Budget & Commercial Management

Introduction

The identification of issues and accelerating the growth of a project refers to commercial management whereas the financial aspects that need to be estimated in order to make the project successful is called, the funding of the project. Also, it is the need of the hour to maintain and build a healthy buyer and supplier relationship so that the business environment becomes good and the business can become more expanded (Franssen et al., 2020). However, in this discussion, the relationship between buyer and supplier and the role of special purpose vehicles (SPV) would be discussed. It would also highlight the Breiterfluss case and detect the issues (Zemlyak et al., 2019).

Discussion

1. Identify the buyer/supplier relationship in the commercial environment of the construction industry

1.1 Demonstrate the current as well future trends in construction

Business trends are the strategies of a business that helps in developing the present structure of a business. The business trends aim to adopt new strategies and changes and try to keep themselves updated. However, the construction industry is one of the most rapidly developing industries in the world and they have generated several business trends in order to reshape their strategies. The business trends are closely connected with the circumstances through which the world is going. So, when it comes to the business trends of the present time, the mention of “Covid-19” needs to be there. Construction is a labor-oriented industry and in the time of the global pandemic, the construction industry could not get sufficient manpower (Lin et al., 2020). That seemed problematic. Also, like every sector, the construction industry too faced a financial crisis. The money lenders were debarred from giving money and the delivery of raw materials was affected due to that. The system of the supply chain was also harmed during that time. In a time when social distancing was mandatory, it was difficult to supply the raw materials to the destination. The relationship between suppliers and buyers is also important for the prosperity of a business, but the global pandemic also harmed that because of the restrictions of covid. So, the current trend of the construction industry has changed with the need of the situation and the future trends would also be shaped according to that.

1.2 Develop a critical review on negotiation processes in construction 

The relationship between buyer and supplier is immensely important because they are the two points that hold the whole structure of a business. The buyer and supplier relationship highly depends on the negotiation process. The negotiation process denotes the idea of a deal between a buyer and a supplier. The solution of the issues and the adjustment of a process occurs in the negotiation process. The construction industry is an industry where the buyer and supplier have to share a cordial relationship. So, a proper negotiation process needs to be incorporated there (Wang et al., 2020).

However, the negotiation process consists of various steps such as preparation and planning of the place and time of discussion. The construction industry prefers to make these in the office room. Discussion of the process of the topic and next to the topic should be made clear and the key points should be understood. The result of the discussion should be positive and both parties should concentrate on the positive outcomes of the discussion. Then, both the parties would agree on the outcomes such as design and structure of the project and they come to a stable point to continue the business because the buyers would find their comfort whereas the sellers would concentrate on making the project more efficient. At last, the outcomes should be executed in a constructive manner (Kurevija, 2021). So, these are some aspects of the negotiation process and the construction industry incorporates these to make the industry more accessible to the common people.

Figure 1: Steps of the negotiation process

(Source: Crewe, 2022)

1.3 Develop the understanding of the principles in contractual aspects 

Some certain laws and rules should be identified so that the business can get better. The marketing of a business cannot be bettered without the incorporation of certain rules. Several frameworks are useful in this aspect, among which the contractual framework is important. The contractual framework refers to the contract or negotiation between two organizations or various companies. The contract involves the understanding of the whole project and the negotiation among others also takes place here. The contractual framework involves the buyer and supplier relationship too. A contract means the discussion and deal between the buyer and supplier regarding the various needs of both parties. The proper implementation of a contract refers to the simplification of the marketing process and the selling strategy of a business (Franssen, and de Rijcke, 2019). It makes the company find their targeted customer and also, the contractual framework makes the suppliers involved in a healthy production process so that they can fulfill their estimated work and make the business more impactful (Shafieezadeh et al., 2020).

Also, one of the most vital aspects of a contract is the planning of the things that are necessary for the escalation of the project. In the construction industry, planning involves the accumulation of raw materials, deciding the mode of transportation, generating ideas about the design of the buildings. So, the negotiation between the buyer and the supplier is needed in order to incorporate these. Hence, a contract is indeed a vital part of forming the buyer and supplier relationship (Danisworo, and Latief, 2019).

1.4 Identify the legal issues that develop in the customer and supplier relationship and negotiations

The customer and supplier relationship gets influenced by many sectors among which- tendering is important. Tendering refers to the legal aspect when it comes to the development of buyer and supplier relationships. Tendering is the process of bidding with the government and other companies so that the process of marketing can be simplified. In the process of tendering, a particular company invites others to consume the goods and services they offer and the other company accepts the tender to grab those. Here, the company that invites others is called the supplier, and the others are called buyers (Zheng et al., 2019). So, the relationship between buyer and supplier starts with the issue of tendering.

