You are on page 1of 68

ABC MULTI-PURPOSE BUILDING

GUEST HOUSE AND COMMERCIAL USE BUSE BUILDING

PROJECT FEASIBILITY STUDY


PROJECT PROMOTER: Mr. ABC

AUGUST, 2016
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

TABLE OF CONTENTS
TABLE OF CONTENTS ...................................................................................................................................... 0

EXECUTIVE SUMMARY ..................................................................................................... 3

BACKGROUND ................................................................................................................... 5

2.1 PROMOTER’S PROFILE ........................................................................................... 5

2.2 PROJECT DESCRIPTION AND RATIONALE ........................................................... 5

MARKET ANALYSIS .......................................................................................................... 6

3.1 INTRODUCTION ....................................................................................................... 6

3.2 OVERVIEW OF THE SECTOR .................................................................................. 7

3.2.1 GLOBAL TRENDS OF THE TOURISM INDUSTRY ................................................. 7

3.2.2 INTERNATIONAL TOURIST ARRIVALS PROJECTION ......................................... 9

3.2.2.1 LONG-TERM PROSPECTS .................................................................................... 9

3.2.3 TOURISM IN ETHIOPIA ........................................................................................ 11

3.3 DEMAND ANALYSIS .............................................................................................. 13

3.3.1 DEMAND EMANATES FROM INTERNATIONAL TOURSITS ............................... 14

3.3.1.3 DEMANdDPROJECTION ..................................................................................... 16

3.3.2 DEMAND EMANATES FROM DOMESTIC TOU RSITS .......................................... 19

3.4 SUPPLY ANLYSIS ................................................................................................... 20

3.5 COMPETITION AND MARKETING STRATEGY .................................................... 24

3.6 OPPORTUNITIES AND THREATS OF THE HOTEL ................................................ 25

TECHNICAL STUDY......................................................................................................... 27

4.1 LOCATION AND SITE ............................................................................................... 27

4.2 ACCOMODATIONS AND AMINTIES ........................................................................ 28

4.3 PROJECT DESIGN AND ENGINEERING .................................................................. 28

4.3.1 BUILDING AND CONSTRUCTION .................................................................................................28

4.3.2 GUEST HOUSE MACHINERY AND EQUIPMENT .................................................................29

4.3.3 GUEST HOUSE FURNITURE AND FIXTURE AND OFFICE FURNITURE ........... 30

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

1
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

4.3.4 SOFT FURNISHING, SILVERWARE, GLASSWARE AND KITCHEN UTENSILS …...30

4.3.5 VEHICLES ......................................................................................................................................................30

ORGANIZATION AND MANAGEMENT .......................................................................... 31

5.1 ORGANIZATIONAL STRUCTURE .......................................................................... 31

5.2 MANAGEMENT ....................................................................................................... 33

5.3 MANPOWER REQUIRMENT .................................................................................. 34

FINANCIAL FEASIBILITY ANALYSIS ............................................................................ 35

6.1 BASIC ASSUMPTIONS FOR FIN ANCIAL ANALYSIS ............................................... 35

6.1.1 PROJECT LIFE ................................................................................................................................................35

6.1.2 REPAIR AND MAINTENANCE COST .......................................................................................................35

6.1.3 DEPRECIATION AND AMORTIZATION ...............................................................................................35

6.1.4 WORKING CAPITAL ...............................................................................................................................36

6.1.5 DISCOUNTING ..........................................................................................................................................36

6.1.6 SOURCE OF FINANCE ........................................................................................................................36

6.1.7 REVENUE .......................................................................................................................................................36

6.2 RESULT OF FINANCIAL ANALYSIS ...................................................................... 37

6.2.1 INVESTMENT COST ...............................................................................................................................37

6.2.5 CASH FLOW .............................................................................................................................................40

6.2.6 DISCOUNTED CASH FLOW ...........................................................................................................40

6.2.7 BALANCE SHEET ..................................................................................................................................40

6.2.8 SENSITIVITY ANALYSIS ..................................................................................................................40

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

2
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

1 EXECUTIVE SUMMARY
Due to the growing economic and business activity of the capital city Addis Ababa
including special towns surrounding the capital city and the country’s overall assets of
enormous value, both private and public business activities with the respective market
structure of the country is growing fast in recent years. The growth trend of well-built
multi-purpose commercial buildings in easily accessible location is low compared to
the highly expanding business operations. Viewing the above facts, the project
promoter reviewed the business performance and demand for commercial building
and identified that there is unsatisfied need in the sector to meet the demands of the
business society other organs those demanding premises for office and several other
use to the required standards in the country.

The total investment cost of the project is estimated at Birr 52,941,437. From the total
investment cost, Birr 52,070,137 is accounted by fixed investment cost and Birr
871,300 is accounted by initial working capital .Of the total fixed investment cost of
Birr 33.8 Million, is accounted by building & civil works and about Birr 19.1 will be for
machinery, equipment, Guest house furniture & fixture, vehicles, Guest house office
furniture, Pre-operating expense & interest and other fixed investments.

The project will have a total of 7 story building’s basement, ground, first and second
floors will be used to rent for shops & other commercial purposes including café &
restaurant, bank; whereas, the remaining third & fourth floors for various office types.

The 7 story commercial building will generate a net profit of Birr 12.2 million during
its first year of operation and Birr 16.33 million during the second year. The project
will generate Birr 20.78 million, Birr 23.91 million and Birr 29.10 million during its 3rd,
4th and 5th year of operation, respectively. The Commercial Building will generate
revenue for the government in the form of profit tax of Birr 5.2 million and Birr 12.5
million in its 1st and 5th year of operations.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

3
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

The commercial building will generate an acceptable internal rate of return (IRR). The
IRR for the Furnished guest house & commercial building is 46% and the Net present
value (NPV) at a discount rate of 10 % is Birr 121,322,973.

The 7 story commercial building will be located in Addis Ababa. Its location
accessibility, visibility and the surrounding area characteristics contribute to
conducive environment for the business.

The project will create job opportunities for 28 employees and among the total job
positions will be management & administrative professional and operations
department and the remaining will be service workers.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

4
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

2 BACKGROUND

2.1 PROMOTER’S PROFILE


The envisaged project promoter is an entrepreneur who has the enthusiasm to
participate in the development activity of the country by taking part on service &
hospitality sector of the country by investing on multi-purpose business building
which is believed to be one of the country’s huge potential both in the form of
generating personal income and improving the lives of local society through
employment creation

The promoter of the project; has been engaged on different successful private
businesses for many years by taking part in national development strategy. These
businesses are major source of experience to start the project under consideration.

2.2 PROJECT DESCRIPTION AND RATIONALE


The rationale behind establishing the project is the growing business & trade
operating environment with the growing middle income urban population for
hospitality service. The prevailing government investment policy provides a favorable
environment for the fully functioning of such project that participated in services and
hospitality sectors.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

5
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

3 MARKET ANALYSIS

3.1 INTRODUCTION
Ethiopia tourism introduces to a mystic destination of discovery; a land of brilliance
and beautiful; a country boasting an extraordinary antiquity with a rich culture dating
back more than 3,000 years.

Often described as the ‘real Africa’, Ethiopia has something for every tourist and never
fails to impress its visitors. First time travelers should expect a lot of options for
tourism while celebrating holidays on their travel to Ethiopia. Most Ethiopia tours are
flavored adventurous travel experiences that create everlasting and pleasant
memories for many of the country’s visitors. Ethiopia tour operators expertly arrange
indulging itineraries that have comprehensive Ethiopia tourist information ranging
from adventure, Wildlife, historical sites, Cultural Heritage and sites etc. They also
arrange excellent accommodation for the country’s adventurous tourists with several
Ethiopia lodges.

Ethiopia's geographical location offers the possibility to enjoy various types of


landscapes, climate, fauna and flora. Its country side gives a great sense of peace and
the tribes and communities scattered in different regions have enriching cultures and
heritages and share the same sense of hospitality.

The country has many national parks: Awash, Omo, Mago, Gambella, Yangudi-Rassa,
Bale Mountain, Abiyata Shalla, Nech Sar, Simien Mountains each with its particular
attraction such as bird watching, trekking, rafting, baths in hot spring natural water,
wild life camping and so much more. Dallol depression is the most impressive sight of
earth cracking and volcanic activity which forms an unforgettable landscape with
basaltic lava and beds of salt. Sof Omar Cave the second largest underground cave in
the world is a spectacular sight, caverns and wide chambers have been formed by the
river with nature’s breathtaking architectural touch.
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

6
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

Business initiative in tourism sector especially in nature and heritage tourism in


Ethiopia has been very impressive. This has created favorable conditions for the
development of tourism and in return demands the establishment of competitive guest
houses.

Increasing awareness of the potential of tourism associated with the economic


development of the country as well as the growing recognition of the inter-relation of
natural and heritage attractions, tourism gave impulse to assess a guest house business
in Ethiopia. Currently the project promoter has identified potential areas for mixed use
& guest house business and has carried out a feasibility study for exploiting the
business opportunity and potentials in a way to contribute for economic development
that is associated with the inflow of tourists which will create extremely positive
economic benefits for the good performance of the country, especially in terms of job
creation, financial contribution to inland revenue and balance of payments
improvement and growth of GDP.

3.2 OVERVIEW OF THE SECTOR

3.2.1 GLOBAL TRENDS OF THE TOURISM INDUSTRY


In recent years, tourism has been increasingly recognized for its economic potential to
contribute for the reduction of poverty in developing countries. The overall export
income generated by inbound tourism, including passenger transport, exceeded USD 1
trillion in 2010, or close to USD 3 billion a day.

