Pay or not to pay

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401.661 Advanced Construction Technology 1

Moonseo Park

39동 433 Phone 880-5848, Fax 871-5518

E-mail: mspark@snu.ac.kr Department of Architecture College of Engineering Seoul National University Professor, PhD

Pay or not to pay

401.661 Advanced Construction Technology

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Model Quantification

 Is it always required with S&F?

 The Little Prince by Antoine de Saint-Exupéry

 “…the grown-ups who are no longer interested in anything but numbers…”

 Useful to determine loops’ magnitude

 Requiring a lot of relevant data

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Lecture Outline

 Typical Modeling Method

 Background of the Case Project

 Dynamic Modeling Process

(4)

Modeling Process

 Learning can happen across ALL stages of modeling.

 Involving continuous iterations among the modeling steps.

System Understanding

Conceptualization

Model Formation

Model Test &

Validation

Policy Analysis

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 System Understanding: the process of deepening the modeler’s understanding of the system with relevant information, usually including problem statement, list of variables, and reference modes

 Conceptualization: conceptual model structures are

described in the form of a causal loop diagram to show the dynamics of variables involved in the system (also, called dynamic hypotheses)

(6)

Examples of Causal Loop Diagram

Design-Driven Feedbacks Construction-Driven Feedbacks

Overlapping between Design and Construction

Potential Design Change Impact on

Construction Owners' Requests

on Changes Uncertainties Assumptions in

Design

Oversizing

Design Changes

Construction Changes Time Pressure

+ + +

+ +

Delay + Construction

Processes Overlapping +

Project Duration.

+

Increase in Workforce +

Construction Work Done before Upstream

Completed +

+ Productivity

-

- Estimated Project

Duration + Project +

Costs +

R1

R2

R3 - - - -

Design Changes Overlapping between

Design and

Construction Potential Design

Change Impact on Construction Owners' Requests

on Changes Uncertainties Assumptions in

Design

Oversizing

Construction Changes Time Pressure

+ + +

+ +

Delay + Construction Processes

Overlapping +

Project Duration.

+

Increase in Workforce +

Construction Work Done before Upstream

Completed +

+ Productivity

-

- Estimated Project

Duration + Project +

Costs +

R1

R2

R3 - -

- -

+

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 Model Formation: having a causal loop constructed,

variables in the model structures come to have quantitative attributes through building mathematical equations for

variables.

This step also includes the identification of stock and flow structures, which characterize the state of the system and generate the information, upon which decisions and

actions are based, by giving the system inertia and memory [Sterman, 2000]

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 Model Validation: tested and validated in accordance with the purpose of the modeling

 Policy Analysis: the validated model is applied to solving the given problems

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One Typical Modeling Method is …

System Understanding

Conceptualization

Model Formation

Model Test &

Validation

Policy Analysis Establishing a Problem Statement

Listing Important Variables Making Reference Modes

Establishing Dynamic

Hypotheses, using Causal Loop

Diagrams

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Lecture Outline

 Typical Modeling Method

 Background of the Case Project

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Background of the Case Project

Strategic Decisions for Highway Operation

City A

“A construction company has recently completed their highway construction project, which has been awarded with a BOT contract”.

“The highway runs from City A to City B in a more direct way than the existing road, and has service facilities for drivers”.

City B Highway

Old Road

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“A discounted cash flow analysis shows some numbers for toll charges that can return their investment within the operation period”.

“However, the top management of the company won’t believe the numbers, thinking that highway operation might not be a simple mathematics”.

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“According to their experience, drivers choose a drive road depending on cost-convenience tradeoffs, having the

following two options:”

• A highway with a lot of services and toll

• An old road without services

“Because of such a recognition, the top management wants to understand dynamics caused by drivers’ tendency in

choosing a drive road and to know how to maximize their profits, while keeping an acceptable level of service”.

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Lecture Outline

 Typical Modeling Method

 Background of the Case Project

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Problem Statements

 Figuring out the dynamics involved in highway operations including tradeoffs among toll charges, service level,

volume of traffic, and congestion level.

 Finding an optimal level of toll charges and maintenance costs, which can maximize their profits, keeping an

acceptable level of service.