In the construction industry, tendering plays a key role. Suppose, a construction industry gives an advertisement about the cleaning of the areas of the construction. In response, an organization of cleaning contacts them. Here, the construction company is the buyer and the cleaning organization is the supplier (Whitley et al., 2020). So, it is important to make the framework of tender clear and informative so that the supplier can get the points of the buyer and the buyer can get their required supplier in order to make the process of the project easier. So, processing of the needs and response of the supplier is important for tender and it is also evident that tender plays a key role in forming a healthy buyer-supplier relationship (Arnott et al., 2020).

Figure 2: Tendering Framework

(Source: Academia, 2021)

2. Critically examine business case analysis and the requirements in funding

2.1 Develop the specific focus in SPV financing in a large and complex infrastructure

The successful outcome of a company depends on various sectors. The financial upliftment and the funding are an important part of that. The project finance consists of various things, among which “cash flow” is important and it is interesting to note that “cash-flow” denotes the ending of the project. The SPV or special purpose vehicle helps make the marketing process easier. The special purpose vehicle is generated by the company and ample benefits are associated with it. The SPV is not like manual financing, rather it is easier. Only some selected objects are there to be accessed. SPV is needed in the time of forming a partnership between two companies and the incorporation of SPV requires the agreement of both the companies, so the negotiation process plays a crucial role here. The structure of SPV includes various aspects such as sponsors, lenders, government, the operator of the wind farm, Engineering, procurement, and construction system, and the robust understanding of the financial sector. So, SPV is mainly a company that takes responsibility for certain aspects of the project so that the financial risks get reduced. It is generated from the main company. The special purpose vehicle is often called a “bankruptcy-remote entity” which means it keeps the situation of bankruptcy from a company’s way (Kurevija, 2021).

2.2 Identify a critical understanding in the robust business case to manage the project budgets

The determination of project budgets involves a good understanding of project finance and the requirements of each sector. The allocation of money in each sector is decided with the help of proper ways of project funding. It also helps in determining the places where the funds are needed to be allocated. The project involves different capacities of databases, the process of making the project more valuable, the ability of the company to identify resources, and making funds. All these are dependent on the positive outcomes of the project and the “cash-flow” that is generated from that. Project financing can happen in many ways (Tointon, 2020). The project financing can be done by various sources of money such as taking a loan and taking the benefits of insurance. These help in mitigating the issues regarding the finance of the company. The construction industry hugely uses these ways as the construction industry involves a lot of manpower and a huge number of raw materials which requires a good amount of money at once. Also, the design, structure, and various aspects of the construction industry need well-structured project finance. So, project budgeting is necessary for the welfare of the company.

2.3 The key concept of SPV in construction project sustainability

“Sustainability” refers to the state of an organization when success is achieved and then it is tried to be retained. In order to sustain or maintain the state of sustainability. SPV is the separate section created by the organization in order to take up the finance of certain objects and determine the financial aspects of those. The aim of creating SPV is to reduce the financial risks. Hence, SPV is used only in projects which seem risky. The SPV is the way to protect organizations from ensuing bankruptcy. However, it is evident that in order to sustain an organization, financial security is needed. The financial security assures the companies of budget hence all the other works function well. The sustainability of products also remains because, with the proper implementation of the rules and the allocation of budget in proper sections, the project becomes more attractive. So, SPV plays a crucial role in the sustainability of the project. Also, SPV secures the “credit-sensitive” ways of the projects and it is also responsible for generating a secure financial system. A special purpose vehicle thus protects its mother organization from all the follies (Allahar, 2019).

Figure 3: Special Purpose Vehicle

(Source: Blogspot, 2022)

2.4 Evaluate the decision making and problem-solving strategy in project budgets

The project budget of a company refers to the estimation of money in several sectors of the project. The different sections of a project demand different amounts of money and the allocation is done according to the importance and need of those sections. Also, the project budgeting and a stable financial situation contribute to the sustainability of the project. The proper way of project budgeting and generating financial security involves the skills of decision-making and problem-solving. The decision-making is often done by the Decision-Making Unit or DMU. DMU is a team of people who are destined to make decisions regarding various matters of the organization and it is their responsibility to mitigate the problems of the organization regarding finance. The problem solving is also based on the project budget methods because the proper allocation of money in the sections of the project makes the problems of that particular section visible, and proper steps regarding those are taken in that time. So, project budgeting helps in solving the problem regarding the finance section of the project and the possible solution of the project is also identified with the help of the project budget (Bhattarai et al., 2020).

