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CAVITE STATE UNIVERSITY

COLLEGE OF ENGINEERING AND INFORMATION TECHNOLOGY


DEPARTMENT OF CIVIL ENGINEER AND ARCHITECTURE

ARCH 106 SPECIALIZATION II


CONSTRUCTION MANAGEMENT

LESSON 4

JANINE ALECAR AMPO


RYAN PACAYRA
BS ARCH 5-1

ARCHT. ARSOL S. ARCILLA, uap


Instructor

July 22, 2015

PROJECT BUDGETS
The project budget is a detailed estimate of all the costs required to
complete project tasks. It is much more detailed than the high-level budget
developed in the Initiate Stage. The typical budget specifies costs for staf
labor, materials procurement, ongoing operating costs and other direct costs
such as travel or training.
The detailed budget provides the project sponsor with a best estimate
of how much the project will cost. The detail budget helps manage
expectations and gives the project sponsor information to develop a
cost/benefit for the project.
Your projects budget includes both direct and indirect costs.
Direct costs include the following:

Salaries for team members on your project

Specific materials, supplies, and equipment for your project

Travel to perform work on your project

Subcontracts that provide support exclusively to your project

Indirect costs fall into the following two categories:

Overhead costs: Costs for products and services for your project that
are difficult to subdivide and allocate directly. Examples include employee
benefits, office space rent, general supplies, and the costs of furniture,
fixtures, and equipment.
You need an office to work on your project activities, and office space
costs money. However, your organization has an annual lease for office
space, the space has many individual offices and work areas, and people
work on numerous projects throughout the year. Because you have no
clear records that specify the dollar amount of the total rent thats just for
the time you spend in your office working on just this projects activities,
your office space is treated as an indirect project cost.

General and administrative costs: Expenditures that keep your


organization operational (if your organization doesnt exist, you cant
perform your project). Examples include salaries of your contracts
department, finance department, and top management as well as fees
for general accounting and legal services.

Suppose youre planning to design, develop, and produce a company


brochure. Direct costs for this project may include the following:

Labor: Salaries for you and other team members for the hours you
work on the brochure
Materials: The special paper stock for the brochure

Travel: The costs for driving to investigate firms that may design your
brochure cover

Subcontract: The services of an outside company to design the cover


art

Indirect costs for this project may include the following:

Employee benefits: Benefits (such as annual, sick, and holiday leave;


health and life insurance; and retirement plan contributions) in addition
to salary while you and the other team members are working on the
brochure

Rent: The cost of the office space you use when youre developing the
copy for the brochure

Equipment: The computer you use to compose the copy for the
brochure

Management and administrative salaries: A portion of the salaries


of upper managers and staf who perform the administrative duties
necessary to keep your organization functioning.

Who are involved?


A. PROJECT MANAGER
A project manager is a professional in the field of project
management. Project managers can have the responsibility of the planning,
execution and closing of any project, typically relating to construction
industry, architecture, aerospace and defense, computer networking,
telecommunications or software development.
Many other fields in the production, design and service industries also
have project managers.
A project manager is often a client representative and has to
determine and implement the exact needs of the client, based on knowledge
of the firm they are representing. A project manager is the bridging gap

between the production team and client. So he/she must have a fair
knowledge of the industry they are in so that they are capable of
understanding and discussing the problems with either party. The ability to
adapt to the various internal procedures of the contracting party, and to form
close links with the nominated representatives, is essential in ensuring that
the key issues of cost, time, quality and above all, client satisfaction, can be
realized.
The term and title 'project manager' has come to be used generically
to describe anyone given responsibility to complete a project. However, it is
more properly used to describe a person with full responsibility and the same
level of authority required to complete a project. If a person does not have
high levels of both responsibility and authority then they are better described
as a project administrator, coordinator, facilitator or expeditor.
Some types of project managers

Construction project manager

Construction project manager in the past were individuals, who worked


in construction or supporting industries and were promoted to foreman. It
was not until the late 20th century that construction and construction
management became distinct fields.