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List of Variables

Toll Charges

Highway Capacity Travel Time

Traffic Volume Service Quality Trip Frequency

Road Attractiveness

Degree of Congestion

Time Reduction through Highway GDP*

Population*

Price of Gasoline per Mile*

*Exogenous Variables

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Reference Mode

Traffic Volume on

Highway

Maintenance Costs

Profits

TIME 0

Operation Starts

End of Concession

FEAR HOPE HOPE

FEAR

Now

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Dynamic Hypotheses

For the first stage of the development, one needs to analyze feedback loops that have the most significant impacts on the system and established dynamic

hypotheses of them.

TrafficOn Highway

Congestion

AvgTravelTime

Att activenessOf Highway ServiceLevel

+

+ -

Revenue

TollPerCar + InvestmentOn

M aintenance

FractionOfRevTo Invest +

Cap acity

-

ServiceLevel OfOldRoad

GapOfServiceLevel +

+

+ Perceived Att activeness

OfHighway Service

Cap acity +

Service Cap acity Deteriorate

+

The Spaghetti

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If toll becomes cheaper, traffic goes up,

congestion becomes more, and drivers have a higher average travel time. That affects

negatively on the Attractiveness of Highway with the consequent reduction in traffic.

The following hypotheses on the system’s behaviors are established when toll is decreased.

0 Toll decrease Operation End Traffic on

Highway

Profits

Will be stabilized at a certain point that is determined by other conditions

Will be determined by Traffic Volume

Congestion

TrafficOn Highway

Congestion

AvgTravelTime

AttactivenessOf Highway ServiceLevel

+

+ - TollPerCar

Capacity

-

GapOfServiceLevel +

+

+ Perceived Attactiveness

OfHighway +

Congestion

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Service

The attractiveness of the Highway with

respect to the service level depends on both the service on highway and in the

alternative route. As an increase in traffic deteriorate the Highway’s service level and in turn its attractiveness.

The same hypotheses on the system’s behaviors as Congestion Loop are established when toll is decreased.

TrafficOn Highway

Congestion

AvgTravelTime

+

+ - TollPerCar

Capacity

-

GapOfServiceLevel +

+

OfHighway +

ServiceDeteriorate

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Investment

As traffic goes up, the company can spend more money on services. And better services increase the

attractiveness of the highway.

The following hypotheses on the system’s behaviors are established when fraction of revenue for

investment on the service capacity is increased.

Traffic on Highway

Profits

TrafficOn Highway

Congestion

AvgTravelTime

+

+ -

Revenue

TollPerCar + InvestmentOn

Maintenance

FractionOfRevTo Invest +

Capacity

-

GapOfServiceLevel +

+

OfHighway Service

Capacity +

Service Capacity Deteriorate

+

Investment

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Model Formation

Perceived Relative Att ract iveness ChangesIn

Att ract iveness TimeToPerceive

Att ract iveness

Relative Att ract iveness

Traffic On Highway

Total Traffic

Congestion

Toll

Service Imp rove

Service Service

Deterioration Service Lifecycle ServiceLevel

TravelTime OnHighway

Gap Of Service Level

Service Level Of Old Roads

Revenue

Annual Budget For Changes in

Service Fraction Of

Revenue For changes in

Service TravelTimeOn

OldRoads

GapOfTravelTime

M aximum Toll allowable

Time t o Service Imp rovement

Net Profits

Time To Change

Trans ChangesInTraffic

Traffic On Old Roads

Init ialToll stepSize

Operation Cost s Fraction

OfInitial TrafficOn Highway

M axTime Reduction

Effect OfTravel TimeOn Att ract iveness TableFor

TimeEffect

M axService Advantage

Effect Of ServiceOn

Att ract iveness TableFor Service Effect Effect OfTollOn

Att ract iveness

Table for congestion

Coef for Congestion

Table for Toll effect

Init Service

Coef for Init Service

Time t o change Budget Congestion

on Old Roads

Old Road Cap acity

M axTime Reductionon

OldRoad

Service coef Investment

on M arketing Effect of M arketing

on Time t o Perceive Att ract iveness f

Highway Cap acity Regional

Growt h

<Time>

Coef for InvestmentM kt

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Model Analysis

Graph for PerceivedRelativeAttractiveness

1.413

1.272

1.130

0.9886

0.8468

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

3 3

3

3 3

3 3 3 3 3 3 3 3 3 3 3

2 2

2

2 2

2

2 2 2 2 2 2 2 2 2 2

1

1 1

1 1 1 1 1 1 1 1 1 1 1 1 1

0 1 2 3 4 5 6 7 8 9 10

Time (Year)

PerceivedRelat iveAt tractiveness : toll7$ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ dimensionless

