Course No.: PGPM 12/ NCP 29 Course title: Construction Finance Management Assignment No.

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ASSIGNMENT ON Construction Finance Management By Shailendra Grover Student Registration No. 212-07-31-10762-2141

NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH Pune (2012)

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ASSIGNMENT An offer has been given by a Charitable Trust to develop and build a facility on a 10,000 sq.m. of plot in a prime locality of Pune where 5000 sq.m. of area will be used by the trust for housing, health facilities for senior citizens . 5000 sq.m. will be given free to developer as a cost of development. Cost of land is Rs. 10,000/ sq.m. Specifications of flooring: 10% Granite 40% Kota stone 50% Mosaic cement tiles R.C.C Framed structure Aluminium sliding windows – Class A. Rest Specifications as used for Class A. constructions. Discuss the financial viability of the project and the financial planning of the project. Developer would like to have minimum 18% of net profit on his investment. Developer can invest only Rs. 10 lakhs as his own funds and can raise not more than Rs. 50 lakhs as bank loan.

ABSTRACT: This Project Report is about managing finance in developing and building a construction facility in a land of area 10,000 sq m. Then above mentioned construction project is divided in two no. of stages:-

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000 sq.m. Extracting profit from the project through financial planning is the main feature of this project report. its objectives. The firm must consider these influence and their effects on the cost of the individual types of capital to determine the most suitable capital structure. Finance and capital are seen as a considerable problem for cooperative. cost accounting. Construction Project is a mission. management accounting will give proper planning of inflow as well as outflow resources in project. which often operate independently of each other. undertaken to create a unique facility. of area as a cost of development Succeeding report highlights the financial viability of the construction project. The cost of capital is subject to and governed by many variables. The sources of capital available to any firm are quite numerous but as noted public limited companies have the greatest variety of sources available for their use and the single person enterprise. Cash budgeting will play an important role in any type of construction project also capital revenue. time and costs. for a charitable trust comprising of housing and health facilities. INTRODUCTION: Financial management is dealing with the procurement of funds to meet financial needs. and the cost of capital. quality.000 sq.m. The capital structure of any firm is related to the form of the enterprise. finance resource mobilization.• Developing facility on a 5. Project can also be defined as 3 . the sources being the members and loans from banks or other institutions and individuals. product or service within the specified scope. • Developing 5.

implementing and following the points stated as under:a) Reducing the cost of construction. e) Planning and controlling the project. machinery. f) Arranging finances at right time when requires. materials. Profit from the project can be harvested by considering. Although the main aim of a developer is to earn profit from the project by it should be remembered that profit should not be earned at the cost of quality.organisation and performance of resources such as men. Finance management in a construction project is mainly related with planning various activities in the project right from the start to the end of the project. c) Planning the activities prior they actually start at the site. g) Closely monitoring the expenses of the project. money. He must be able to control financial flows in an orderly manner for reaping the results in form of profits. 4 . durability and aesthetics values of construction. A developer must be fully aware about all the key financial aspects of construction. space and technology into logical sequence of activities. b) Minimising any kind of wastage whether in term of material or in the form of people time. d) Scheduling tasks.

000 m2 developed area will be used by the owner and the balance 5. which will give him an asset of 5000 x 10000 = 50000000 (Rs 5 crore) • Developer will get the area to develop for the trust is 5000 square meter at the rate of 10000/ m2. Within this area total construction area will be 85%.Conceptual analysis.000/ m2 Developer is going to get 5. .e. Elements of this phase include: .000 m2 area will be utilized by the developer to get back investment and a profit on his investment. 10. We can assume the construction cost at this prime locality is 750 Rs/ ft2 i.FINANCIAL VIABILITY OF PROJECT Most construction projects start with a need to have a new facility long before designers start designs and drawing of the projects and certainly before field construction work can commence.000sqmt at the rate of 10.000/ m2. 5 . STAGE 1: Development and Building of Charitable Trust To develop a commercial site 10. Thus developer has to develop the total area is 5000 X 0. Here the project is divided in two stages first developing & building facility for a charitable trust and using 5.000 sq.Environmental impact reports. • Generally construction rate is varying with area to area. 7000/ m2.Technical and feasibility studies and . m area of land free as a cost of production.000sqmt and in that 5. • • The cost of land is Rs.85 = 4250 m2.

