGNERS
  16. QUALITY CONSCIENCE
  17. CONSUMERISM
  18. HUMAN RESOURCES
  19. LEADERSHIP
  20. KNOWLEDGE AND INFORMATION RESOURCES
  21. DESIGN PROCESSES
  22. DECISION MAKING and PROBLEM SOLVING
  23. SYSTEMS THINKING
  24. RISK MANAGEMENT
  25. SOCIAL CONCERNS, RESPONSIBILITIES
  26. FINANCE, ECONOMICS

  • EMERGENT TECHNOLOGIES (Provisional)
  • SURVEYS and STATISTICAL TOOLS of ANALYSIS (Provisional)
  • REPORT WRITING (Provisional)
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