PerceivedRelat iveAt tractiveness : toll2$ ² ² ² ² ² ² ² ² ² dimensionless

PerceivedRelat iveAt tractiveness : toll4$ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ dimensionless

PerceivedRelat iveAt tractiveness : base ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ dimensionless

Toll Impact

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Model Analysis

Graph for Traffic On Highway

3.839 M

3.402 M

2.964 M

2.527 M

2.090 M

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

3 3

3 3 3 3 3 3 3 3 3 3 3 3 3 3

2 2

2

2 2

2

2 2 2 2 2 2 2 2 2 2 2 2

1

1 1

1 1 1 1

1 1 1 1 1 1 1 1 1 1 1

0 1 2 3 4 5 6 7 8 9 10

Time (Year)

Traffic On Highway : toll7$ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ car/Year

Traffic On Highway : toll2$ ² ² ² ² ² ² ² ² ² ² ² ² car/Year

Traffic On Highway : toll4$ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ car/Year

Traffic On Highway : base ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ car/Year

Toll Impact

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Model Analysis

Graph for Net Profits

10.41 M

7.395 M

4.375 M

1.354 M

-1.666 M

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

3 3

3 3 3 3 3 3 3 3 3 3 3 3 3 3

2 2

2 2 2 2 2 2 2 2 2 2 2 2 2 2

1

1 1

1

1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 1 2 3 4 5 6 7 8 9 10

Time (Year)

Net Profits : toll7$ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ dollar/Year

Net Profits : toll2$ ² ² ² ² ² ² ² ² ² ² ² ² dollar/Year

Net Profits : toll4$ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ dollar/Year

Net Profits : base ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ ⁴ dollar/Year

Toll Impact

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Policy Implications

 While the relative attractiveness always becomes stabilized at the initial equilibrium point, the traffic volume becomes stabilized at the point where there are no more changes in the attractiveness.

 Net profit from the highway operation may not be

proportional either to toll amount or to traffic volume.

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Investment on Service

Graph for PerceivedRelativeAttractiveness

1.012

1.007

1.001

0.9963

0.9909

3 3 3

3

3 3 3

3

3 3 3 3 3 3 3 3 3 3 3 3 3 3

2 2 2

2

2 2

2 2 2

2 2

2 2 2

2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 2 4 6 8 10 12 14 16 18 20

Time (Year)

PerceivedRelat iveAt tractiveness : base ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ dimensionless

PerceivedRelat iveAt tractiveness : Service50%increase ² ² ² ² ² ² ² ² ² ² dimensionless PerceivedRelat iveAt tractiveness : Service50%decrease ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ dimensionless

Model Analysis

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Model Analysis

Graph for Traffic On Highway

2.919 M

2.773 M

2.628 M

2.482 M

2.336 M

3 3 3 3

3 3

3

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

2 2 2 2

2 2

2

2 2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 2 4 6 8 10 12 14 16 18 20

Time (Year)

Traffic On Highway : base ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ car/Year

Traffic On Highway : Service50%increase ² ² ² ² ² ² ² ² ² ² ² ² ² car/Year

Traffic On Highway : Service50%decrease ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ car/Year

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Model Analysis

Graph for Net Profits

8.788 M

8.392 M

7.996 M

7.600 M

7.204 M

3 3

3

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

2

2 2

2

2 2 2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 2 4 6 8 10 12 14 16 18 20

Time (Year)

Net Profits : base ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ ¹ dollar/Year

Net Profits : Service50%increase ² ² ² ² ² ² ² ² ² ² ² ² ² ² dollar/Year

Net Profits : Service50%decrease ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ ³ dollar/Year

(30)

Policy Implications

 Investment on the service capacity can increase traffic volume and lowers annual net profits.

 However, the system also becomes stabilized, which implies that the long run, we can get almost same annual net profits regardless of the investment amount on service.

