UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Tran Minh Tam LACK OF COORDINATION AT HBC’S CONTRACT DEPARTMENT MASTER OF BUSINESS (HONOURS) Ho Chi Minh City – Year 2019 1 TIEU LUAN MOI download : skknchat@gmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Tran Minh Tam LACK OF COORDINATION AT HBC’S CONTRACT DEPARTMENT MASTER OF BUSINESS (HONOURS) SUPERVISOR: Professor Doan Anh Tuan Ho Chi Minh City – Year 2019 2 TIEU LUAN MOI download : skknchat@gmail.com LACK OF COORDINATION AT HBC’S CONTRACT DEPARTMENT Table of Contents Executive Summary .1 Hoa Binh Construction Group J. 8 High and increasing Days sales outstanding.1 Inefficient project coordination at Site and in back office .2 Lack of long-time working employees .3 Lack of coordination within the department .1 Problem Validating 1: Inefficient project coordination at Site and in back office.2 Problem Validating 2: Lack of long-time working employees .3 Problem Validating 3: Lack of coordination within the department .3 The important and consequences of the problem.3 Lack of work-interaction .1 Validating the first cause: Work Overload.2 Validating the second cause: Poor communication .3 Validating the third cause: Lack of work-interaction within the department. 34 Solution 1 – Provide orientation and internal knowledge sharing class. 34 Solution 2 – Setting goal and specific tasks for employees in HBC E-learning System.
40 1 TIEU LUAN MOI download : skknchat@gmail. 47 Appendix 1: Definition of theoretical frameworks. 47 Appendix 2: Form of proposal. 48 Appendix 3: Bidding results in 2019 of HBC (1st and 2nd quarter only).
52 Appendix 4: Days sales outstanding of HBC, CTD and PHC. 57 Appendix 5: Transcript summary. 58 2 TIEU LUAN MOI download : skknchat@gmail.com LIST OF ABBREVIATIONS HBC Hoa Binh Construction Group Joint Stock Company DSO Days sales outstanding EPC Engineering, Procurement, Construction CTD Coteccons Construction Joint Stock Company PHC Phuc Hung Holdings., JSC UEH University of Economics Ho Chi Minh City UOL University of Law Ho Chi Minh City QS Quality Surveyor AR Account Receivable 3 TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLES Table 1: Data of net sales, average account receivable, account receivable turnover ratio and day sales outstanding from January, 2015 to December, 2018 in HBC. 9 Table 2: Data of due dated value of 10 on-going biggest projects from 2015 to 2019 in HBC.
11 Table 3: Data of personnel in Contract Department in 2019 in HBC. 12 Table 4: Data of payment in Sunshine City Saigon Project in HBC. 15 Table 5 - The assignment of the Main-contract execution of the Contract Department during the 2019 period – quarter 1, 2. 29 Table 6 - The assignment of the Subcontract execution of the Contract Department during the 2019 period (with ONG = Ongoing, STO = Stop, COM = Completed).
29 Table 7 Estimated costs of two alternative solutions. 40 Table 8 - Action plan of two selected solutions from June 2019 to January 2020. 39 Table 9 - Interviewees’ Demographic. 40 TABLE OF FIGURES Figure 1: A part of HBC organizational structure.
7 Figure 2: Contract Department ‘s organizational structure. 7 Figure 3: Data of day sales outstanding from January, 2015 to December, 2018 in HBC, CTD and PHC. 9 Figure 4: Contract Executive job’s description in executing Main Contract in HBC. 19 Figure 5 - The display of HBC E-learning system (http://www.
38 LIST OF DIAGRAMS Diagram 1: Initial cause-effect map of Contract Department in HBC. 14 Diagram 2: Updated cause-effect map of Contract Department in HBC. 24 Diagram 3: Final cause-effect map of Contract Department in HBC. 33 4 TIEU LUAN MOI download : skknchat@gmail.com Executive Summary Over the last couple of years, the development of Hoa Binh Construction Group J.C has been significantly recognized in the construction industry.
However, during the difficult times ahead that construction companies are about to encounter, constantly increasing in account receivable has been recorded as a cautious signal in financial report of the company. This paper is about to give a full picture of how a typical construction company struggling to find the solutions to solve the mentioned symptom. By first, the researcher gives a short portrait of the company. Then, by some intensive working, the author identified an apparently seen symptom before using some techniques data including qualitative research such as focus group to establish three potential problems, follow then by reviewing literature and further conducted an in-depth interview in confirming the main problem and its important and consequences.
The research also gives further look at the potential causes and once again validating them to find the main cause and sub-causes in order to give the rightful solutions for an agency to improve. Throughout the research, readers may find there are still some connection and contrast in and between the literature found and the answer received from the interviewees, as well as the difference in perception of people from the executive level, to the deputy manager level and to the director level. The paper also pointed out some limit of the focus group technique to get the clearer picture at the symptoms and potential problems of the company. Furthermore, the solution is given to enhance the effort of cure the department problem first, before having affection to the symptoms of the company.