Tourism exports account for as much as 30% of the world’s exports of commercial
services and 6% of overall exports of goods and services. Globally, as an export
category, tourism ranks fourth after fuels, chemicals and automotive products. For
many developing countries it is one of the main sources of foreign exchange income
and the number one export category, creating much needed employment and
opportunities for development.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

7
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

International tourism receipts are estimated to have reached USD 919 with 940 Million
tourist arrivals in 2010, up from USD 851 billion in the previous year. Growth in
international tourism receipts is estimated at 4.7% in 2010. All regions registered
positive growth, with the exception of Europe (-0.4%). The Middle East (+14%) and
Asia and the Pacific (+13%) showed the strongest growth, while the Americas (+5%)
and Africa grew (+3%).

FIGURE 3. 1 INTERNATIONAL TOURIST ARRIVALS & RECEIPTIN 2010

SOURCE: WORLD TOURISM ORGANIZATION

Statistics show that the growth in tourist arrivals has been faster in developing
countries like Africa than in the developed countries as a whole. As depicted in the
table below, international tourist arrival to Africa has registered a continuous growth
rate for the period under consideration. While reviewing the growth trend of tourist
arrivals in 2010 to 2009 Sub-Saharan Africa performed best of all the regions in the
world. In the years 2005 to 2010 the average growth rate of tourist arrivals in Africa is
18% and Sub-Saharan Africa are same 18% in particular. With respect to market
share, Africa contributes only 5.3% to the world market of tourism.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

8
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

FIGURE 3. 2 INTERNATIONAL TOURIST ARRIVALS TO AFRICA (MILLION) (1990 – 2010)

SOURCE: WORLD TOURISM ORGANIZATION

In 2010, travel for leisure, recreation and holidays accounted for just over half of all
international tourist arrivals (51% or 480 Million arrivals). Some 15% of international
tourists reported travelling for business and professional purposes and another 27%
travelled for other purposes, such as visiting friends and relatives (VFR), religious
reasons and pilgrimages, health treatment, etc. The purpose of visit for the remaining
7% of arrivals was not specified.

Slightly over half of travellers arrived at their destination by air transport (51%) in
2010, while the remainder travelled over the surface (49%) – whether by road (41%),
rail (2%), or over water (6%). Over time, the trend has been for air transport to grow
at a faster pace than surface transport, so the share of air transport is gradually
increasing. (WTO).

3.2.2 INTERNATIONAL TOURIST ARRIVALS PROJECTION

3.2.2.1 LONG-TERM PROSPECTS


QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

9
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

Tourism 2020 Vision is the World Tourism Organization’s long-term outlook and
assessment of the development of tourism up to the first 20 years of the new
millennium.

3.2.2.2 International Tourist Arrivals, 1995-2020

UNWTO’s Tourism 2020 Vision projects that international arrivals are expected to
reach nearly 1.6 billion by the year 2020. Of these worldwide arrivals in 2020, 1.2
billion will be intraregional and 0.4 billion will be long-haul travellers.

East Asia and the Pacific, South Asia, the Middle East and Africa are forecast to grow at
over 5% per year, compared to the world average of 4.1%. More mature regions
Europe and the Americas are anticipated to show lower-than-average growth rates.
Europe will maintain the highest share of world arrivals, although this share will
decline from 60% in 1995 to 46% in 2020.

The total tourist arrivals by region shows that, by 2020, the top three receiving
regions will be Europe (717 Million tourists), East Asia (397 Million) and the Americas
(282 Million), followed by Africa, the Middle East and South Asia.

TABLE 3. 1 INTERNATIONAL TOURIST ARRIVALS BY REGION (MILLIONS)

COUNTRIES BASE FORECASTS AVERAGE SHARE (%)


YEAR ANNUAL
GROWTH RATE
(%)
1995 2010 2020 1995-2020 1995 2020
Total 565.4 1,006.40 1,561.10 4.1 100 100
Africa 20.2 47 77.3 5.5 3.6 5
Americas 108.9 190.4 282.3 3.9 19.3 18.1
East Asia 81.4 195.2 397.2 6.5 14.4 25.4
/Pacific
Europe 338.4 527.3 717 3 59.8 45.9
Middle East 12.4 35.9 68.5 7.1 2.2 4.4
South Asia 4.2 10.6 18.8 6.2 0.7 1.2
SOURCE: WORLD TOURISM ORGANIZATION (UNWTO)

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

10
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

3.2.3 TOURISM IN ETHIOPIA


Ethiopia is endowed with unique combination of natural and cultural heritages,
impressive scenery, suitable climate, rich flora and fauna and recognized
archaeological sites. Ethiopia is beautifully endowed with many kinds of flora and
wildlife and. More than 800 species of birds reside in Ethiopia of which 23 are endemic
to the country. There are more than 100 mammal species, of which seven of the big
mammals are unique to Ethiopia.

The Saca, Awash, Genale, the Wabishebelle, Omo, Tekeze and Baro rivers are among
the few and the most useful rivers for the country's socio-economic development. The
most known natural lakes are also found in the main rift valley region of Ethiopia. Lake
Langano, Abyata, Shala, Abaya, Chamo, Awassa and others are among the potential
ones for the development of tourism.

Among other things, the eight world heritage sites namely the Axum obelisks, the
castles of Gondar, the Semen mountain national park, the rock-hewn churches of
Lalibella, the stealea of Tiya, Hadar (where Lucy was found) the lower Omo valley,
Gambela, Benshagul – Gumuz. Paleontological site and the walled city of Harar
registered by UNESCO as world heritages, testify Ethiopia's might of ancient times and
the endowment of the country with significant tourist attractions site.

Because it is believed that tourism has the power and capacity to assist in the on-going
effort to eliminate poverty and accelerate development sustainably, provided
Ethiopia’s attractions are appropriately developed and put into service, tourism has
been included as one of the means of implementing the country’s Growth and
Transformation Plan (GTP).

A diverse group of industries which are essential component of the economy are
included in tourism such as air lines, travel agents, tour operators, tour agents’, car
renters, planners, restaurants, resorts, parks, camping and recreational areas, natural
attractions found in parks and forests. In general the political, social and economic
climate of the country has created favorable conditions for development of tourism.
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

11
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

In 2009, around 330 thousand tourists arrived in Ethiopia, a 7% increase from the
previous year arrival of 312 thousand tourists with total receipt of. Out of the total
tourist arrivals the majority of them (86%) arrive through bole airport while the
remaining 14% enter via other ports. Tourist receipts reached USD 1.2 billion in 2008,
a 49% increase from year 2008 tourist related income of USD 790 Million.

FIGURE 3. 3: ETHIOPIA INTERNATIONAL TOURIST ARRIVAL AND RECIPT

SOURCE: MINISTRY OF CULTURE AND TOURISM

However the above figures are minimal when compared with tourism receipts of 10.3
billion USD by Africa’s leading tourist destination South Africa. Thus, Ethiopia with its
diversified natural and manmade tourist attractions has performed poorly in this
sector due to constraints like insufficient quality accommodations and inadequate
infrastructure facilities like Guest houses.

Hence, Fitsum Getuplans to establish a full-fledged mixed use building with guest
house at the naturally gifted area of Bole international Airport of Addis to help meet
this growing demand for quality accommodation for international and local tourists.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

12
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

3.3 DEMAND ANALYSIS


The demand for guest house is directly related with the level of development of the
economy in general and the tourism sector in particular. It is a function of the number
of both domestic and foreign tourist travelers in the area, travelers for commercial or
business purposes, travelers for conference and other assembly purposes and
residents in the area (in fact it depends up on the standard of the guest house and the
living status of the residents). Tourists come to a country for different purposes. It
could be for leisure and vacation, for conference and businesses. The tourism sector is
highly affected by the political, economic and social stability of the country.

The main consumers for guest house in Ethiopia are both local and international
vacation, business & conference tourists including members of Ethiopian Diaspora
permanently residing outside their country. Based on the services provided by the
center, the users can be divided into three groups;

 INTERNATIONAL AND LOCAL TOURISTS who stay longer in the guest house to
have extended break while admiring and enjoying the service, beautiful
environment and nature. Those customers can alternatively utilize the cultural
rooms, restaurants, amusement park facilities, Horse racing, ground tennis,
swimming, Camping, Spa & beauty centers, cinema and golf courses in the city.

 INTERNATIONAL AND LOCAL TOURISTS who stay one night in the center to have a
short break admiring and enjoying the service, beautiful environment and
nature. Those customers can alternatively utilize the cultural rooms and
restaurants.

 LOCAL TOURISTS who visit the center on day time to enjoy the service and
admire beautiful environment and nature. Those customers can alternatively
utilize the restaurants.

In order to identify the demand of customers for guest house two groups of segments
will be assessed in the following section i.e. international tourist and local tourists.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

13
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

3.3.1 DEMAND EMANATES FROM INTERNATIONAL TOURSITS


One of the demands for tourist class guest house arises mainly from international
tourists visiting the country for various reasons. Thus, the number and growth rate of
tourists inflowing to the country is the major determinant of the size/ magnitude of the
demand. This in turn largely depends on the political, economic and social stability of
the country.

The current peaceful situation in the country and the government’s commitment for
the promotion of tourism and other investment activities are expected to contribute
much for the increase in the inflow of tourists in the country.

Moreover, the gradual integration of the country with the global economy and the
growing inflow of foreign direct investment, a large number of business people are
coming to the country. The number is believed to grow significantly, as the country’s
investment climate is becoming attractive. These situations are also expected to stir up
the demand for standard guest houses.