Thus the Developer is going to generate the total amount of Rs 3 Crores and break even the cost of development of the charitable trust.15 % Years -2 Total. 6 .000 x 15 x 2 ) / 100 = 15.Rs. The developer can generate the amount by giving half of his share of land i. (say Rs 3 crore) As developer can invest only Rs 10 lakhs from his own fund and loan of maximum Rs 50 lakhs can be taken from bank there is a financial constraint in developing the above mentioned construction project.000 Rate of interest .Thus total cost of construction will be 4250X7000= 29750000 Rs. Interest Calculations As only Rs 50 lakhs is been taken loan from banks on 15 % of interest for 5 years so only this amount is subjected to the interest Total amount .000 So total amount paid to the bank as interest is Rs 15 lakhs This 15 Lakhs is taken into account while working out the Economic Feasibility study of the Housing Society in Stage 2. 5.000. This total Rs 60 Lakhs is not at all sufficient to develop the proposed development therefore he is going to use the land which he got as a development cost for generate the amount. 2500 sqm of land for rents to private authorities. interest amount to be paid = (5.000. Developer is going to get the rent of 800Rs/ m2/month.00.e. which will generate the amount for the year as 800 X 2500 X 12 = 24000000 Rs.

m. Ground floor of the building will be meant for two wheeler and four wheeler parking. 2500 sq. m area the best investment feasible is by building a housing society. Also he can take the booking amount for the initial launch of project from customer and use it for launching the project.m X 500sq. Flats will be constructed and 7 . 3. m of land in the first phase is the most suited economical option. 2 BHK flat via. 3 BHK flats. one on each floor 12 . 7. 5. So keeping in mind the financial constraint constructing. a lobby. 2. As the land is located at prime location of Pune. housing building in only half of the available land i. one for each floor ----------At ground level 1 at ground level adjacent to entrance gate All 3 BHK flats will be front facing and linked with the other two no.STAGE 2: Development of Housing Society on land given free as cost of Development As the developer has to earn profit by investing in the balance land of 2500 sq. ITEMS 3 BHK Flats 2 BHK Flats Balcony Lobby Staircase Parking lot Guard room QUANTITY 6 . 4. one for each floor 6. The residential building will be six storey building to be built on a space on an area of 500 sq. two on each floor 6.e. Balcony will be provided at all three no. 1. so flat of the purposed residential building can be sold at higher prices earning a good profit margin for the developer.No. The Proposed residential building will comprise of:S. 6.

f) Framework: Door frames of Sal wood. PROJECT SCOPE As it is a Housing project the specifications in general for the residential dwellings will be as follows.C. d) Plastering: Internal/External plaster of walls will be executed with necessary admixtures added to the Cement Mortar in order to minimize shrinkage cracks. Main door of Teak Wood with French polish. c) Masonry: All Masonry will be of Concrete Block and internal partition with first class wire cut bricks. 8 . As per design of Architect and Engineer. b) Reinforcement: The reinforcement used will be Anti Corrosive TMT Steel. So developing a residential building on a free of cost land and selling the flats of the building is a sure sort assurance of profit. Fully furnished flats will then be ready for selling to the costumers with ready to move option. Posh location will also add to the amount on which flats can be selling. Framed structure. Internal walls will be neat finished and External walls will be Sponge finished. Internal Doors Marine Flush Door with Oil paint. e) Flooring: Granite on Floor in Living Room and remaining area Mosaic cement tiles and Kota stone in Bathrooms and Kitchen area. So this investment on this construction project is a totally win – win situation for the developer and positively promises the profit.then will be fully furnished.C. a) Structure: R. As flats to be constructed are spacious. parking facilities along with security is also been provided so flat will going to attract the potential buyers easily.