Architecture Project Manager

Architectural project manager are project managers in the field of


architecture. They have many of the same skills as their counterpart in the
construction industry. An architect will often work closely with the
construction project manager in the office of the General contractor (GC),
and at the same time, coordinate the work of the design team and numerous
consultants who contribute to a construction project, and manage
communication with the client. The issues of budget, scheduling, and qualitycontrol are the responsibility of the Project Manager in an architect's office.

Insurance Claim Project Manager

In the insurance industry project managers often oversee and manage


the restoration of a clients home/office after a fire, flood. Covering the fields
from electronics through to the demolition and constructions contractors.

Engineering Project Manager

In Engineering project management is the term used to describe the


task of seeing a product/device through the stages of R&D/design to
manufacturing stages. Working with various professionals in diferent fields
of engineering and manufacturing to go from concept to finished product.
Optionally, this can include diferent versions and standards as required by
diferent countries. Requiring knowledge of laws, requirements and
infrastructure. Things like electrical voltages often change from country to
country.

Software Project Manager

A Software Project Manager has many of the same skills as their


counterparts in other industries. Beyond the skills normally associated with
traditional project management in industries such as construction and
manufacturing, a software project manager will typically have an extensive
background in software development. Many software project managers hold
a degree in Computer Science, Information Technology, Management of
Information Systems or another related field.
Responsibility
The project manager is accountable for ensuring that everyone on the
team knows and executes his or her role, feels empowered and supported in
the role, knows the roles of the other team members and acts upon the
belief that those roles will be performed. The specific responsibilities of the
Project Manager may vary depending on the industry, the company size, the
company maturity, and the company culture. However, there are some
responsibilities that are common to all Project Managers, noting:

Developing the project plan

Managing the project stakeholders

Managing communication

Managing the project team

Managing the project risk

Managing the project schedule

Managing the project budget

Managing the project conflicts

Managing the project delivery

B. PROJECT SPONSOR
Executive sponsor (sometimes called project sponsor or
responsible owner) is a role in project management, usually the
member of the project board and often the chair. The project sponsor
a senior executive in a corporation (often at or just below board level)
responsible to the business for the success of the project.

senior
senior
will be
who is

The sponsor has a number of interfaces and responsibilities for the


project.
The responsibilities for which the sponsor is accountable to the board
are:

Provides leadership on culture and values

Owns the business case

Keeps project aligned with organization's strategy and portfolio


direction

Governs project risk

Works with other sponsors

Focuses on realization of benefits

Recommends opportunities to optimize cost/benefits

Ensures continuity of sponsorship

Provides assurance

Provides feedback and lessons learnt

The governance activities that take place between the sponsor and the
project manager are:

Provides timely decisions

Clarifies decision making framework

Clarifies business priorities and strategy

Communicates business issues

Provides resources

Engenders trust

Manages relationships

Supports the project managers role

Promotes ethical working

In addition to these activities the following activities take place


between the sponsor and other stakeholders:

Engages stakeholders

Governs stakeholder communications

Directs client relationships

Directs governance of users

Directs governance of suppliers

Arbitrates between stakeholders

Due to the problem solving needs of the role the executive sponsor
often needs to be able to exert pressure within the organization to overcome
resistance to the project. For this reason a successful sponsor will ideally be

a person with five personal attributes understanding, competence,


credibility, commitment and engagement.
A few research study have been published that not only detail the role
of this individual within project management but also provide a way to
ensure that the success of a project is greater increased if this individual
plays a more active role.
C. PROJECT TEAM
A project team is a team whose members usually belong to diferent
groups, functions and are assigned to activities for the same project. A team
can be divided into sub-teams according to need. Usually project teams are
only used for a defined period of time. They are disbanded after the project is
deemed complete. Due to the nature of the specific formation and
disbandment, project teams are usually in organizations.
A team is defined as an interdependent collection of individuals who
work together towards a common goal and who share responsibility for
specific outcomes of their organizations. An additional requirement to the
original definition is that the team is identified as such by those within and
outside of the team. As project teams work on specific projects, the first
requirement is usually met. In the early stages of a project, the project team
may not be recognized as a team, leading to some confusion within the
organization. The central characteristic of project teams in modern
organizations is the autonomy and flexibility availed in the process or
method undertaken to meet their goals.
Most project teams require involvement from more than one department,
therefore most project teams can be classified as cross functional team. The
project team usually consists of a variety of members often working under
the direction of a project manager or a senior member of the organization.
Projects that may not receive strong support initially often have the backing
of a project champion. Individual team members can either be involved on a
part-time or full-time basis. Their time commitment can change throughout
the project depending on the project development stage.
Project teams need to have the right combination of skills, abilities and
personality types to achieve collaborative tension. Teams can be formulated

