Financial Resource Management in Construction (Project Study)

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- Definition of Project Study

- Purpose and Intent
- Steps in Project Studies
- Elements of a Project Study
Activity
- Scheduling/Estimating Project Activities
- Project Study Management
- Estimating work: Pre-process
- the business case analysis
Activity

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5 PM Process Groups
Initiating -> Planning -> Execution -> Monitoring and controlling -> Closing

Initiating:
Analyzing/studying if the project will be feasible, project study is
conducted

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Project Study:
- analysis and evaluation of a project
- techincally feasible, feasible within cost, profitable

Feasibility studies are conducted when large sums of money are at stake

Project Feasib Study:

- used to determine the viability of an idea, such as ensuring a project is
legally and technically feasible as well as economically justifiable
- it tells us whether a project is worth the investment -- in some cases,
a project may not be doable

PURPOSE OF A FEASIB STUDY

- know the different variables invloved with your business venture and how
it will be accepted on the open market along with who will be the target
audience
- *know the target market*
- demographics
- business owners, professionals, working age
- class A/B/C

- to determine the factors that will make the business opportunity that was
presented in the business case a success.
- the exploration of the main focus of the business opportunity along with
the alternative paths it could follow
- to explore the different markets
- best possible response so the tirhgt product can be produced for the
right customers
- to explore the price the target audience is willing to pay for the
deliverable
- exploring project and production cost

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5 AREAS OF PROJECT FEASIBILITY

1. Technical Feasibility
- focuses on technical resources available
- know whther the resources and technical team is capable
- involves evaluation of the hardware, software, and othe technological
requirements

TF should answer the ff questions:

- what is the proposed product or service?
- is the product or service already on sale? If not, how far is it from an
existing marketplace and what will the introduction cost?
- how can you protect the product or service from the cempetition?
- what are the strengths of the product or serveice? also weaknesses
- what are the main benefits to customers or users?
- what resources are reqd for producing or prviding it?
- how capable is the organization to acquire these resources?
- what are the regulatory standards surrounding the product or service and
its use?

2a. Economic Feasibility

- involves costs/benefits analysis of the project
- help determine the viability, cost and benefits
- enhances project credibiility helping decision makers determine the
positive economic benefits to the org that the proposed project
will provide

EF should answer:
- what are the strengths and wekanesses
- what are the potental sales volumes of the product or service
- what is the pricing structure you'll use
- what are the sensitivity points for your business in terms of sales
- What is ROI
- how long can your business survive without a sale
- how long before you breakeven with the product or service
- how much money is reqd to start your operations
- will your organization require external finance

2b. Market Feasibility

- focuses on testing the market for the proposed action or idea
- examines issues like whether the product or service can be sold at
reasonable prices or if there's a marketplace for it

MF should answer:
- what marketing segments are you targeting
- why would people buy the product or service
- who are the potential customers and how many of them are there?
- what are the buying patterns of these potential customers
- how will you sell the product or service? where?
- who are your competitors? including past, current and future competitors
- what are the strengths and weaknesses of your competitors
- what is your product or service's competitive edge

3. Legal Feasibility
- investigates whether any aspect of the proposed project conflicts
with legal reqs like zoning laws, data protection acts, or social
media laws
4. Operational Feasibility
- undertaking a study to analyze and determine whether - and how well -
the organization's needs can be met

OF should answer the ff:

- what are the major risks associated with the operation?
- what is the survival outlook for each of the above risks?
- how sensitive are the profits
- what are the best ways to minimize the risks

5. Scheduling Feasibility
- the most important for project success
- in scheduling feasibility, an organization estimates how much
time the project will take to complete

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Project Study is typically used in situations where an important strategic

decision needs to be taken

- change in business location

- purchase of new equipment or software
- acquisition of another company
- hiring additional employees
- venturing to new projects

Techniques to environment analysis

1. market options matrix
2. SWOT analysis
3. PESTEL
4. key drivers of change
5. scenario based planning
6. porter's five forces model

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Product-market matrix aka Ansoff Model:
MARKET | PRODUCTS
Existing | New
Existing | Market Penetration Strategy | Product devt strategy
--------------------------------------------------------------------
New | Market devt strategy | Diversification strategy

Market penetrations
market devt
product and devt
diversification
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SWOT Analysis

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PESTEL ANALYSIS

P: Policies/POlitics/Political Issues
- Government policy
- Poitical Stability
- Trade restrictions

E: Economic Growth
- economic growth
- exchange rates
- interest rates
- inflation rates
- disposable income
- unemployment rates