5 TIEU LUAN MOI download : skknchat@gmail.1 Hoa Binh Construction Group J.C Having just celebrated their 30th anniversary in operating in 2017, Hoa Binh Construction Group J.C (HBC) – one of the pioneers in the construction industry, has gained itself a valuable image in the market. HBC has been constantly awarded billions contract over the years, especially as the role of the General contractor (EPC), Main contractor and Design and Build Contractor. The mission of the company was once to become the leading construction company in Vietnam, however, the company has been expanding their mission to become one of the competent contractor in the world, beginning in Canada, Australia and Myanmar. The company started his first sign when allowing the Hyundai Elevator to buy stocks and get the first control of the company, the private placement of shares to foreign partners will be completed in the second quarter of 2019.
The overall of 2018 saw the company revue increase 3 times over the year of 2015 and the profit is even more impressive in figures, increase as almost 8 times over the year of 2015. Source: HBC‟s website (www.vn) 6 TIEU LUAN MOI download : skknchat@gmail.com Figure 1: A part of HBC organizational structure 1.2 Contract Department As the contractor, it could be clearly seen that companies has to compete to get the jobs among the other competitors. When things going the right way, that means when the HBC is awarded the contract, there has to be a department who takes the responsibility of review, negotiate and draft the contract for signing. That being said, such people shall own knowledge in a mixed between the construction field and the legal one.
The Contract Department was established with the aim to (i) Review, negotiate and draft the Main Contract with Owners/ Developers, (ii) Check the approved budget with the approved Subcontractors before review, negotiate and draft subcontract with Subcontractors, (iii) to coordinate with other departments in the company system to complete the general mission of HBC. Figure 2: Contract Department „s organizational structure It can be seen in the Figure 2 that Contract Department is one of the four Departments located in the Supply Division. The Contract Department is led by Mr. 7 TIEU LUAN MOI download : skknchat@gmail.com Nguyen Le Tan - the Director of the Supply Division and Mrs.
Nguyen Thi Hoan - Deputy Contract Manager. During the operation over the last few years, some symptoms of the company has been recorded. Therefore, this thesis will indicate those symptoms and investigate whether there is an existence in those symptoms and the role of the Contract Department. In other words, the purpose is to analyze the link between the causes, effects and symptoms.
Symptoms High and increasing Days sales outstanding. For construction companies the monthly bills or draws to the Owners of the construction projects constitute an account receivable until the bill is paid (1). It is inevitably seen from the financial reports for over the last 04 years that the receivables of HBC gradually increases. According to Bryk (2), in case the company needs to get cash to meet its obligations with other parties since Owners/Developers are paying late, it could bring up many financing charges.
Incurring overdue account receivable still has a cost. Instead of having free cash-flow to put resources into development opportunities, purchase new machinery or establish new items, your money is tied up on balance sheet. Keeping the account receivables too high may have seriously affected on the cash flow of the company, and therefore the company has to delay the payments to any suppliers or vendors as the case maybe. The Account Receivable Turnover Ratio and days sales outstanding of HBC at the average of 2018 is 1.49 respectively, it means that the company collects the receivables about 1.79 times a year or once every 203 days.
In other words, when HBC makes a credit sale, it will take the company 203 days to collect the cash from that sale. Item 2015 2016 2017 2018 Net sales (1) 5,078,027,249,288 10,766,205,824,099 16,037,264,026,609 18,201,392,136,460 Average Account Receivable (2) 4,212,399,847,452 5,493,455,146,390 7,982,600,863,350 10,147,610,601,259 8 TIEU LUAN MOI download : skknchat@gmail.com Account Receivable 1.49 365/(3) (Source: HBC‟s financial report (2015, 2016, 2017, 2018) Table 1: Data of net sales, average account receivable, account receivable turnover ratio and day sales outstanding from January, 2015 to December, 2018 in HBC When taking a look beyond the company boundary, it is apparently that the two biggest rivals of HBC still keep the amount unconcernedly. This paper is making a benchmark in DSO with CTD and PHC construction companies, two of the biggest rivals of the company. To be specific, it could be clearly seen that the day sales outstanding of CTD and PHC seem to increase over the 2017-2018, however it is insignificant as it is still remained under 100 days.
In contrast, HBC, at least has to wait twice the time of the rivals to collect cash within the period of one year. Days sales outstanding of HBC, CTD and PHC 350 300 250 200 Days 150 100 50 - 2015 2016 2017 2018 HBC 303 186 182 203 CTD 63 53 66 98 PHC 64 58 57 89 Figure 3: Data of day sales outstanding from January, 2015 to December, 2018 in HBC, CTD and PHC. 9 TIEU LUAN MOI download : skknchat@gmail.com For a construction company by nature, when enters into contract with Owner/Developers, it is commonly seen that there are involvements of many suppliers and vendors. Until the company receives the payment from Owner/Developers from such contract, the company has to pay the cost itself to their suppliers and vendors which may be a serious case for the instability of cash flow of HBC.
As a result of those investigation, it illustrates that HBC have a High and increasing Days sales outstanding, such signal should be also seen as a symptom which the company needs to focus on now. Problem identification The problem identification process starting with identify potential problems The consultant has taken a focus group method with all of the member in the Contract Department to find out the main problem.1 Inefficient project coordination at Site and in back office A focus group was initiated by the consultant with the involvement of all of the members in the Contract Department. This Department for a long time has not owned a manager, therefore all of the major decisions has been made by the Director of the Supply Division. The account receivables symptom has been raised first during the focus group interview, Ms.