in a variety of ways. The most common method is at the discretion of a


senior member of the organization.
There are many components to becoming a top performing team, but
the key is working on highly cooperative relationship. The job of
management is to create relaxed and comfortable atmosphere where
members are allowed to be themselves and are engaged and invested in the
project work. All team members are encourage for relationship building. Each
member is responsible to give constructive feedback, recognize, value and
utilize unique strengths of each other. The whole team is tuned on trust and
cooperation.

2
DEVELOPMENT OF PROJECT ESTIMATES FOR BUDGETING
The preparation of estimates, assessing risk, and assigning
contingency for budgeting is one of the most difficult tasks in project
management because it must be done before the work is started. It is a
process that involves a series of successive approximations beginning with
the owners feasibility study and continuing through design development and
construction.
The preparation of cost estimates for budgeting is important to
each party because the decision to proceed, at each phase in the project, is
based on the estimated cost that was determined in the preceding phase.
The owners organization must determine a realistic maximum cost of the
entire project, which includes the cost of design and construction. The
designers organization must determine the cost of the performing design
tasks and producing the contract documents. It must also determine the
probable cost of construction as a part of the design process. The
construction contractors organization must determine the cost of all
material, labor, and equipment to build the project on the job-site.
Each contractor on a project must develop a base estimate, consider
risk, and assign contingency for the work they will be performing on a
project. Since the owners organization has overall project funding
responsibility, the owners management must consider both the contractors
and owners estimate in order to determine the overall budget for the
project.
Project estimating and budgeting begins with feasibility of the study of
needs, priorities and scope. A special efort should ____________ in the
development of a project to define the scope as detailed ______as possible.
The control of project to define the scope growth and cost overruns can be
greatly enhanced if the owner obtains the early advice and expertise of
experienced design and construction professionals, who have the knowledge
of construction costs. All parties must realize that the estimated cost, at any
time, is based upon the amount of information that is known about the
project when the estimate was prepared. Too often this concept is not fully
recognizes. A project manager can play an important role as mediator in
the early staged of the development of a project by testing, scrutinizing,
and identifying the variances that should be applied to an estimate.
The owners organization must prepare estimates to determine
the overall project budget, which includes the approved cost for

design and construction. If the scope is not well defined or the owners
organization does not have the expertise to perform such an estimate, the
owner can enlist a designer to perform these services on a cost-reimbursable
basis. Because this budget is prepared prior to any detailed design work, it
should include reasonable amount of contingency funds to allow some
flexibility in decision making during design development.
The designers organization must prepare a budget based on the
estimated costs to provide design services. In addition, as a part of the
design process the designer must prepare the estimated construction costs
of the various design alternatives that are being evaluated to meet the
owners needs for the project. This is necessary before completion of the
contract documents. It is the designers responsibility to keep design costs
and estimated construction costs within the owners overall approved project
budget. This requires extensive cooperation and involvement with the owner
because the scope must somethings to meet the owners needs. This design
costs and estimated construction and costs within the owners overall
approved budget, or the budget must be readjusted to meet the owners
needs. This decision must be made by the owners organization.
The construction contractors organization must prepare a bid that is
submitted to the owner, based on the estimated costs to build the project in
accordance with the contract documents. For competitive-bid projects, the
contractor is not obligated to a cost that is within the owners approved
budget because this information is usually not known to the contractor. For
negotiated cost-reimbursable projects the contractors organization works
closely with the owner to determine construction alternatives with costs that
are within the owners overall approved budget.