3.3.1.1 HISTORICAL ANALYSIS OF INTERNATIONAL TOURIST


DEMAND
As described above, the demand for guest houses mainly arises from the number of
tourist arrivals in the country. The information obtained from the Ministry of Culture
and tourism revealed that the number of tourists visiting the country has shown a
steady growth over the past decade. As shown in the figure 3.3 the total tourist inflow
showed a 12% average growth per year on average from 2001 to 2009. The number of
tourist arrivals reached 330 thousands in 2009 from its level just 136 thousands in
2001. The recent inflow of tourists exhibits a higher rate of growth. It can be seen
clearly that the inflow of tourists during the years 2007, 2008 and 2009 has increased
by 113%, 129% and 143% respectively compared to 2001.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

14
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

In general, the growth rate is expected to increase even by greater level due to the
government’s commitment to develop the tourism sector and the growing level of
development and awareness towards the country.

3.3.1.2 INTERNATIONAL TOURIST SEGMENTATION


The demand for guest houses is assumed to be directly related to the number of tourist
arrivals and hence the market segmentation is analyzed based on the purpose of visits
of the tourists. According to the data obtained from the Ministry of Culture and
Tourism the total number of tourists arrived are classified into three categories,
namely; business, vacation, transit, conference, leisure and Ethiopian Diaspora and
others.

In this instance, as indicated in the table below International tourist arrival to the
country has shown growth reaching 330,000 tourists in 2009 with 49% average
growth rate from year 2008. Among the total tourist arrival to Ethiopia, 42,355 (13%)
arrive for business, 85,551 (26%) for vacation, 66,768 (20%) for transit, 21,933 (7%)
visiting relatives.

TABLE 3. 2: ANNUAL INTERNATIONAL TOURIST ARRIVALS TO ETHIOPIA BY PURPOSE OF TRIP

YEAR BUSINESS VACATION TRANSIT CONFERENCE VISITING NOT OTHER TOTAL


RELATIVES STATED PORTS
2001 17,456 35,257 27,516 5,577 9,039 22,269 18,886 136,000
2002 18,996 38,368 29,944 6,069 9,837 24,234 20,553 148,000
2003 20,022 40,442 31,563 6,397 10,368 25,544 21,663 156,000
2004 23,103 46,664 36,419 7,381 11,963 29,474 24,996 180,000
2005 23,616 47,701 37,228 7,545 12,229 30,129 25,552 184,000
2006 29,135 58,848 45,928 9,308 15,087 37,170 31,523 227,000
2007 37,221 75,181 58,675 11,891 19,274 47,486 40,272 290,000
2008 40,045 80,884 63,126 12,793 20,737 51,088 43,327 312,000
2009 42,355 85,551 66,768 13,531 21,933 54,035 45,827 330,000
SOURCE: MINISTRY OF CULTURE AND TOURISM

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

15
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

In terms of continent of origin, 36% of tourists arrive from Africa followed by Europe
(27%), America (18%), Middle East (9%), Asia (9%) and Oceania (1%). In terms of
arrival’s country of residence 15% or 49,678 tourists enter from USA, UK (6%), China
(4%), Germany (4%), Italy (3.4%), India (3.2%), Kenya (3.2%), Sudan (3%), Nigeria
(3%), France (2.7%) and other countries.

Leisure visitors segment consist primarily individuals or groups coming for vacation.
This segment also includes visitors passing through the country to other destinations,
usually named as transistors. This group constitutes the least number of arrivals. But,
among the other groups the fast growing segment is the tourists coming for the
purpose of leisure. During the year 1995 G.C-2005 G.C. an average growth rate of 29%
is exhibited for tourist arrivals coming for the purpose of leisure.

The business & conference segment represent individuals or groups coming for
conducting business in the area. It also includes officials and experts coming to attend
international and national meetings and conferences. The inflow of these groups
shows a dramatic increase in recent years.

3.3.1.3 DEMAND PROJECTION


The overall demand for guest houses is directly related to the number of tourist
arrivals. The more the arrivals the greater will be the demand. On the other hand, the
inflow of the tourists is influenced by the social, political and economic situation of the
country. Therefore, the size of the demand depends on how the country is favorable for
the tourist attraction.

Ethiopia is among the few countries in the continent that endowed with unique
combination of natural and cultural heritage, impressive scenery, suitable climate
(referred as 13 months of sunshine), rich flora and fauna and recognized
archaeological sites.

To this end, the government of Ethiopia has already given due attention to maximize
the economic and political advantages of the sector. The high rate of inflow in the
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

16
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

recent years explains the special effort given to the sector. Therefore, the historical
market performance which is explained by the arrival of tourists in the country shows
in general the direction of the movement of these factors.

Based on the above facts, the future demand for the market is examined by analyzing
the sensitivity of the demand to the various factors that directly or indirectly affect the
demand for the market. Accordingly, the size of the future demand is estimated using
statistical techniques that implicitly or explicitly show the above major variables,
which have a strong influence on the size of the demand.

So as to forecast the international tourists demand linear regression method employed


to show the cause-effect relationship between the demand and the factors affecting it.
Among the factors that have effect on the demand guest houses economic performance
of the country is found to have the most significant effect. Therefore, this variable is
used to forecast the future demand. One of the indicators that measure the economic
performance country and the wellbeing of its population is GDP.

TABLE 3.3: NUMBER OF TOURIST ARRIVAL, RECEIPTS AND GDP

Year Arrivals - Tourism expenditure GDP at Growth rate of GDP


Thousands in the country - USD Constant Basic at 1999/00 base
Mn Prices year
2001 136 205 68,014,176 1.6
2002 148 218 66,586,887 -2.1
2003 156 261 74,397,096 11.7
2004 180 336 83,804,022 12.6
2005 184 458 93,474,483 11.5
2006 227 533 104,196,057 11.5
2007 290 639 116,295,435 11.6
2008 312 790 129,367,458 11.2
2009 330 1,184 127,844,207 10
2010 370 1,480 141,187,711 10.4
Average 233 610 100,516,753 9
SOURCE: MINSTRY OF CULTURE & TOURISM AND MOFED

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

17
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

Regression analyses were performed to see the effect of the independent variable in
our case GDP on the dependent variable (International tourist arrivals). The
relationship of the above variables has been found to be linear and is expressed by the
following equations:

Y = 110,687 + 2,667.6 X R2 = 0.96

The coefficient of determination, “R square”, indicates the degree to which the


independent variables explain the dependent variables. Here the independent variable,
GDP, accounts for 96% of the variation in the number of tourist arrivals. The results of
the regression analysis reveal that GDP has a strong positive relationship with the
number of tourist arrivals. Using these expressions and assuming that over the
forecasting period, GDP will continue to grow at an average rate of 9% (the average
growth rate registered during the period 2001-2010); the projected number of tourist
arrivals has been worked out.

FIGURE 3. 4: PROJECTION OF TOURIST ARRIVALS

SOURCE: OWN COMUTATION

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

18
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

It can be seen from the above table that the projected tourist arrival rises significantly.
The number of tourist arrivals based on GDP will grow from 370,000 in 2010 to
874,978 in 2020 or shows an overall increase by 137 percent.

3.3.2 DEMAND EMANATES FROM DOMESTIC TOURSITS


In analyzing domestic market conditions for guest houses in a specific region, it is
necessary to first define the relevant market area, in this project under consideration
Addis Ababa is planned to be the project site.

For the purposes of this analysis, the local market area was expanded to include all of
Addis Ababa and neighboring cities. Therefore, the "defined market area" used to
assess the current competitive position from demand perspective will be Addis Ababa
city. However, we have also examined other guest house in the country in general
analyzing the supply side.

Addis Ababa is considered to be the political capital of Africa and is home of African
Union (AU) and the United Nations Economic Commission for Africa (UNECA). More
than 95 embassies from all over the world have their missions in Ethiopia which
makes Addis Ababa, a city with the highest concentration of embassies in the world
after Washington DC, New York and London. This creates a huge demand for guest
houses at an international standard and a further increase in such a demand is
expected in the future because the importance of Ethiopia has been growing and many
international organizations have been continuously strengthening their institutions
and augmenting their personnel in Ethiopia.

Despite population and income increase in Addis Ababa and neighboring cities,
establishments of guest houses has been limited in the last years.

The domestic demand for recreation center is anticipated to increase in the years to
come, due to persistent increase in income of the population and establishment of
international organizations in Addis Ababa.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

19
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

3.4 SUPPLY ANLYSIS


The guest house industry in Addis Ababa is growing significantly, currently there are
more than 89 star rated operational Hotel/guest houses, information collected from
ministry of culture and tourism indicates out of the total star rated Hotel/guest houses,
79% of the guest houses are at the 3 star and below level, and the other 21% of the
guest houses are at 4 and 5 star level. In respect to number of rooms and beds
availability, 4 and 5 star level Hotel/guest houses contribute almost 60% and 58%
respectively.