All External piping and SWR pipes used will be of Finolex. i) Kitchen: Granite platform with Stainless steel sink with drain board and Ceramic tiles on dado up to height of 0. customer requirement). l) Water Storage: Underground sump and overhead tank.g) Windows : Aluminum sliding Windows 3 track anodized h) Painting and Polishing: Internal Walls will be painted with Oil Bound Distemper. regulatory and standards-related product and also the financial (amount to invest and returns expected). there is a demand. The study focuses on two general areas: study of supply and the study of transformation. These take account of the market (availability of raw material. To carry out critical analysis of technical feasibility.6m above platform. TECHNICAL STUDIES The technical study is to determine the needs for material and human means necessary to achieve the objectives. there must be enough knowledge of technical. m) Electricals: All wires used will be Finolex or equivalent with fixtures of Crabtree or equivalent. j) Plumbing: All plumbing in the Bathrooms / Toilets will be concealed and CPVC pipes will be used. External Walls with Apex Weather Shield paint. economic and regulatory environment a) Cost of construction 9 . k) Sanitary ware: All Sanitary ware will be of Standard range of Hind ware or equivalent and fittings of Jaguar standard range.

including materials. holding and improvement Planning and feasibility studies Architectural and engineering design Construction. including assembly. equipment and labor Field supervision of construction Construction financing and taxes during construction (ii) (iii) (iv) (v) (vi) (vii) Insurance (viii) Equipment and furnishings not included in construction (ix) Inspection and testing The operation and maintenance cost in subsequent years over the project life cycle includes the following expenses: (i) Land rent. Each of these major cost categories consists of a number of cost components. The capital cost for a construction project includes the expenses related to the initial establishment of the facility: (i) Land acquisition.The cost of construction includes both the initial capital cost and the subsequent operation and maintenance costs. if applicable Operating staff Labor and material for maintenance and repairs (ii) (iii) 10 .

ITEMS TOTAL COST (Rs. land acquisition costs are a major expenditure for building construction in high-density urban areas. other cost components are not insignificant. among many considerations. size and location of the project as well as the management organization. It is important for design professionals and construction managers to realize that while the construction cost may be the single largest component of the capital cost. For example. Break-Up of Cost of Construction for the Housing Project is listed in the table given below:S. Calculating the cost of construction is also helpful in the financial management and planning as it gives the idea that how much finance will probably will required for developing the project. NO. and construction financing costs can reach the same order of magnitude as the construction cost in large projects such as the construction of nuclear power plants.) 11 .(iv) Periodic renovations Insurance and taxes Financing costs (v) (vi) (vii) Utilities The magnitude of each of these cost components depends on the nature. The owner is interested in achieving the lowest possible overall project cost that is consistent with its investment objectives.

Also the cost of labour force i.00. Cost of Reinforcement Cost of Masonry Cost of Plastering Cost of Flooring Cost of Framework Cost of Painting and Polishing Cost of Plumbing Cost of Sanitary ware Cost of Water Storage Cost of Electricals Grand Total 40. Cost of R.00. • S. TIME PERIOD COST 1.00.e.000 6. 5.00. Manpower Requirement For R. 3.00.000 1. The main drawback for the projects which suffer on account of delay etc. and easy flow of labour and material stacking accessible in order to reduce the work force and in turn make the project cost effective. the Manpower requirement is very high and hence the whole project needs to be analysed and phased out in order to obtain maximum output from the labour and planning the area of work without much hindrance throughout the site. 7.000 4. 8.00. Mason 10-15 8 months 7.000 12 .000 16.00.00.00. NO. Hence the planning needs to be done accordingly.000 6. is due to lack of Manpower which is in acute shortage. 2. both skilled and unskilled has increased drastically since few years now.000 6. 6.60.C.00.00. 4.C & Structural Works MANPOWER No.C.000 20. 9.000 6.1.000 20.000 16. 10.00.00.000 20. 11.000 (b) Manpower requirements/costs For the execution of such a project.C.