3
LEVEL OF ACCURACY

Improving Project Estimation Accuracy


Accurate project estimation is one of the most challenging aspects of a
project. Project estimation becomes increasingly difficult as the projects
complexity and uncertainty increases. However, project estimates can be
accurate.
The powerful project estimation techniques that are explained in this
article will quickly improve the accuracy of project estimates, even if you
have no project estimation experience.

Before Estimating Project Costs


Before you begin project estimation, there needs to be an
understanding of the scope of the project. If you dont know what the project
is trying to achieve, then there is little chance of being able to accurate
estimate the efort required.
The more detailed the scope of the project, the more detailed and
accurate the project estimate will be. The size, complexity and stage of the
project will impact greatly on the level of accuracy required, the amount of
cost and time the business can commit to project estimation and the level of
understanding and clarity of the scope of the project.
It is therefore important to align the project estimation requirements to
the required accuracy and stage of the project.
Project Estimation Accuracy
When estimating a project it is important to understand what stage the
project is in as this will determine the level of project estimation accuracy
required. For example, if the project is in the initiation stage, the project
estimate may have an accuracy of 50%.
This means that if the project estimate is $2,000,000 with an
estimating accuracy of 50%, the business needs to allow for $1,000,000 at
the lower end of the estimate and $3,000,000 as the upper limit of the
project estimate.

Project estimation is a process and it is likely that the estimate will


undergo several iterations and development. As the project scope is
understood and refined, the project estimation accuracy should also improve.
A project estimate in the planning phase may reduce form
50% to 30%. Prior to executing the project and providing sufficient project
planning was conducted, the project estimate may be as accurate as 10%.
Project Estimation Techniques
It can be extremely challenging to estimate a project, as a project by
definition is unique in nature, often a new product, service or business
change. But there are several techniques available that can greatly improve
the project estimation process and accuracy which include:
Expert Judgment
Project estimation requires a level of expert judgement, not only in the
project itself but more importantly expert judgement of the business
environment in which the project is being delivered.
It is typically the role of the project manager to provide this expert
judgement in order to decide what business risks need to be managed and
which project estimating technique is likely to achieve the best results. Some
areas of consideration are:

Impact of inflation over the project lifecycle


Foreign exchange risk when using international suppliers
Can hedging or insurance reduce the exposure to the business
Required labor and labor rates
Material costs and assumptions
Costs of quality
Availability of historical information
Level of project estimation accuracy required

Analogous Estimating
Analogous estimates are a great technique for early project
estimation providing there is sufficient historical data for which assumptions
of similarity in size and complexity can be derived.
For example, the project may be to implement a CRM system into an 80
person national company. Knowledge of past projects of similar complexity
have taken 5 months to complete for a 40 person company.

With this information you might infer that the complexity is similar but the
scale of the project is double and an Analogous project estimation would
suggest this could take 10 months.
As with most project estimation techniques, each have their own
advantages and limitations, some key considerations for Analogous project
estimating are:

How does the project difer from that of the historical data?
What adjustment can be made to the formula for those diferences?
How accurate is the historical data
Is the data source internal or external to the organization
What external factors have not been accounted for
Can the estimate be verified by an external expert
Analogous estimates ofer a low level of accuracy at a low cost

Parametric Estimating
Parametric project estimation is similar to analogous estimating but
provides an increased level of accuracy due to the statistical nature of the
estimating technique. This estimating technique is often based on average
known rates, such as square meter age for construction or software lines of
code for software projects etc.
For example if a typical residential house usually costs around $1,000
per square meter, a 400 square meter house can be estimated to cost
around $400,000.
Estimating a software project that is expected to have around 20,000
lines of code and the cost per line of code is $3. We can estimate that the
project is likely to cost $60,000.
This project estimation technique is highly dependent on the quality of the
data source and the knowledge of the project specifics, some key
considerations are:

How aligned is the quality requirement to historical data


Age of historical data
Understanding of the project specification
Accuracy of historical data
Data source (internal or external)