FIGURE 3. 5: ADDIS ABABA’S GUEST HOUSE RATINGS

SOURCE: MOCT

Addis Ababa, The capital city of Ethiopia is busy with the construction of new buildings
including many star rated hotel/guest houses. Most of the Hotels/guest houses
currently under construction are expected to be operational within the next year, with
the capacity of over 1,500 rooms. List of the forth coming Hotel/guest houses with
their respective number of rooms is depicted on table 3 below.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

20
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

TABLE 3.4: GUEST HOUSE PROJECTS ON PIPE LINE

Projects Number of rooms


Zenebat 80
Debrea Damo 80
Sunshine 250
Emerald 168
Sheraton (Extension) 200 200
Studies in progress 2010
Ibis 140
Novotel 100
African Union 200
CATIC 35
Kenenisa Bekele 75
Four Points 200
Total rooms 1528

SOURCE: WORLD HOSPITALITY GROUP

Studies made on the star rated Hotel/guest houses in Addis Ababa indicate strengths
and weakness of the existing Hotel/guest houses facilities. Insufficiency of trained man
power in the sector, Inadequacy of research and development at business and public
sector level and Low infrastructural facilities for star rated Hotel/guest houses
projects are some of the problem areas of the sector. All Star rated Hotel/guest houses
in Addis fulfill the basic required facilities and most of 5 and 4 star rated guest houses
have additional amenities including catering services, in room modem access,
transportation, saunas, beauty salon, credit card facilities, large vehicle parking, coin-
operated laundry facilities, cultural showrooms, ticket office, furnished kitchen, safe
deposit box, and, safety locks.

The current average availability of beds in star rated Hotel/guest houses with
respective ownership is depicted below.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

21
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

TABLE 3.5: STAR RATED HOTEL/GUEST HOUSES

Ownership
Star Guest No of No of
Number
houses Rooms Beds
Gov't Private

ONE STAR 4 (9%) 184 252 (7%) 1 3

TWO STAR 13 (29%) 394 510(15%) 4 9

THREE STAR 17 (38%) 708 929 (27%) 3 14

FOUR STAR 9 (20%) 474 694 (23%) 1 8

FIVE STAR 2 (4%) 643 1074 (28%) 1 1

Total 45 (100%) 2,703 3,808 (100%) 10 35

SOURCE: MINISTRY OF CULTURE AND TOURISM

The annual average occupancy rate in Addis Ababa guest houses is in the range of 75 to
85 percent. Ministry of Culture and Tourism report indicates that among government
owned guest houses, the average occupancy rate is about 50% and more than 50% of
bookings are walk-ins. On the other hand, the private guest houses have a relatively
high in occupancy rate registering as much as 85% average annual occupancy.

For most government owned guest houses, prices are fixed for the whole year and do
not adjust according to market demand. Only the five star Hotel/guest houses
(Sheraton & Hilton) and some private guest houses adjust pricing based on demand.
Travel agents and frequent customers enjoy discount rates as provided by the various
guest houses in competition for business. The average room rates for different star
Hotel/guest houses are provided below in table.
TABLE 3.6: AVERAGE ROOM RATES OF DIFFERENT STAR HOTEL/GUEST HOUSES

GUEST HOUSE TYPES OF BED


CLASSIFICATION Single Double Suite

Five Star $225-$525 $244-$600 $313-$6,013

Four Star $50-$80 $60-$90 $100-$120

Three Star $35-$60 $45-$75 $50-$110

Two Star $20-$30 $30-$50

SOURCE: MINISTRY OF CULTURE AND TOURISM

According to the data compiled by Japanese embassy, the average occupancy rate of
star rated Hotel/guest houses in Addis Ababa is higher than that of Paris which is 72%.
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

22
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

It can even go up to 90% occupancy in some higher level star rated Hotel/guest houses
and in some cases there are situations in which regular customers are even forced to
leave rooms they have rented. The demand for star rated Hotel/guest houses in
Ethiopia is mostly from two sources local and foreigners and is justified as follows. The
significance of domestic and foreign tourists as a source of demand varies in
accordance with the level of star rating of the Hotel/guest houses. As per the data
collected from sampled star rated Hotel/guest houses in Addis Ababa, the occupancy
rate of star rated Hotel/guest houses is dominated by foreign tourists as the level of
the star rating increases and on the contrary, dominated by Ethiopians as the level of
the star rating decreases.

To differentiate the demand of local from foreign tourists for star rated Hotel/guest
houses in Addis Ababa based on the occupancy rate of star rated Hotel/guest houses in
Addis Ababa ,there are 2,858 star rated beds per day which will sum up to give a total
of 1,043,170 bed nights per year. From the total annual bed nights in A.A. 84% or
876,263 is occupied out of which 54% or 473182 are foreign tourists while (46%)
403,081 are local customers.
TABLE 1: STAR RATED GUEST HOUSES OCCUPANCY RATE

Level of Name of Guest Total Bed No of Bed Occupancy Total No of Foreign Ethiopian % of % of
Stare house Night Occupied Rate Customers Origin Origin Foreigners Ethiopians

Star 1 G.G. Guest house 5,475 4,530 83% 4,530 600 3,930 13% 87%

Star 2 Holiday 9,125 7,247 79% 7,332 1,184 5,623 16% 77%

Ras 121,704 93,207 77% 85,361 6,897 78,464 8% 92%

Total 130,829 100,454 78% 92,693 8,081 84,087 9% 91%

Star 3 Axum 21,672 18,821 87% 18,821 10,625 8,796 56% 47%

Yordanos 13,140 11,190 85% 11,190 6,586 4,604 59% 41%

Plaza 14,235 13,140 92% 14,965 4015 10,950 27% 73%

Wabeshebelle 39,528 39,403 100% 35,593 29,298 6,295 82% 18%

Total 88,575 82,554 91% 80,569 50,524 30,645 56% 45%

Star 4 De -Lepooli 30,960 24,458 79% 24,458 23,725 712 97% 3%

Ghion 104,565 65,495 63% 12,739 11,838 901 93% 7%

Kings 12,240 10,050 82% 10,050 9,959 91 99% 1%

Atlas 23,760 19,867 84% 19,867 17,412 2,455 88% 12%

Total 171,525 119,870 77% 67,114 62,934 4,159 94% 6%

Star 5 Hilton 131,025 116,924 89% 116,924 111,707 5,217 96% 4%

Average of Customers by Origin 84% 54% 46%

SOURCE: VARIOUS

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

23
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

3.5 COMPETITION AND MARKETING STRATEGY


3.5.1 MARKETING STRATEGY
Marketing strategy is a set of controllable and tactical marketing tools that the guest
house blends to provide service as per the response it wants in the target market.
Marketing strategy includes, but not limited to the best possible mix of; the quality of
the service, the price of the services provided and the promotional activities. A
combination of these elements affects the ultimate revenue generation success of the
guest house.

A. SERVICE AND SERVICE QUALITY


Service quality is one of the basic and most important marketing strategies that affect
the success of this Guest house. Service quality has two dimensions, i.e. service quality
level and consistency of the quality level. Level means the service provider must first
choose a quality level that will be acceptable in the target market and in a level that
comply with the standard quality of competing guest houses. Consistency refers to the
consistent delivering of established quality through strict quality control measures.

High-quality facilities accompanied by exemplary personal service, differentiated from


competition, in line with the overall brand strategy will be a successful approach that
will generate high levels of revenue and customer loyalty.

B. PRICING
Pricing a service is an important and critical activity since it is the major factor in
determining revenue. If a lower price is fixed, it will affect the profitability of the guest
house, and if a higher price is fixed, the guest house will not be able to stand in market
competition and may be forced out of the market. Therefore, the right price has to be
fixed.

The guest house is recommended to set prices that change over time depending on the
market situation. A differentiation pricing strategy is recommended to be
implemented based on the paying ability of the customer. In general, the price that
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

24
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

meets the standard of the guest house should be implemented which will provide an
added value for a reasonable rate as opposed to discounting and devaluing services.

C. PROMOTION

As the guest house is a new entrant into the market it requires intensive promotional
activity using different promotional tools. The primary focus will be using the mass
communication via print ads in trade publications and on the Internet, direct mail
campaigns and personal selling in the local market.

Personal selling provides the means to develop relationships within the local
community and generate high levels of corporate activity through the business
community. Public relations plays an important role in the marketing mix, presenting
the guest house as a supportive member of the community and participating in
significant local events to assist in developing ongoing cooperation, assures repeat
business and good working relationships.

Contacting government, international and private agencies affiliated with tourism on a


regular basis, informing them of any corporate rate, discount programs, availability of
services, etc. will also be one sound means of promoting the guest house.

3.5.2 COMPETIOIN
There are only few star rated guest houses in Ethiopia which mainly serves the foreign
tourists and the Ethiopian Diaspora coming to the country for various purposes as
discussed in the earlier parts of this study. The guest house is expected to face light
competition from these guest houses mainly due to the high demand existing in the
country which is not expected to be satisfied in the short run.

3.6 OPPORTUNITIES AND THREATS OF THE HOTEL

3.6.1 OPPORTUNITES

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

25
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

 Existence of historical, cultural, archeological and natural attractions recognized


and registered by UNSCO that can attract foreign tourists;
 Huge and growing flow of tourists and increasing demand for guest houses;
 Favorable government policy that encourages investment in the sector and
promotes tourist products;
 Increasing number of tour operators some of them with links with the origins
of tourist supply;

3.6.2 THREATS

 Lack of well trained personnel in the sector


 Poor infrastructure and facilities, like transport to tour site
 Low income of the population i.e. for the local customers

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

26
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

4 TECHNICAL STUDY

4.1 LOCATION AND SITE


The suitability of the site for development and operation of the proposed guest house
& commercial building is an important consideration affecting the viability of the
project. Factors such as location, site topography, accessibility, visibility,
ingress/egress, surrounding area characteristics, ability to serve transient trade,
proximity to business and trade centers, proximity to travel services and the function
of the area as a guest house have a positive impact on the proposed guest house.

 DESCRIPTION OF THE SITE LOCATION


The guest house will be in Addis Ababa city, as explained in the previous chapters, the
city is becoming a center of various business activities & tourist due to its natural
tourist attractions, flow of investors and various visitors. The proposed mixed use
building and guest house will be in the vicinity of Addis Ababa city Administration.