S: Social/Society (?)
- population growth rate

T: Technological

E: Environment

L: Legal

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Key Drivers of Change

Internal vs External

Internal: capabilityies, resources, inventions, dissatisfaction, desire

Exteral: customers, competitors, investors, technology, govt

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Scenario Based Planning

- analyzing the various scenarios for the future is imperative

1. Definition of Scope
2. Perception Analysis: assumptions
3. Trandand Uncertainty Analysis
4. Scenario Building
5. Strategy Definition
6. Monitoring

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michael PORTER'S 5 FORCES MODEL:

Threat of new entrants

|
Bargaining power v bargaining power
of supplier --> Rivalry Among Existing Competitors <-- of buyer
^
|
Threat of substitute
products or services
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Buying Existing Business

- why is the current owner selling the business
- what is the business performance? if it's poor what are the reasons
behind it
- what is the competition like
- what is the valuation assets included in the sale
- what are the advantages or disadvantages of the continuing operations
in the same premises or not? why?

Constraints that need attention:

- internal project constraints: technical, technology, budget, resource, etc
- internal corporate constraints: financial, marketing, export, etc
- external constraints : logistics, weather, laws

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Benefits of Project Study:

- improves team focus
- provides valuable information for a "go"/"no go"
identifies new opportunities
- valid reason to undertak e poroject
- enhave success rate of project
ais decision-making
- identifies reasons not to proceed

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Steps in Project Study

Step1: assessment and overview

- outline the planned idea or action
- examine the market space and commercial viability of the action
- examine unique characteristics of the idea

step 2:
- outline the detailed project scope
- analyze current situation prior to the implementation
- describe strengths and weaknesses

step 3:
- research current competitive landscae

step 4:
- understand the revenue projection
- realistic understanding of the kind of sale
- analyze market in terms of feasibility
- define the target market
- studying buying habits of target market
- understanding sales

step 5:
- concluding a feasib stud involves calculation the financial costs related to
the proposal

consider the ff in all instances:

- resource reqd
- source of these resources
- realistic benefits
- breakeven point
- financial risk
- financial cost of failure

Step 6:

- review feasib study

- establish findings
- simply take a step back and reflect before concluding

questions to ask:
- are there any risks you werent aware of previously
- have the market conditions changed
- has the competition changed
- is your business situation still the same in terms of operations and
economic situation

the project feasibility study should provide the answer of either

moving ahead or scraping
the idea and look for something different

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summary:

evaluate systems/
legal capabilities
econimic capabilities
technological/operations capabilities
schedule-related capabilities

summary

recommendations

total cost: 5000000 ETB required

30% owner
70% bank fiancing

needed: to support growth of other business sectors

where: arsi negele town

obejctive: to help other businesses flourish in the area

- will generate income and return of capital
- employment opportunitie
- beautification

300sqm

along most beatiful area

the project will develop high standard shop & banking rooms
and office of best choices and will also save best quality
restaurant and café,
national and international dish and various types of soft drinks.

relatively good governance

purpose:
urban development, business opportunities, employment, attract investors

market study:
wine, coffee
to attract tourists, business travelers
demand of mized used buildings because of many businesses flourishing

weakness: lack of quantitative estimates that depict the actual demand and
also the annual growth rate for hotels and urban commercial facilities

basement, (gournd, first, second, third, ) parking and green area

typical layouts per floor
typical construction processes/activities

schedule feasib: august 2014 - january 2016; overall implementation: 24 mos

including prep and docs)
actual const: august 2014 - decemeber 2015

additional research on the proposed schedule for each activity (loans,

land approval, etc)

bank financing: 10 years ot pay

manpower: 26 persons
construction manpower: 80

first yr: etb 387,842

increase to 1,147,790 etb

The income statement and the other

indicators of profitability show that the project is viable.

The building’s total investment will be fully

recovered at the 5.2 years of operation.

negative impact eia: noise, dust, man-related problems, sewage

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MANAGING SCHEDULE

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Estimate time accurately

- understant what is required: identitfy all the activities needed to be done
within the project
- use tools such as: business requirements analysis
- work breakdown analysis

Order the activities

- determine IPA immediately proceeding activities
Staffing
- decide who you need to involve

Make your estimates

the most reliable estimates are those that you have arranged to be
challenged. this helps you identify any assumptions and biases that arent
valid

you can ask team members, other managers, or co-workers to challenge your
time estimates

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RULES IN ESTIMATING

- estimate the time needed for each task rather than for the project as a whole
- assume that your resources will only be productive for 80 percent of the
time
- build in time for unexpected events such as sickness, supply problems,
equipment failure,
- remember that people are often overly optimistic, and may significantly
underestimate the amount of time that it will take for them to complete
tasks.

What are the tasks and how long would these tasks take?