Bottom-Up Estimating

Bottom-up project estimation breaks down and estimates each


component of a project. Each key portion or work package is split and broken
down to greater levels of detail. The individual costs of each work package is
then totaled to form the full bottom-up project estimate.
The bottom-up estimate takes the longest amount of time to prepare, but
providing sufficient component detail is calculated this project estimation
technique can provide the highest level of accuracy. Some considerations
are:

Estimate accuracy relies on level of detail known


Can take considerable amount of time for complex projects
Can take considerable amount of money
May not be ideal during early initiation due to the cost of this
estimation technique.

Three-Point Estimates
The three-point estimate is one of my favorite project estimation
techniques because it can not only greatly increase the project estimates,
but its approach also makes it easier for other experts to provide input.
The three-point estimate, also known as the PERT technique, provides a
range of project estimates and calculates the weighted average of that
range. In order to use the PERT project estimation technique, we provide 3
data points, the best case, most likely case and the worst case:
1.
2.
3.
4.
5.

Best Case (O) What is the best case scenario to build X


Most Likely Case (L) What is the best case scenario to build X
Worst Case (P) What is the worst case scenario to build X
This technique works great for several reasons.
Psychologically it is easier to provide a number when you can provide a
wide range
6. Starting with the worst case often leads to less resistance
7. Once worst case and best case is identified, it becomes easier to
provide the most likely case
8. Reduces the natural instinct to inflate estimates
I will generally ask experts to first provide their worst case estimate and
then the best case estimate. Once these 2 points are agreed, It is easier for
them to determine the most likely case knowing their upper and lower
estimates.
Once these 3 points of data are captured, the formula (O+4L+P)/6 can
be applied to calculate the weighted average estimate.

If we go back to our lines of code estimate above a three-point PERT


estimate might look something like this:
We can see that buy using the PERT technique in our project estimation
we now have a weighted average software lines of code, which should be
more accurate than our initial estimate of 20,000 lines of code.
Depending on the level of certainty, the weightings of the average can be
Vendor Bid Analysis
Adjusted to suit.
If there is a specific element of the project (or all of the project) to be
outsourced and procuring an external vendor to deliver the project on your
behalf, a simple and efective way in determining project estimates is to
have these external suppliers conduct it on your behalf.
This will likely be through a competitive bidding process, where multiple
vendors will provide a proposal including a fixed price and required time
frames for completion.
Once all of the vendor bids have been returned, an evaluation can be
made on each bid in order to determine the range of costs associated with
each solution, taking into account any quality assumptions and documented
exclusions.

Key aspects to remember in vendor bid analysis project estimation are:


Bid quality relies on quality of scope documentation provided
Requires knowledgeable and capable vendors
Price may be inflated due to unknown or risk transference
May be difficult to determine individual component costs
Does not improve internal knowledge for future project estimation

Reserve Analysis
Finally, once the project estimation has been completed and the
project has a defined budget, it is important to provide for the level of
uncertainty.
As with any estimate, it is just that, an estimate. It should not be
expected to be 100% accurate and only required to be as accurate as the
rough order of magnitude that was used, i.e. 15% for the known
components.

An estimate will inevitably include some element of uncertainty and


due to the uniqueness of a project, will carry certain risks. The project
estimation process should account for this uncertainty.
Uncertainty is often managed with a contingency budget,
contingency is used where there is 20% of uncertainty surrounding the
scope, a reasonable estimate may be to allow 20% contingency for the grey
areas.
Combine Multiple Project Estimation Techniques
No single project estimation technique will suit all projects and for best
results I suggest using and combining all or many of these estimating
techniques to provide increased accuracy to your project estimates.
I like to take it one step further and use a three-point (PERT) estimate
for all project estimation techniques, applying a PERT weighted average for
everything! This is another key reason the three-point is my favorite project
estimation technique.