2.5 Critically develop the procurement and acquisition management processes 

It is needed to identify the procurement and acquisition management process in order to make the company experience sustainable growth. It is an immensely important section of business and the formation of a contractual framework and negotiation process helps in generating a proper procurement and acquisition management process. The process of procurement involves gaining the products and selling them to the buyers in a way that some benefits are gained. The aim of the procurement is to make the profit high and to increase the sustainability of the project. The process of procurement involves many actions such as identification of the sources, negotiating with the suppliers, purchasing the goods from them, tracking the products while they are being delivered, and also updating the record of the products. However, the meaning of acquisition is quite similar. “Acquisition” of a product means obtaining a product from the sources and making use of it according to the need of the project. However, procurement and acquisition management refers to the arrangement, designing, and structuring of the system of procurement and acquisition. It helps in making the marketing policies easier and in the construction industry the gaining of the raw materials becomes less hectic. Also, it improves the relationship between buyer and supplier.

3. Critically evaluate Breiterfluss case study

3.1 Project financing process modeling in Richmond Bank’s

The project financing process refers to the process of an organization that is primarily generated to reduce the financial risk factors of a company. The purpose of the project financing process is also to decide the sections where the money needs to be allocated. Various databases and the validation of the project are involved in the project financing of a company. However, “cash flow” is one of the major components of project financing. The “project resolution power” of the company also depends on the project financing. Certain criteria make a company able to become a project financing company. It includes the ability to generate loans and insurances so that money cannot be a problem. Also, there should be a strong bond between the buyer and supplier and the supplier should be interested in making a financial bond with the buyer. So, funding functions as the key component of a banking project and it makes the process of banking more sustainable (Zacharewicz et al., 2020).

Richmond bank has emerged as a financial hub of the whole of Germany and it was set up by a famous contractor of Germany. The authority of the Richmond bank shares a cordial relationship with the employees and they have the capability of sustaining as one of the major financial hubs. However, Richmond bank shares some challenges such as undertaking a large number of products and trying to finish them in a short time. As a result of this, the financial aspects become weak and they face the need for project budget management (Robbins, 2019). Also, clients are the backbone of an organization due to the miscalculation about time. In the table bestow, different types of economic sectors are detected.

Table 1: Sections of Economy

(Source: Oharenko et al., 2021)

3.2 Financial attractiveness of Richmond Bank to explaining the reason and develop justification 

Financial attractiveness is one of the key components of reaching success for an organization. The Richmond bank also needs to incorporate the attractiveness of the financial sector in various ways. The submerged cost of the organization is regarded as “base cost” and the estimation of actual cost is done based on that. The “base cost” determines the necessities of the needs of different sectors. The challenges and problems of the organization are also identified there. The estimation of budgeting is needed because the allocation of money is done depending on that. The relationship between buyer and supplier determines the project funding and funding attractiveness of an organization.

3.3 Providing evidence in key contractual areas that develop attention financially and commercially 

The bank of Richmond was approached by the GmbH or “bau” to supervise the Infrastructure Project Finance (IPF) and to lead the financial arrangement of “Stralsund Road Tunnel”. The effectiveness of the tunnel would be that it would be of diverse use and it would save almost fifteen minutes. The people of North Germany would find it helpful. The financial and commercial importance of the tunnel is important because it is estimated that almost 25,000 vehicles would pass that tunnel every day and there it would be obligatory to pay the taxes. So, almost 3.5% benefits from the taxes would be increased with the help of the tunnel. According to the traffic adviser of the bank, 22,000 would be gained in the bank and the GDP (gross domestic product) and GNP (gross national product) would also be enriched due to the arrival of the tunnel (Kudryavtseva, 2021). The tunnel would be eligible for gathering toll tax and there would be four euros of toll tax per car. It is the financial sector, but the commercial sector would also be beneficial. The advantages of a special purpose vehicle would be attached to the tunnel. According to the statements of Bau, fifteen of eighty-five gearings would function as a base and after 25 years the ending of the project, the system of repayment of the project is to be generated. There would be chances of having debt and the Richmond bank is expected to take half of the responsibility of the debt. However, commercialization means the ways of generating money from it. If the tunnel was to be used as a normal way for the people, then that would not be commercialized but the incorporation of toll and tax has made the tunnel commercialized.

Conclusion

Project management is the way of organizing and planning the structure of the project. It also involves various systems for determining the design of the project. The financial aspects of the project are also a matter of concern. Project budgeting is the way to allocate money for different sections of the project and that helps in making the project well structured. The relationship between the buyer and supplier is indeed an effective part of project management. The construction company can be an appropriate example of managing the projects skillfully. Here the negotiation process and the procurement management are also done efficiently. These aspects are critically discussed with the help of the Breiterfluction case study.

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Appendices

Appendices 1: Risk management factors of an organization

Appendices 2: Project Funding

Appendices 3: Buyer-supplier relationship

Appendices 4: Different business strategies