 INFRASTRUCTURE SERVICES
Currently the country has maintained to have a comprehensive infrastructure
development, roads, airport, and telecommunication networks, electric power
generation and water works etc. Conductive opportunities being created by the
economic policy for private investment in guest houses and international restaurants
has improved the availability of vital services necessary for tourists.

There is a lot to be done in the areas of accommodation and provision of accompanied


services in the country in general. It is also important in the country to bring an
international standard guest house in the provision of well-suited guest house service
to accommodate the influx of international and local tourists and visitors which may be
beyond the capacity of the existing facilities in the short term.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

27
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

 ROAD
The proposed project site has first grade class asphalt international standard road.

 WATER SUPPLY
The project will get from the municipality a piped water supply that would provide
adequate water for the project and the inhabitants.

 POWER SUPPLY
The guest house will obtain electric power from Ethiopian Electric Light and Power
Authority (EELPA).

4.2 ACCOMODATIONS AND AMINTIES


The furnished guest houses accommodations are the primary contributors to guest
satisfaction.

There will be a total of 29 rooms of which 21 are sing bed rooms while the remaining 8
are double bed rooms and all rooms feature a generous work surface, remote-
controlled color television, attractive furniture, artistic paintings, overhead and
reading lights, kitchen, fireplace (chimney) and telephone facility. “No Smoking” and
handicapped-accessible rooms will also be available. The rooms will also feature high-
security guest locks as an added safety feature.

4.3 PROJECT DESIGN AND ENGINEERING

4.3.1 BUILDING AND CONSTRUCTION

The total land acquired for the project Guest House and commercial building is
1,307M2 and it is planned to build 7 story building.

Of the 7 stories, the basement, ground floor, first floor and second floor are planned to
be used for commercial purpose renting such café & restaurant, bank, shops, etc while
the floors from 3rd to 7th are planned to be used as a guest house rooms. As depicted in
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

28
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

table 4.1 below, the total cost of building and construction is estimated to be
approximately Birr 33.81 Million of which planned construction cost is Birr 27.80
Million while existing investment on building construction is Birr 6 Million.

TABLE 4.1: BUILDING AND CIVIL WORK COST

DESCRIPTION PLANNED EXISTING TOTAL BUILDING


CONSTRUCTION CONSTRUCTION CONSTRUCTION
COST COST COST

A. SUB-STRUCTURE
1.Excavation & Earth Work 428,191.51
2.Concrete Work 2,089,589.91
TOTAL A 2,517,781.42
B. SUPER-STRUCTURE
Concrete Work 6,548,151.62
Block Work 1,120,315.68
Roof works 252,000.00
Carpentry & Joinery 664,735.00
Aluminum Works 2,732,071.74
Finishing 5,122,882.74
Painting 272,095.88
Electrical installation 5,129,980.00
Sanitary Installation 914,059.00
TOTAL B 22,756,291.66
TOTAL A+B 25,274,073.08
CONTINGENCY (10% of A+B) 2,527,407.31
TOTAL 27,801,480.39
15% VAT
GRAND TOTAL 27,801,480.39 6,000,000.00 33,801,480.39

4.3.2 GUEST HOUSE MACHINERY AND EQUIPMENT


The guest house machinery and equipment comprises generator, gas and electric
stoves, laundry machinery, refrigerators, etc. An estimated amount of Birr 4.60 Million
will be invested as cost of machinery & equipment for the guest house. The detail list of
machinery and equipment required for the guest house is shown in annex.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

29
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

4.3.3 GUEST HOUSE FURNITURE AND FIXTURE AND OFFICE FURNITURE


Furniture & fixtures that’s going to be set up at the project includes, guest house &
facility furniture and office furniture. All furniture will be of top quality, beauty, and
aesthetics, luxurious setup including beds with quality linen, towels, blankets,
bedspread, curtains and carpets mattresses and pillows. The office furniture included
in the investment plan includes chairs and tables, shelf, computers and so on that are
required for the day to day activities of administering the guest house. An estimated
amount of Birr 7.11 Million and Birr 154,770 will be invested as cost of guest house
furniture & fixture and guest house office furniture, respectively. The details of
furniture & ffixture and office furniture are presented in aannex.

4.3.4 SOFT FURNISHING, SILVERWARE, GLASSWARE AND


KITCHEN UTENSILS

All rooms of the guest house will be using superior quality and comfortable mattresses,
blankets, linen, towels, curtains and carpets and pillows. The other assets that are
going to be used are silverware and glassware and kitchen equipments that are going
to be of high quality. The total investment cost of soft furnishing, silverware, glassware
and kitchen utensils will be Birr 305,415, Birr 195,994, Birr 132,704 and Birr 66,033
respectively. The details of these assets are presented in Annex.

4.3.5 VEHICLES

For the proper functioning of the day to day activities of the guest house, one minibus
and one pickup are required. The cost of acquiring these vehicles is estimated to be
Birr 1,950,000.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

30
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

5 ORGANIZATION AND MANAGEMENT

5.1 ORGANIZATIONAL STRUCTURE


A business is established primarily with the objective of making a profit. The business
may be raising something to sell or the business may be a service provider or the
business may be manufacturing or making something. Regardless of the product or
service provided, every business owner needs to decide the appropriate organizational
structure is most appropriate.

When starting a business, or when changing from one organizational structure to


another, it's appropriate that owners consider advantages and disadvantages of each
structure in meeting business and personal goals. The best organizational structure for
one type of business may not be best for another. The best organizational structure for
a new business may not be suitable as the business expands.

Organizing, the process of structuring human and physical resources in order to


accomplish organizational objectives, involves dividing tasks into jobs, specifying the
appropriate department for each job, determining the optimum number of jobs in each
department, and delegating authority within and among departments.

It is basically a system of tasks, reporting relationships and communication that links


the work of individuals and/or groups. Hence, a good organizational structure
supports the organizations strategy and objectives and can be a competitive
advantage. One of the most critical challenges facing hospitality managers today is the
development of a responsive organizational structure that is committed to quality.

Organizational effectiveness is also largely influenced by the type and level of human
resource the organization employs. This in turn is related to the existence of
competitive remuneration scheme. Furthermore, setting suitable organizational
structure and clear tasks and duties of those involved would allow the organization to
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

31
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

maintain a competitive position, allocate its resources efficiently, avoid redundancy of


tasks and duties, reduce risk of fraud and embezzlement, allow efficient and clear
communication between those involved, properly coordinate resources that would
lead to the achievement of goals and objectives, plan activities on the basis of its
conditions and needs, avoid overlapping of authorities, minimize or eliminate
misunderstanding between authorities; and avoid omission of planed activities.

The framework of jobs and departments that make up any organization must be
directed toward achieving the organization’s objectives.

In other words, the structure of a business must be consistent with its strategy.
Managers give structure to a center through job specialization, organization, and
establishment of patterns of authority and span of control.

Organizational set-up basically emanates from different business directions or vision.


In the case, Fitsum Getu Guest House, has the vision to grow and hold a significant
market position in the business and Tourism industry.

The Organizational structure of the guest house is presented in the figure below.

FIGURE 5.1 PROPOSED ORGANIZATIONAL STRUCTURE

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

32
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

5.2 MANAGEMENT
The General Manager (GM) is responsible for defining and interpreting the policies
established by top management. The manager follows the day-to-day management of a
facility and its staff and has commercial accountability for planning, organizing and
directing all services.

The overall operation of the Guest House & commercial building is directed and
controlled by the operation & Maintainace department. To perform these many duties
effectively, the operation department is divided into two specialized divisions namely;
Rooms division & Maintainace division.

The primary responsibility of the marketing and promotion department is sales, or the
selling of the facilities and services to individuals and groups. The department sells
rooms to potential clients through advertising, attendance at association and
conference meetings, and direct contacts. Besides, dealing with Airliners, Travel and
Tour operators and outdoor sales will also be the responsibilities of this department.

The Administration department develops, advises and implements policies relating to


the effective use of personnel within the facility. It is responsible for planning,
directing, and coordinating human resource management activities to maximize the
strategic use of human resources and maintain functions such as employee
compensation, recruitment, personnel policies, and regulatory compliance.

The Finance department’s role is recording financial transactions, preparing and


interpreting financial statements, and providing the managers of other departments
with timely reports of operating results (line functions). Other responsibilities, to be
carried out include payroll preparation, accounts receivable, and accounts payable
(staff functions). Another dimension of the finance department’s responsibilities deals
with various aspects of operations, cost accounting, and cost control throughout the
facility.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

33
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

5.3 MANPOWER REQUIRMENT


Even though the core operation of the guest house require having knowledge, skill and
experience on the part of employees it could be fulfill by having on the job training by
people from other companies operating in the business. In addition, since the
envisaged project is to be established in Addis Ababa city where there is potentially
enough manpower, there would be abundant skilled and semi-skilled job seekers in
the labor market who will be willing to join the company.

Fitsum Getu guest house have planned to employ about 13 workers including
management & supervision personnel skilled & unskilled workers. The details of the
required number of employ and the remuneration are shown in table 5.1 below.

TABLE 5.1: HUMAN RESOURCE REQUIRMENT AND COSTS

No. of Salary Yearly


Job Title
Employees per month salary
GM office
General Manager 1 7,000 84,000
Secretary 1 2,000 24,000
Total 2 108,000
Operation Department
Reservationist 2 2,000 48,000
Housekeepers 5 1,000 60,000
Total 7 108,000
Administration Department
Administration and Maintainace manager 1 3,500 42,000
Maintainace experts 2 1,500 36,000
Total 3 78,000
Marketing & Promotion Department
Marketing & Promotion Department
Manager 1 3,500 42,000
Marketing & Sales experts 2 2,500 60,000
Total 3 42,000
Finance Department
Finance Manager 1 3,500 42,000
Accountants 2 3,000 72,000
Total 3 114,000
Grand Total 28 408,000

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

34
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

6 FINANCIAL ANALYSIS

6.1 BASIC ASSUMPTIONS FOR FINANCIAL ANALYSIS

6.1.1 PROJECT LIFE


The operational life of the project taken is 10 years and hence, the costs and benefits of
the project are computed over 10 years.