4
OWNERS ESTIMATE FOR BUDGETING
Every project must be shown as economically feasible before it is
approved by the owners management. Economic feasibility is determined by
an economic analysis for projects in the private sector or by a benefit/cost
ratio for projects in the government sector. An economic analysis can be
performed once an owners estimate has been prepares.
Estimating costs during the inception of a project by the owner, prior to
any design, is difficult because only limited detailed information is known
about the project. However, this cost estimate is important because it is used
to set the maximum project budget that will be approved for design and
construction. At this stage of project development the only known
information is the number of units or size of the project, such as number of
square feet of building area, number of cars in a parking garage, number of
miles of 345-kilovolt (kV) transmission line, or number of barrels of crude oil
processed per day. At some point in time an estimate has to be frozen and
converted to a project budget.
Preparation of the owners estimate requires knowledge and experience of
the work required to complete the project. Cost information from
professionals who are preparation of the owners budget is usually derived
from one of two sources:

Cost records from previous projects of similar type and size,


Or pricing manuals that are published annually by
organizations.

several

For buildings, public works, and heavy construction projects, the Means
Cost Guide is commonly used. The Richardsons manual for construction
estimating is common reference for petrochemical and processing projects.
These pricing manuals provide costs per unit for various types of projects,
such as cost per square foot of building area for offices, warehouses, and
maintenance buildings. The costs are derived from previous projects that
have been completed a numerous geographic locations.

Illustrative examples of cost-per-square-foot information available from


pricing manuals.
Component

Office buildings
Low
Median
High
$/SF
$/SF
$/SF

Foundation
Floors on grade
Superstructure
Roofing
Exterior walls
Partitions
Wall finishes
Floor finishes
Ceiling finishes
Conveying
systems
Specialties
Fixed equipment
HVAC
Plumbing
Electrical
Total $/SF

3.95
3.10
14.90
0.20
4.90
4.35
2.35
2.05
1.55
5.55
0.65
1.05
8.85
3.50
4.60
$61.5
5

4.00
3.15
16.90
0.25
9.75
5.30
3.75
3.90
2.60
6.70
0.80
2.80
9.50
3.80
4.75
$78.10

4.80
3.90
20.25
0.30
13.00
7.05
5.00
5.15
3.75
8.25
2.65
3.75
12.20
4.85
6.25
$101.1
5

Component

Secondary Schools
Low
Median
High
$/SF
$/SF
$/SF

Low
$/SF
0.90
3.95
10.95
2.40
2.80
2.60
0.75
2.40
2.05
1.15
1.10
1.15
3.10
4.45
4.20
$43.9
5

Low
$/SF

Motels
Media
High
n
$/SF
$/SF
1.40
1.60
5.00
5.40
13.30
21.70
3.40
3.45
4.45
5.55
3.65
5.25
2.60
2.75
3.55
4.55
4.60
4.90
1.80
2.35
1.35
4.00
1.65
1.95
5.55
6.25
5.40
6.15
7.45
8.20
$65.15 $84.05

Hospitals
Media
High
n
$/SF
$/SF

Foundation
1.35
1.85
2.70
4.35
4.90
6.65
Floors on grade
3.85
4.40
6.00
0.30
0.40
0.60
Superstructure
10.95
12.30
17.25
17.05
18.55
25.50
Roofing
1.70
2.05
2.45
3.25
3.70
5.20
Exterior walls
3.75
5.55
8.00
16.00
18.55
25.10
Partitions
5.90
6.55
8.50
7.20
11.00
24.70
Wall finishes
3.05
3.40
5.15
6.75
7.95
11.10
Floor finishes
3.10
3.95
5.25
2.60
2.75
4.00
Ceiling finishes
3.20
3.65
4.65
2.15
2.20
3.55
Conveying
0.00
0.00
0.00
12.95
13.00
19.55
systems
1.70
1.90
2.60
3.10
3.25
4.60
Specialties
2.85
3.35
6.00
5.20
5.25
7.65
Fixed equipment
9.05
10.45
14.45
21.65
25.50
38.05
HVAC
5.05
6.00
9.20
9.10
10.65
16.45
Plumbing
10.25
12.00
16.50
13.45
17.50
24.40
$69.5 $77.40 $108.7 $125.1 $145.0 $215.1
Electrical
5
0
0
5
0
Total $/SF
It shows the low, average, and high cost per square foot, based on the
level of quality. The budget for a proposed project can be calculated by
multiplying the cost per square foot by the total square feet in the project.
The cost of land, permits, and design fees should be added to the calculated
cost of construction. A reasonable percentage multiplier should also be
applied for contingency since the design is not prepared for the project
during the owners budgeting process. Adjustments for time and location
should also be made.
The other source of cost information is company records from previous
projects. Although the total cost of previously completed projects will vary
between projects, unit costs can be calculated to forecasting future projects.
The term of weighting is commonly used to refer to the procedure of
analyzing historical cost data to determine a unit cost for forecasting future
project costs. A unit cost should be developed that emphasizes the average
value, yet accounts for extreme maximum and minimum values.