- bottom-up estimating
-top-down estimating
-comparative estimating
-

BOTTOM UP ESTIMATING
- create an estimate for the project as a whole
- analyze from the bottom up, break larger tasks down into detailed tasks,
and then

TOP DOWN ESTIMATING

- you develop an overview of the expected timeline first, using past
- top down approach is usually done by managers for budget planning,
portfolio planning or for ocnducting feasibility studies
- in these cases, a great level of detail isnt known

COMPARATIVE ESTIMATING
- look at the time it took to do similar tasks, on other projects

PARAMETRIC ESTIMATING
- estimate the time reqd for one deliverable and then multiply it by the
number of deliverable required
- involve similar tasks with high degrees of repeatability, use a
parametric technique

THREE-POINT ESTIMATING (PERT)

- to build in a cuhion for uncertainty, you can do three estimates -- one for
the best case scenario, another for worst, and another one for the most
likely scenario
- allows to set more reasonable expectations
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Investing in the right approach

-

Preparing your schedule:

gantt chart
s-curve
cpm etc

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Estimating work/pre-process
- in order to bid on a job, an estimate

- cost estimating is the practice of forecasting the cost of completing a

project with a defined scope
- it is primary element of project cost

Components of a cost estimate:

Direct Cost
- expenses billed exclusively to a specific project
- inclues project team wages, the costs of resources to produce physical products

Indirect Cost
- cost on operations (Quality control, security cost, utilities)

Common types of Expenses:

Labor
Materials
Equipment
Services
Software
Hardware

Manfacturing Costs: direct materials, direct labor, indirect cost/overhead

Defining Scope of Work:

- all activities involve consumption of resources to diff extents
- any addition deletion or modification in the scope could

Work breakdown structure:

- name given for activities

Use of CPN as a routine element of management may benefit construction

process

Developing a network model:

- define activities
- order activities
- establish activity relationships and draw a network diagram
- determine quantities and assign durations to activities
- assign resources and costs
- calculate ES & LS/finish times
- compute float values and identify the critical path
- schedule activity start/finish time

Define Activities
- production/construction
- traditional resource utilization
- involve labor and materials
- curing of concrete is a viable activity
- Procurement
- acquisition of materials, money, equipment and manpower
- Management

Ordering Activities

IPA - immediately preceding activities

- after IPA is completed, the network can be created

Constraints - this is the reason why 2 activities must be done...

Type of Constraints
- physical constraints
- resource constraints
- safety constraints
- financial constraints
- environmental constraints
- management constraints
- contractual constraints
- regulatory constraints

TERMINOLOGIES IN CPM

Event and Activity

Event - point in time when certain conditions have been fulfilled. numbers
cila sa cpm

Activities - take place between events. usually letters in CPM

Dummy Activiti - used to define interdependence between activitiws and

included in network..

Precedence - logical relationship implying that an activity needs one activity

(or more activities) to be completed, before this activity can start

Duration of activity - cannot be really fixed

Start and Finish time

Forward Pass and Backward Pass

Float or Slack Time

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steps involved in pert
- develop list of activities
- a rough network for pert is drawn
- events are numbered from left to right
- time estimates for each activity are abotained
- expected time for each activity is calculated
- using these expected times calculate earliest and latest finish and
start times of activities
- estimate critical path
- using this estimate compute the probability of meeting a specified completion
date by using standard normal equation

due date - expected date of completion

z = ---------------------------------------------

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BUISNESS CASE

- a key part of any project

- a business case is at the heaert of any project and outlines the
justification for undertaking the project

Features of a project business case

- a strategic element: describig the strategic need for the project
- consideration of options: what options were considered before this
course of action was adopted
- expected benefits and timescales: what benefits will the organization
receive once this project is complete and how long will these benefits take
to achieve
- costs: what is the prj estiamted cost and how will it be funded
- return on investment: based on the benefits and costs,
what is the expected roi
- risks: what are the risks that could affect the business case

A BUSINESS CASE ANALYSIS

- a useful tool that assists in refining the myriad of decisions that go into
determining the best value strategy
- it follows an iterative process, conducted and updated as needed
throughout the life cycle as program plans evolve and reacts

*performance
*producibility
*reliablity
*maintainabilit
*supportability

Business Case Analysis Report Content:

- Executive Summary: overview of the BCA
- Introduction: defines what the case is about
- Methods and Assumptions: analysis methods and rationaly, boundaries,
assumptions
- Impacts: financial and non financial business impacts in one or
more scenarios
- Risk assessment: what if
- Conclusions and Recommendations specific actions based on business
objectives and the results of the analysis

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RELATIONSHIP WITH THE CLIENT

- the relationship between the project manager and the client can be a
difficult component of the project to manage
- use of capabilities within modern information and communication
technologies

PROJECT PERFORMANCE MEASUREMENT AND IMPROVEMENT