6.1.2 REPAIR AND MAINTENANCE COST


The annual repair and maintenance cost of the guest house is estimated based on the
following rates.

TABLE 6.1: REPAIR AND MAINTANINANCE COST

ITEM RATE

Machinery and Equipment 3% of total cost

Building and Civil Works 1% of total cost

Vehicle 7% of total cost

Furniture & Fixtures 1% of total cost

Office Equipment 1% of total cost

6.1.3 DEPRECIATION AND AMORTIZATION


Based on the Business Income Tax Proclamation Number 286/94, the following depreciation rates are
applied to depreciate the assets of the project:

TABLE 6.2 DEPRECIATION AND AMORTIZATION

ITEM DEPRECIATION RATE

Buildings and Associated Civil Works 5%

Machinery and Equipment 20%

Vehicle 20%

Hotel and Office Furniture and Other Assets 20%

Pre-Operating Expense 20%

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

35
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

6.1.4 WORKING CAPITAL

The working capital requirement of the guest house during operation is calculated on
the basis of the minimum days of coverage needed for the different elements of the
working capital. Hence, the minimum days are specified as follows:-

TABLE 6.3: MINIMUM DAYS OF COVERAGE FOR WORKING CAPITAL


COMPUTATION

S.N Item Minimum Days of Coverage

1 Raw Materials 30 days


2 Work in Progress 2 day

4 Cash in Hand 15 Days

5 Accounts Receivables 15 days

6 Accounts Payable 30 days

6.1.5 DISCOUNTING
The total investment and equity capital of the guest house are discounted at 10 percent
over the life of the project.

6.1.6 SOURCE OF FINANCE


The investment requirement of the guest house is assumed to be financed through
bank loan and equity capital contribution. Accordingly, it is assumed that the source of
finance will be 50 percent equity capital contribution and 50 percent from long-term
bank loan. The type of loan is further assumed to be a constant principal bank loan,
with a loan repayment period of 10 years. The annual interest rate including the
various fees is taken to be 9.5 percent.

6.1.7 REVENUE
The major source of revenue for the Guest House & Commercial Building is generated
through guest house rooms rent and rent fee collected from commercial building part
i.e. Cafes, banks and shop renting revenues. The total annual revenue to be generated
by the project is shown below in table 6.4.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

36
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

TABLE 6.4: SUMMARY OF LODGE REVENUE

SOURCE OF REVENUE YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Guest House Revenue


Single bed room 16,520,413 20,015,116 23,817,988 26,479,999 30,893,332
Double bed room 9,889,771 11,981,838 14,258,388 15,851,972 18,493,967
Commercial Building Rent
Revenue
Building Rent Revenue 2,676,648 3,242,862 3,859,006 4,290,306 5,005,357
TOTAL REVENUE/YEAR 29,086,833 35,239,817 41,935,382 46,622,277 54,392,657

6.2 RESULT OF FINANCIAL ANALYSIS


Financial Feasibility analysis provides a basis for a decision as to whether to proceed
or not with the establishment of the project. The financial implication of the project
and its viability is evaluated on the investment plan detailed out in various parts of this
report and the above assumptions. Accordingly, the financial analysis results are
presented below.

6.2.1 INVESTMENT COST

The total investment cost of the project is estimated at Birr 52,994,437. From the total
investment cost, Birr 52,070,137 is accounted by fixed investment cost and Birr
871,300 is accounted by initial working capital .Of the total fixed investment cost of
Birr 52.99 Million, 64.92% is accounted by building & civil works including existing
investment (the promoter has already invested Birr 6 Million on building
construction), machinery and equipment accounts 8.84% , Guest house furniture &
fixture accounts 13.67% and, 3.74% is accounted by vehicles. Guest house office
furniture, Pre-operating expense & interest and other fixed investments accounts the
remaining 8.83%.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

37
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

TABLE 6.5: TOTAL INITIAL INVESTMENT

Fixed And Other Pre-Operation Existing Planned Total


Expenditure Investment Investment Investment
Building & Civil Work 33,801,480 33,801,480
Machinery & Equipment 4,603,445 4,603,445
Furniture & Fixtures 7,117,808 7,117,808
Office Furniture 154,770 154,770
Soft Furnishings 305,415 305,415
Silverware & Porcelains’ 195,994 195,994
Glassware & Cutlery 132,704 132,704
Kitchen Utensils 66,033 66,033
Vehicle 1,950,000 1,950,000
Pre - Operating Expense & Interest*
Pre - Operating Expense 1,227,770 1,227,770
Pre - Operating Interest 2,514,718 2,514,718
3,742,488
Total Fixed Investment Required 52,070,137 52,070,137
Working Capital 871,300 871,300
TOTAL REQUIRED INVESTMENT 52,941,437 52,941,437
* Pre operating and interest cost include project implementation cost such as installation,
startup, commissioning, project engineering, project management, training etc and capitalized
interest during construction.

6.2.2 COST OF SERVICE

The total cost of service during the first year of operation at 65% occupancy rate is
estimated at Birr 11,507,876. Of the total service cost the share of raw materials,
Depreciation, Financial Cost , Administration and repair & maintenance is 11.71%,
47.46%, 22.85%, 9.86%, 5.95%, respectively. The remaining 4.19% is other costs.
Table 6.6 shows the total costs of service at 65% occupancy rate. The costs of service
for the other years of operation are shown in Annex I.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

38
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

TABLE 6.6: COSTS OF SERVICE IN BIRR

PERCENTAGE
ITEM COST
SHARE
Raw material 1,347,276 11.71
Repair and maintenance 685,344 5.95
Direct Labour with benefits 113,400 0.99
Administrative costs 1,135,165 9.86
Marketing costs 339,168 2.95
Depreciation 5,343,805 46.43
Financial costs/interest 2,514,718 21.85
Miscellaneous expenses 30,000 0.26
TOTAL OPERATION COSTS 11,508,876 100.00

6.2. 3 SOURCE OF FINANCE

As indicated earlier the investment requirement of the project will be financed by equity
capital and long-term bank loan. Accordingly, from the total investment cost of Birr 52,941,437
financial requirements its 50% i.e. Birr 26,470,719 will be covered by the project promoter
and the remaining will be covered through long term bank loan.

6.2.4 PROFITABILITY

Based on the projected profit and loss statement shown in Annex I, the Furnished guest house
& commercial building will generate a net profit of Birr 12.23 Million during its first year of
operation and Birr 16.32 Million during the second year. The project will generate 20.78
Million, Birr 23.90 Million and Birr 29.07 Million during its 3rd, 4th and 5th year of operation,
respectively. The Furnished Guest House & Commercial Building will generate revenue for the
government in the form of profit tax of Birr 5.24 and Birr 12.46 Million in its 1st and 5th year of
operations.

Net profit as percent of sales revenue ranges between 42% and 58% throughout the operation
years, which is so attractive. Net profit to equity (ranges between 46% and 151%) and net
profit to total investment or return on investment (ROI) (ranges between 23% and 76%) are
also quite attractive. Table 6.7 below presents net profit, ratio of Net profit to equity and net
profit to total investment for the first 5 years of projection.

DESCRIPTION Year 1 Year 2 Year 3 Year 4 Year 5


Total Sales In ‘000’ 29,087 35,240 41,935 46,622 54,393

Net Profit To Sales In % 42 46 50 51 53

Net Profit To Equity In % 46 62 79 90 110

Net Profit To Total Investment In % 23 31 39 45 55

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

39
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

6.2.5 CASH FLOW

The projected cash flow of the project shows that the project will generate positive net
cash flows throughout its operation life. The cumulative cash balance that will be
generated by the project during its 5th year of operation will amount to Birr 82.12
Million which was 15.88 Million in the first year of operation. At the end of the project
life i.e. year 10, this amount will rise to Birr 219.83 Million. Details are shown in Annex
I.

6.2.6 DISCOUNTED CASH FLOW


A commercial profitability analysis indicates that the project will generate an
acceptable internal rate of return. The internal rate of return (IRR) for the project is 46
percent. The net present value (NPV) at a discount rate of 10 % is nearly Birr 121.32
Million. (See annex I)

The payback period which is the period required to recover the original investment
outlay through the accumulated net cash flows earned by the project. Accordingly,
based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within three and half years, which is a reasonably short period
of time.

6.2.7 BALANCE SHEET


The positive financial performances are manifested in the balance sheet. As can be
seen from the projected balance sheet depicted in Annex, the net worth of the project,
which was about Birr 63.59 Million at the beginning of the operation year, will rise to
Birr 123.23 Million at the fifth year of the project.

Important financial efficiency ratios like current ratio, and net cash flow to sales all
show that the project is highly liquid and has sound financial performance.

6.2.8 SENSITIVITY ANALYSIS


A sensitivity analysis on selected cost components has been further conducted to test
the strength and viability of the project. In view of this, extreme conditions like cost
escalation on investment, service cost and a decrease of revenue due to various factors
have been examined and the result shows that the project is more sensitive to decrease
in revenue and increase in service cost. Nevertheless, the project is still viable with a
decrease of 20% in revenue and an increase of 20% in service cost. On the other hand
the project can sustain and be viable with an increase of up to 40% in investment cost.
QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

40
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

ENVIRONMENTAL ASPECT &


7 SOCIO - ECONOMIC BENEFIT

The envisaged Guest House & Commercial Building is expected to have significant
economic and social benefits. These include market development and forward and
backward linkages, employment generation, generating of foreign exchange through
providing quality service for international tourists.