Economic Feasibility Studies


Feasibility studies, aim to objectively and rationally uncover the
strengths and weaknesses of an existing business or proposed venture,
opportunities and threats present in the environment, the resources required
to carry through, and ultimately the prospects for success. In its simplest
terms, the two criteria to judge feasibility are cost required and value to be
attained.
A well-designed feasibility study should provide a historical background
of the business or project, a description of the product or service, accounting
statements,
details
of
the
operations and management, marketing
research and policies, financial data, legal requirements and tax obligations.
Generally,
feasibility
studies
precede
technical
development
and project implementation.
A feasibility study evaluates the project's potential for success;
therefore, perceived objectivity is an important factor in the credibility of the
study for potential investors and lending institutions. It must therefore be
conducted with an objective, unbiased approach to provide information upon
which decisions can be based.
Feasibility study topics echo
Common factors

The acronym TELOS refers to the five areas of feasibility - Technical,


Economic, Legal, Operational, and Scheduling.
Technology and system feasibility
The assessment is based on an outline design of system requirements, to
determine whether the company has the technical expertise to handle
completion of the project. When writing a feasibility report, the following
should be taken to consideration:

A brief description of the business to assess more possible factors


which could afect the study
The part of the business being examined
The human and economic factor
The possible solutions to the problem
At this level, the concern is whether the proposal is
both technically and legally feasible (assuming moderate cost).
Legal Feasibility

Determines whether the proposed system conflicts with legal


requirements, e.g. a data processing system must comply with the local Data
Protection Acts.
Operational Feasibility
Operational feasibility is a measure of how well a proposed system
solves the problems, and takes advantage of the opportunities identified
during scope definition and how it satisfies the requirements identified in the
requirements analysis phase of system development.
The operational feasibility assessment focuses on the degree to which
the proposed development projects fits in with the existing business
environment and objectives with regard to development schedule, delivery
date, corporate culture, and existing business processes.
To ensure success, desired operational outcomes must be imparted
during design and development. These include such design-dependent
parameters such as reliability, maintainability, supportability, usability,
producibility, disposability, sustainability, afordability and others. These
parameters are required to be considered at the early stages of design if
desired operational behaviors are to be realized. A system design and
development requires appropriate and timely application of engineering and
management eforts to meet the previously mentioned parameters. A system
may serve its intended purpose most efectively when its technical and
operating characteristics are engineered into the design. Therefore

operational feasibility is a critical aspect of systems engineering that needs


to be an integral part of the early design phases.
Economic Feasibility
The purpose of the economic feasibility assessment is to determine the
positive economic benefits to the organization that the proposed system will
provide. It includes quantification and identification of all the benefits
expected. This assessment typically involves a cost/ benefits analysis.
Technical Feasibility
The technical feasibility assessment is focused on gaining an
understanding of the present technical resources of the organization and
their applicability to the expected needs of the proposed system. It is an
evaluation of the hardware and software and how it meets the need of the
proposed system
Schedule Feasibility
A project will fail if it takes too long to be completed before it is useful.
Typically this means estimating how long the system will take to develop,
and if it can be completed in a given time period using some methods like
payback period. Schedule feasibility is a measure of how reasonable the
project timetable is. Given our technical expertise, are the project deadlines
reasonable? Some projects are initiated with specific deadlines. It is
necessary to determine whether the deadlines are mandatory or desirable.