3. Manpower Requirement For Finishing.00.00.00.000 Grand Total (c) Design adequacy and alternatives 10. 4. possible.A.R.000 4. Plumbing & Electrical Work MANPOWER Mason Electricians Plumbers TIME PERIOD 8 months 3 months 3 months COST 5.000 2. Carpenters Painters Blacksmiths Mazdoors Grand Total 8-10 8-10 5-8 20-25 6 months 5.000 3.000 • S. 5.000 4.00. NO. 1.00.00. So the design of the structure always needs to be handled at the highest priority and enough time given to the designer to make use of all the objectives to maximize the profit by using as much of the Permissible F.000 The project Design is the main criteria on which the whole budget as well as the end profit depends. Also care needs to be taken during designing that the whole project should be very impressive and should be able to suit the conditions comfortably in order to find 13 .000 10.00.00.2. 3. 2.00.000 5 months 5 months 10 months 30.

Phase-II. 2. (d) Work schedule on quarterly basis Working out the Task & Time schedule of a project in preliminary stages is must for the accurate financial planning.buyers very easily in terms of looks as well as funds both and apartments so designed should suit the requirements of the buyer. Main motive of a work schedule is to break down the construction activities to be carried out for a project in the form of various tasks. 3. NO. Phase-III & Phase-IV. So Project activities is divided in to four quarterly phases namely Phase-I. each phase covers a period of 8 to 4 months depending on the activities carried in the respective phase. Project start date is fixed on 15/01/13 and commissioning of project is scheduled on 15/01/15. Break-Up of Work Schedule is listed in the table given below:S. Foundation Reinforcement Work Masonry Work Plastering Total Time Elapsed PHASE-II PHASE-I START TIME 15/01/13 11/04/13 21/06/13 01/08/13 FINISH TIME 10/04/13 20/06/13 31/07/13 15/9/13 8 months 14 . 4.C. For this project a total time period of 2 years has been considered and all the construction activities will be carried out in this tenure. ACTIVITIES R. The Design should be in such a manner that the buyers can also relate and be able to comfortably alter a few things in such a way so as to not disturb the structure or its elevations etc.C. stating the specific time to be consumed for the planned tasks. 1.

management of monetary issues.e. There are two basic aspects of financial management viz procurement of funds and an effective use of these funds. 1. 2. 2. ACTIVITIES Flooring Framework Painting and Polishing Total Time Elapsed START TIME 15/09/13 01/01/14 16/03/14 FINISH TIME 31/12/13 15/03/14 15/05/14 8 months FINISH TIME 15/07/14 20/09/14 4 months FINISH TIME 20/11/14 15/01/15 4 months S. 1. ACTIVITIES Water Storage Electricals Total Time Elapsed PHASE-IV START TIME 21/09/14 21/11/14 * Note: All Task durations are tentative and can be changed as per construction planning and site conditions. 3. NO. NO. 1.S. NO. a) Total Investments cost 15 . ACTIVITIES Plumbing Sanitary ware PHASE-III START TIME 16/05/14 16/07/14 Total Time Elapsed S. FINANCIAL AND ECONOMICS EVALUATION FOR HOUSING SOCIETY: Financial management is mainly concerned with management of funds i. 2.

TMT bars for reinforcement. 3. sanitary wares etc.000 4.  Manpower Cost . COST BREAK-UP Land Cost Raw Material Cost Construction Cost Man Power Cost Grand Total REMARKS Not Applicable As Land Was Free INVOLVED COST (Rs.000 4.000. Investment cost of project is the sum of following costs stated as under: Land Cost . NO.000. electrics. 4.All money spend for carrying construction activities add on to form this cost.000.It comprises cost of raw material required for construction like cement. S.e. aluminum & wooden frames.  Construction Cost . Rs 24.000/ b) Project Financing for Housing Society 16 .000. 2.) 0 16.  Raw Material Cost .000 Hence the total investment for this Housing Colony Construction Project is two crore and forty lakhs i.Cost of recruiting skilled and non-skilled employees contribute to this type of cost.It involves the cost required to acquire the land on which construction of housing colony is to be carried out. 1.000 24.Primary step in financial planning of a project is to estimate total investment cost involved in the development of project.000. tiles.