Through the complex network of the distribution and redistribution process, part of
the social surplus is being used for private and public consumption, taxes in the
national budget. Therefore, larger social surplus is a major precondition for higher
private consumption and the normal functioning of the entire executive organ of the
government on the one hand and a basic source of savings for accelerated
socioeconomic development of the country on the other. This in turn is a prerequisite
for a higher future consumption.

In addition to the above stated socio- economic contributions, the project will also
create employment opportunity for about 13 persons. The employment opportunity
will have a multiplicative impact as it will benefit the families of the employees as
source of income.

This feasibility study is prepared on the assumption that the implementation is


directly in line with the national development policy on the basis of government
proclamations. The task requires multipurpose institutional and infrastructural
support specifically meant for providing direct assistance in issuing of import permit.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

41
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

8 IMPLEMENTATION SCHEDULE

The implementation schedule covers the activities from the finalizing building
construction up to start up of the Guest House. It is envisaged that the complete
implementation program requires a total of 16 months.

Legal processing and financial arrangement are the first steps towards the realization
of the project, which will be carried out within one month after approval of the project
study. Major implementation work of the project is finalizing building and civil work
construction. In this respect, civil engineering design has already been completed and
finalizing the construction of building and other civil work already started and will
take 10 months.

Tender document preparation, evaluation, negotiation & contracting of Guest House


machinery and other assets suppliers will start just one month ahead of finishing
building construction and will take one month period. The other activity is ordering
and acquiring of machinery and equipment and other Guest House assets that requires
a total of three months including LC opening.

Placement of machinery and equipment and other assets will require two month.
Manpower training will start simultaneously with placement of machinery and
equipment & other assets and continues up to the start up of the Guest House. The
operation of the Guest House will immediately start after complete finishing of the
building and civil work and machinery & equipment and other assets required for the
service delivery of the Guest House are fully acquired and placed.

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

42
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

ANNEXES

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

43
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

ASSUMPTIONS AND BASIS FOR PROJECTION

Working days per month


30
Working days
360 per annum
Months Per Year For Commercial Building Rent (with 30 days per month)
12

Year 1 65% /annum


Year 2 75% /annum
Occupancy rate Year 3 85% /annum
Year 4 90% /annum
Year 5 100% /annum

COMMERCIAL BUILDING
RENT

Basement 260 M2

Ground floor 241 M2


SERVICES OFFERED
first floor 129 M2

Second floor 227 M2


GUEST HOUSE ROOM
RENT

Guest House Single bed


Room (3rd to 5th floor)
21 bed rooms

Guest House Double bed


Room (6th and 7th Floor) 8 bed rooms

local tourist 20% of the clients


Market segmentation (Guest house)
International tourist 80% of the clients

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

44
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

Commercial Building
Rent

Basement 400 Birr/M2

Ground floor 400 Birr/M2

first floor 400 Birr/M2


SERVICES PRICES Second floor 400 Birr/M2
Guest House Room Rent

Guest House Single bed Birr/ Per


Room (3rd to 5th floor) 3,362 night
Guest House Double bed
Birr/ Per
Room (6th and 7th Floor) 5,283 night

of wage and
Employees benefit
5% salaries
Selling dept staff
Traveling expense 10% salary
Professional Expense(Legal, Audit, consultancy etc) Birr/annum
25,000
Land lease expenses Birr/annum
10,000
Stationary & P.T.T Birr/annum
11,500
Miscellaneous Expense Birr/annum
30,000
Dividend 30% of net income
of annual
Promotional Expense 1%
revenue

Birr/kwh +
Electric charge 0.4736 134 service
charge
Water charge 3.8 Birr/M3
Diesel 20 Birr/litter
Fuel cost Regular 21 Birr/litter
Oil & lubricant 10% of fuel cost

of building & machinery


fire, lightening & flood 1.5% cost
Insurance rate
of vehicle cost

Vehicle 4%

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

45
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

5% For Building

For machinery &


20% equipment

For vehicle & pre-


20% production
Depreciation & amortization rate
20% For furniture & fixture

25% Computer & accessories

20% For land improvement

25% For computer & accessories

1% For building & furniture

For machinery &


3% equipment
Repair & Maintainace
1% For furniture & fixture

7% For vehicle

For machinery &


5% equipment
Spare parts
10% For vehicle

Exchange rate As of October 5, 2013 19.2109 Birr/USD

25.9808 Birr/Euro

Fuel And Lubricants 1.1

Raw Material 1.1


Yearly Increase in Expenses
Labor Salary 1.1

General Increase in
Costs 1.1

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

46
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

Tax Rate 30%

Average inflation 17.7%

Discount Rate 10%

Grace Period On Repayment of Loan 0 year(s)

Interest rate on long term loan 9.5%

Loan repayment year 10 year(s)

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

47
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

REVENUE PROJECTION
Year 1 Year 2 Year 3 Year 4 Year 5

FURNISHED GUEST HOUSE & COMMERCIAL


BUILDING

No of Single bed room 21 21 21 21 21


No of doble bed room 8 8 8 8 8
Total area of commercial building/to be rented
out 858 858 858 858 858

Total Single bed night/year @ full occupancy 7,560 7,560 7,560 7,560 7,560
Total Double bed night/year @ full occupancy 2,880 2,880 2,880 2,880 2,880
Total area of rented out/year @ full occupancy 10,295 10,295 10,295 10,295 10,295

Occupancy rate 65% 75% 85% 90% 100%

Total Single bed night/year @ D/T occupancy


Rate 4,914 5,670 6,426 6,804 7,560
Total Double bed night/year @ d/t occupancy
rate 1,872 2,160 2,448 2,592 2,880
Total area of rented out/year @d/t occupancy 6,692 7,721 8,751 9,265 10,295

Bed price/night
Single bed room 3,362 3,530 3,707 3,892 4,086
Double bed room 5,283 5,547 5,825 6,116 6,422
Commercial building rent price/M2
Rent Price/m2 400 420 441 463 486
Guest House revenue
Single bed room 16,520,413 20,015,116 23,817,988 26,479,999 30,893,332
Double bed room 9,889,771 11,981,838 14,258,388 15,851,972 18,493,967
Commercial building rent Revenue
Building rent Revenue 2,676,648 3,242,862 3,859,006 4,290,306 5,005,357
Total Revenue/year 29,086,833 35,239,817 41,935,382 46,622,277 54,392,657

SUMMARY OF REVENUE

SOURCES OF INCOME Year 1 Year 2 Year 3 Year 4 Year 5


Furnished Guest House Revenue 26,410,185 31,996,955 38,076,376 42,331,971 49,387,299
Commercial building rent Revenue 2,676,648 3,242,862 3,859,006 4,290,306 5,005,357

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

48
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

TOTAL 29,086,833 35,239,817 41,935,382 46,622,277 54,392,657


OPERATING COSTS
EXPENSES Year 1 Year 2 Year 3 Year 4 Year 5
FURNISHED GUEST HOUSE EXPENSE @ 5%
of room income 5% 1,320,509 1,599,848 1,903,819 2,116,599 2,469,365
Commercial building operating expenses @
1% of rent income 1% 26,766 32,429 38,590 42,903 50,054

TOTAL 1,347,276 1,632,276 1,942,409 2,159,502 2,519,419

HUMAN RESOURCE REQUIREMENT

Job Title Year 1 Year 2 Year 3 Year 4 Year 5

DIRECT LABOERS (DPL) 108,000 118,800 130,680 143,748 158,123

ADMINSTRATIVE STAFF (AS) 300,000 330,000 363,000 399,300 439,230

SALES AND MARKETING STAFF (SMS) 42,000 46,200 50,820 55,902 61,492

GRAND TOTAL (DPL+AS+SMS) 450,000 495,000 544,500 598,950 658,845

UTILITIES

ELECTRICITY & WATER

Machinery Annual KWH


power & water
Description Total cost
installed requirement
(KW) (M3)

Electricity Consumption 20 172,800 81,972


Water consumption 3,000 11,400

Total 93,372

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

49
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

FUEL, OIL AND


LUBRICANTS

Total
Lt / Total Fuel
KM,/Year, No. hours Cost
Description Quantity Km, Requirements
generator used/year
Lt/Hr (Liters)
Operation purpose machinery, vehicles &
generator
Minibus 1 27,000 0.17 4,500 90,000
6,912
GENERATOR 1 1,728 0.20 346
Administrative purpose vehicles
Double Pick-up 1 10,800 0.13 1,350 27,000
Total 123,912

INSURANCE

Description Total cost Cost of Insurance


Fixed Assets 46,377,649 695,665
Vehicles 1,950,000 78,000
Total 773,665

REPAIR & MAINTAINACE


Cost of Rep &
Description Total cost
maintain

Building and construction 33,801,480 338,015


MACHINERY & EQUIPMENT 4,603,445 138,103
FURNITURE & FIXTURES 7,117,808 71,178
OFFICE FURNITURE 154,770 1,548
VEHICLE 1,950,000 136,500