Other feasibility factors


Market and real estate feasibility
Market feasibility studies typically involve testing geographic locations
for a real estate development project, and usually involve parcels of real
estate land. Developers often conduct market studies to determine the best
location within a jurisdiction, and to test alternative land uses for given
parcels. Jurisdictions often require developers to complete feasibility studies
before they will approve a permit application for retail, commercial,
industrial, manufacturing, housing, office or mixed-use project. Market
Feasibility takes into account the importance of the business in the selected
area.
Resource feasibility
This involves questions such as how much time is available to build the
new system, when it can be built, whether it interferes with normal business

operations, type and amount of resources required, dependencies, and


developmental procedures with company revenue prospectus.
Cultural feasibility
In this stage, the project's alternatives are evaluated for their impact
on the local and general culture. For example, environmental factors need to
be considered and these factors are to be well known. Further an enterprise's
own culture can clash with the results of the project.
Financial feasibility study
In case of a new project, financial viability can be judged on the following
parameters:

Total estimated cost of the project


Financing of the project in terms of its capital structure, debt equity
ratio and promoter's share of total cost
Existing investment by the promoter in any other business
Projected cash flow and profitability

The financial viability of a project should provide the following information:

Full details of the assets to be financed and how liquid those assets
are.
Rate of conversion to cash-liquidity (i.e. how easily can the various
assets be converted to cash?).
Project's funding potential and repayment terms.
Sensitivity in the repayments capability to the following factors:
Time delays.
Mild slowing of sales.
Acute reduction/slowing of sales.
Small increase in cost.
Large increase in cost.
Adverse economic conditions.

In 1983 the first generation of the Computer Model for Feasibility Analysis
and Reporting (COMFAR), a computation tool for financial analysis of
investments, was released. Since then, this UNIDO software has been
developed further, to also support the economic appraisal of projects. The
Computer Model for Feasibility Analysis and Reporting (COMFAR III Expert) is
intended as an aid in the analysis of investment projects. The main module
of the program accepts financial and economic data, produces financial and
economic statements and graphical displays and calculates measures of
performance. Supplementary modules assist in the analytical process. Costbenefit and value-added methods of economic analysis developed by UNIDO

are included in the program and the methods of major international


development institutions are accommodated. The program is applicable for
the analysis of investment in new projects and expansion or rehabilitation of
existing enterprises as, e.g., in the case of re-privatization projects. For joint
ventures, the financial perspective of each partner or class of shareholder
can be developed. Analysis can be performed under a variety of assumptions
concerning inflation, currency revaluation and price escalations.
Market research study and analysis
This is one of the most important sections of the feasibility study as it
examines the marketability of the product or services and convinces readers
that there is a potential market for the product or services. If a significant
market for the product or services cannot be established, then there is no
project.
Typically, market studies will assess the potential sales of the product,
absorption and market capture rates and the project's timing.
The feasibility study outputs the feasibility study report, a report detailing
the evaluation criteria, the study findings, and the recommendations.

6
Design budgets
The design organization has a difficult ask of estimating the cost of
providing design services and /or producing contract documents for the
project before the design and construction phases begin. For many projects
the magnitude of work that is required by the designer cannot be fully
anticipated, because design is a creative process that involves the evaluation
of numerous alternative. The evaluation of design alternatives is necessary
part of the design process required to select the best design that satisfies
the owners need for the project.
Compensation for design services is usually by one of the following
methods:

Lump-sum
Salary cost times a multiplier
Cost plus a fixed payment or percent of construction.

The method that is used depends on the accuracy of the scope definition
that is provided to the design organization.

For projects that have a well-defined scope with no unusual features, and
are similar to projects that a designer has handled in the past, a lump-sum
design contract is commonly used. Preparation of the design budget can be
developed by defining tasks, and grouping of tasks, in a work breakdown
structures.