Proposed Capital Structure / Loan requirements One of the major problems facing any business enterprise is that of obtaining finance and ascertaining the cost of project. So the complete finance for the housing project i.e. As in this Construction Project there are some restrictions in the investment like:• Developer has already invested his own Rs 10 lakhs in construction of the Charitable trust and also an amount of Rs50 lakhs which he has taken as a bank loan. Middle Term Finance Short Term Finance. There are several sources of finance available for a construction project like:• • • Long Term Finance. Sources of finance depend upon the business structure. Finance can be obtained from different sources and since finance arranged from different sources have different characteristics in terms of risk.Primary role of banks is to cater to the finance requirement of a project. Rs Two Crores and Forty Lakhs is to be managed / procure. Usually bank charges 15 % of interest rate in financing such type of construction project. Types of finance considered for the Construction project are stated as under:• Middle Term Finance  Loans from Banks . • Short Term Finance 17 . cost and control. As the project duration is of 2 years and developer seeks early and quick profit Middle term and Short Term Finance seems to be the feasible options.

15 % Years -2 Total.000. Interest Calculations As only Rs 50 lakhs is been taken loan from banks on 15 % of interest for 5 years so only this amount is subjected to the interest Total amount . 5. money can be generated from the potential costumers in the form of advance down payment for booking the flats.  Quarterly Break Up of Cash Outflow 18 .000 So total amount paid to the bank as interest is Rs 15 lakhs c) Cash Flow Management for Housing Society Cash Flow management basically deals with inflow and outflow of cash during a particular time. Advance From Customers – As this Construction Project comprises a housing colony in which flats are to be constructed for selling to the costumer. interest amount to be paid = (5.00.000 Rate of interest .000 x 15 x 2 ) / 100 = 15.000.Rs.

800.00. NO.000 4.500. PHASES Phase I Phase II Phase III Phase IV Cumulative Construction cost for all 4 phases Cumulative Man Power cost for all 4 phases Interest amount payable to bank Grand Total Amount 4. 1.000 Sink Foundations Work Flooring & Frame work Pipe Fitting Work Electrical & Finishing work 25.000 8.000 2. 2. 3. 6. 5.200. 7.000 10.000.000 2.000  Quarterly Break Up of Cash Inflow S.000 1. 4. 3. 6.00.000.000 4.000 2. 1.000 36. 4.800.000.000 Source 25 lakhs(Bank) + 5 lakhs(own fund) + 18 lakhs(lease amount) 5 lakhs(own fund) + 11 lakhs(lease amount) + 25% Customer Advance 5 lakhs(Bank) 22 lakhs(lease amount) 20 lakhs() As the total investment for this Construction Project is Rs 2 crore 55 lakhs and by selling the flats amount of Rs 1crore 5 lakhs has been earned so this project is fully financially feasible and have potential to reap high profit for the developer.000.200.000 8. 19 .000 2. 2.000. PHASES Phase I Phase II Phase III Phase IV Bank Loan Costumer advance Flat selling amount CONCLUSION Amount 4. 5.000.S. NO.000.500.000 10. 7.

Bibliography 1.000.000 x 6 = 18. Hence considering real estate value is going up it is recommended to take up the project financial term in the project.500.000.000 = 43.75 % of Profit Earned RECOMMENDATION Particularly during periods of economic recession construction firms are exceedingly conscious of the problem of survival and seek to predict. 20 .000. Profit calculation A) Total cost of project = Rs 25.000  Selling price of 6 no’s of 3 BHK flats = 3.500.000.000-25.000 = 10. Selling price of 12 no’s of 2 BHK flats = 1.500. Text Books from NICMAR.000.000. monitor and control costs and revenues with diligence far surpassing that employed during more buy-ant time.000 B) Total amount earned from the project = I + II = 36.000 D) Profit Percentage = (C x 100) / A = (10.000 x 12 = 18.500.500.000.000 x 100)/ 24.000/ C) Net Profit = B –A = 36.

Financial Management.2. Second Edition. 21 . Oxford Publication by Srivastava Misra.

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