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Policy Recommendations

 Set initial toll price a little bit higher than that of equilibrium case (say 7$ per car)

 Set the investment amount on service lower than that of equilibrium case (say 50% decrease)

 Invest on marketing for the initial period of operation (say the first 1.5 years)

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831 Housing Policy

투기 수요 증가

-분양 프리미엄의 형성은 투기 수요 ↑

실수요 위주로 개편

-청약 가점제,

전매제한으로 투기 수요 진입 어려움

공급 위축

- 수익성 악화로 인한 공급 축소

영향 無

-공공 주택의 공급 -중소기업이 틈새시장을 메꿈

Supply Demand Pric

e

가격 상승 억제

-신규 공급 가격 조절로 전체 주택 가격 조절 가능

프리미엄 형성

-분양완료 후 프리미엄 형성, 이는 주택매매가에 그대로 영향

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33

Tug war

분양주택 기대거래차익 줄다리기

기존주택 기대거래차익 쟁탈전

(34)

401.661 Advanced Construction Technology 34 Housing Price

Demand S upply

S ales Unit Cost per S quare Meter

Expected Trading Profi t of S ales

Housing

Expected S ales Profi t

Newly Buil t Housing

+

-

+

Exi sting Housi ng on S ale

Potenti al Actual Demand Potenti al

Investment Demand

Home Ownership Rati o Housing

Attractiveness

Difference between Demand and S upply

- +

+

+ +

- +

+ + Funding

Capabil ity Avai lable

Resi denti al Area+ Development

Cost +

Expected Tradi ng Profi t of Exi sting Housi ng

-

+ +

Potenti al Value of Exi sting Housi ng

Expected S ales Rate

+

- -

+

Chonsei Price Total Potential

Demand +

+

-

+ B1-a

B1-b

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S ales Unit Cost per Square Meter

Housing

+

-

+

Investment Demand

Home O wnershi p Ratio

Housing Attractiveness

- +

+

+ +

- +

+ + Funding Capabil ity

+ Avai lable

Resi denti al +Area Development

Cost +

-

+ +

Potenti al Value of Existing

Housing

+ -

- +

+

Demand +

+

-

+ B2-a

B2-b

(36)

Housing

+

-

+

Investment Demand

- +

+

+ +

- +

+ + Funding Capabil ity +

Avai lable Resi denti al

+ Area Development

Cost +

-

+ +

Housing

Expected S ales Rate

+ -

- +

+

Demand +

+

-

+ R1-a

(37)

Housing

+

-

+

Exi sting Housi ng on S ale

Potenti al Actual Demand Potenti al Investment

Demand

Difference between Demand

and S uppl y

- +

+

+ +

- +

+ + Funding Capabil ity +

Avai lable Resi denti al

+ Area Development

Cost +

Expected Tradi ng Profi t of Exi sting Housi ng -

+ +

Housing

+

- - +

+

Demand +

+

-

+ B3

R1-b

(38)

References

 Avraham Shtub, Jonathan F. Bard, Shlomo Globerson, “Project management : engineering, technology, and implementation”, Englewood Cliffs, NJ, Prentice Hall, 1994

 Frederick E. Gould, Nancy Joyce, Chapter 8, “Construction project management”, Upper Saddle River, NJ, Prentice Hall, 1999

 James M. Lyneis *, Kenneth G. Cooper, Sharon A. Els, “Strategic management of complex projects: a case study using system dynamics”, System Dynamics Review, Vol. 17, No. 3, 2001

 Christopher M. Gordon, “Choosing appropriate construction contracting method”, J. of Construction Engineering & Management, Vol. 120, No. 1, 1994

 Feniosky Pena-Mora, Jim Lyneis, “Project control and management”, MIT 1.432J Lecture Material, 1998

 Barrie, D.S., and Paulson, B.C., “Professional Construction Management”, McGraw Hill, 1992

 Halpin, D.W., “Financial and Cost concepts for construction management”, John Wiley &

Sons, 1995

 Yehiel Rosenfeld, “Project Management”, MIT 1.401J Course Material, 2000

 Sarah Slaughter, “Innovation in construction”, MIT 1.420 Course Material, 1999

 Chan, Albert P. C.; Ho, Danny C. K.; Tam, C. M, “Design and Build Project Success Factors:

Multivariate Analysis”, J. of Construction Engineering & Management, Vol. 127, Issue 2, 2001

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Term Project

Towards the world

best consulting firm

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Criteria for Consulting topics

 Problem

 System understating: who are (Main) players?

 At which level (industry, corporate, individual etc)?

 To whom?

 To be specific

 Avoid physical or financial systems (this can be feasible only with a quantitative model)

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 Tradeoff

 Unexpected behaviors (sometimes side effects) caused by remedial actions, together with expected behaviors.

 What did client do for solving the problem? This can be hints for finding tradeoffs

 If feedbacks are involved, it would be super.

 Problems and tradeoffs should have the same dimensions (to whom, at which level, type of behaviors)

e.g., In S’s call taxi model, government’s policy to easy people’s inconvenience worsened people’s inconvenience.

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