Total 47,627,503 685,344

SPAREPARTS
Description Total cost Cost of spare parts

Machinery & Equipment 4,603,445 230,172


Vehicle 1,950,000 195,000

Total 425,172

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

50
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

DEPRECIATION &
AMORTIZATION

TOTAL DEP. COST OF


DESCRIPTION
COST RATE D&A
BUILDING & CIVIL WORK 33,801,480 5% 1,690,074
MACHINERY & EQUIPMENT 4,603,445 20% 920,689
FURNITURE & FIXTURES 7,117,808 20% 1,423,562
OFFICE FURNITURE 154,770 20% 30,954
SOFT FURNISHINGS 305,415 20% 61,083
SILVERWARE & PROCILIANS 195,994 20% 39,199
GLASSWARE & CULTERY 132,704 20% 26,541
KITCHEN UTENCILS 66,033 20% 13,207
VEHICLE 1,950,000 20% 390,000
PRE - OPERATING EXPENSE 3,742,488 20% 748,498
Total 52,070,137 5,343,805

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

51
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

52
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

53
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

54
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

55
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

56
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

Major Inputs

Investment Structure

Total Investment 52,941,437.34

owners contribution 26,470,718.67

bank loan 26,470,718.67

Average Inflation 18%


Discount Rate 10%

Interest rate -
Long term loan 10%
Deposit 0%
Loan Repayment period 10 years

Total investment

NPV 121,322,973
IRR 46%

Debt Equity

NPV 145,387,262
IRR 85%

Owner's Equity

NPV 145,387,262
IRR 85%

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

57
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

LOAN REPAYEMENT
Year Interest Principal Total Outstanding
Repayment Payment Balance

0 2,514,718 26,470,719

1 2,514,718 1,701,171 4,215,889 24,769,547

2 2,353,107 1,862,782 4,215,889 22,906,765

3 2,176,143 2,039,747 4,215,889 20,867,018

4 1,982,367 2,233,523 4,215,889 18,633,495

5 1,770,182 2,445,707 4,215,889 16,187,788

6 1,537,840 2,678,050 4,215,889 13,509,738

7 1,283,425 2,932,464 4,215,889 10,577,274

8 1,004,841 3,211,048 4,215,889 7,366,225


9 699,791 3,516,098 4,215,889 3,850,127
10 365,762 3,850,127 4,215,889 0

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

58
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

HUMAN RESOURCE REQUIREMENT AND COST


Salary
No. of Yearly
Job Title per
Employees salary
month
GM office
General Manager 1 7,000 84,000
Secretary 1 2,000 24,000
Total 1 108,000
Operation Department

Reservationist 2 2,000 48,000


Housekeepers 5 1,000 60,000
Total 7 108,000
Administration and Maintainace
Department

Administration and Maintainace


1 3,500 42,000
manager
Maintainace experts 2 1,500 36,000
Total 2 78,000

Marketing & Promotion Department


Marketing & Promotion Department Manager 1 3,500 42,000
Marketing & Sales experts 2 2,500 60,000
Total 1 42,000

Finance Department
Finance Manager 1 3,500 42,000
Accountants 2 3,000 72,000
Total 3 114,000
Grand Total 13 408,000

Year 1 Year 2 Year 3 Year 4 Year 5


Direct labor 108,000 118,800 130,680 143,748 158,123
Marketing & Selling 42,000 46,200 50,820 55,902 61,492
General and Administration 300,000 330,000 363,000 399,300 439,230
Total 450,000 495,000 544,500 598,950 658,845

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

59
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

DETAILS OF INVESTMENT
BUILDING AND CIVIL WORK
DESCRIPTION PLANNED EXISTING TOTAL
CONSTRUCTION INVEST BUILDING
COST CONSTRUCTION
COST
A. SUB-STRUCTURE
1.Excavation & Earth Work 428,191.51
2.Concrete Work 2,089,589.91
TOTAL A 2,517,781.42
B. SUPER-STRUCTURE
Concrete Work 6,548,151.62
Block Work 1,120,315.68
Roof works 252,000.00
Carpentry & Joinery 664,735.00
Aluminum Works 2,732,071.74
Finishing 5,122,882.74
painting 272,095.88
Electrical installation 5,129,980.00
Sanitary Installation 914,059.00
TOTAL B 22,756,291.66
TOTAL A+B 25,274,073.08
CONTINGENCY (10% of 2,527,407.31
A+B)
TOTAL 27,801,480.39
15% VAT
GRAND TOTAL 33,801,480.39 33,801,480.39

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

60
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

GUEST HOUSE MACHINERY


DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Washing Machine 11 25,000 725,000
Bread Oven 11 25,000 725,000
Decoders 11 800 23,200
Deep Freezer 11 15,000 870,000
Electric & Gas Stove 11 12,000 348,000
Electric Hot Food Warmer 11 7,000 203,000
Electrical Juicer 11 5000 145,000
Ice Crusher, Electrical, Small 11 5,000 145,000
Toaster 11 5,000 145,000
Vacuum Cleaner 11 6,750 195,750
Water Supply System 1 200,000 200,000
Waste Water Treatment 1 460,000 460,000
System
Sub-Total 4,184,950
Contingency (10%) 418,495
TOTAL 4,603,445

VEHICLE

DESCRIPTION QTY UNIT PRICE TOTAL PRICE

Double Pick-up 1 1,200,000 1,200,000


Mini Bus 1 750,000 750,000
TOTAL VEHICLE 1,950,000

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

61
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

FURNITURE AND FIXITURE


DESCRIPTON QTY UNIT PRICE TOTAL PRICE
Sofa Chair, single 116 4,500 522,000
Bankoni/Bar Table 8 15,000 120,000
Chair 74 538 39,782
Table 29 3,500 101,500
Bath mat 29 100 2,900
Bed room table 29 250 7,250
Single bed 21 7,000 147,000
Double bed 36 12,000 432,000
Dressing mirror, wooden frame 29 250 7,250
Kitchen Cabinet, Wooden Frame 29 32,000 928,000
L Shape Reception Desk 1 6,000 6,000
Luggage rack 29 500 14,500
Money safe, digital 2 5,000 10,000
Open shelf, wooden 29 500 14,500
Pressing iron, electrical 29 1,500 43,500
Standing Ashtray and Trash Can 29 250 7,250
Flat Screen 29" TVs 29 34,000 986,000
Sub total 3,389,432
Contingency (10%) 338,943
TOTAL 7,117,808

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

62
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

OFFICE FURNITURE & EQUIPMENT


DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Metal File Cabinet 4 Drawer 2 5,000 10,000
Book Shelf With 4 Rows - Wooden 2 3,400 6,800
Computer 5 12,000 60,000
Computer desk 5 1,500 7,500
Double pedestal desk 5 2,500 12,500
First Aid Kit, Metallic, Small 1 700 700
Guest chair with arm rest, leather 10 1,200 12,000

Guest Money Safe 2 10,000 20,000


Printer, LaserJet 2 5,600 11,200
Sub total 41,900 140,700
Contingency (10%) 14,070
TOTAL 154,770

SOFT FURNISHING
DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Bed sheet 58 750 43,500
Blanket comfort type 58 2,000 116,000
Mattress protector 58 75 4,350
Pillow 58 300 17,400
Pillow case 58 250 14,500
Towel for body 58 250 14,500
Towel for face 58 150 8,700
Towel for hand 58 150 8,700
Other Soft furnishings 50,000 50,000
Sub total 277,650
Contingency (10%) 27,765
TOTAL 305,415

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

63
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

SILVERWARE & PROCILIAN


Description QTY UNIT PRICE TOTAL PRICE
Alcohol Measurement 29 100 2,900
Automatic Wine Screw 29 75 2,175
Bottle & Cork Opener 29 24 696
Butter Knife 29 50 1,450
Butter Service 116 300 34,800
Candle Holder 29 300 8,700
Coffee Pot 29 130 3,770
Desert Spoon 116 30 3,480
Fork 116 60 6,960
Ice Cup 29 120 3,480
Ice Pot 29 130 3,770
Meat Knife 116 30 3,480
Milk Pot 29 200 5,800
OIL VENEGAR Set 29 110 3,190
Round Vegetable Dish 116 600 69,600
Tea Cup 116 30 3,480
Tea Pot 29 300 8,700
Tea Spoon 116 20 2,320
Water Jug 29 75 2,175
Wine Opener 29 250 7,250
Sub Total 178,176
Contingency (10%) 17,818
TOTAL 195,994

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

64
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

GLASSWARE
DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Beer Glass 116 50 5,800
Bread & Butter Plate 116 60 6,960
Breakfast Plate 116 60 6,960
Butter Service 116 150 17,400
Coffee Cup With Saucer 116 50 5,800
Desert Plate 116 60 6,960
Fruit Cups 116 50 5,800
Fruit Salad Glass 116 50 5,800
Gourdens Glass 116 50 5,800
Juice Glass 116 50 5,800
Meat Plate 116 60 6,960
Soup Cup 116 100 11,600
Spaghetti Plate 116 60 6,960
Tea Cup With Saucer 116 50 5,800
Water Glass 116 40 4,640
Whisky Glass 116 50 5,800
Wine Glass 116 50 5,800
Sub Total 120,640
Contingency (10%) 12,064
Total 132,704

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

65
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

KITCHEN UTENCILS
DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Service Spoon 116 30 3,480
Service Fork 116 30 3,480
Egg Slicer 29 25 725
Spaghetti Strainer 29 150 4,350
Boiled Egg Cup 29 25 725
Bowls One Handle 29 150 4,350
Butter Cutter 29 25 725
Bread & Cake Mold 29 50 1,450
Frying Pan Oval Medium 29 350 10,150
Meat Hooker 29 400 11,600
Potato Chips Spair 29 150 4,350
Sugar Container Glass 29 30 870
Arosto Fork 29 25 725
Aluminum Bowls 29 300 8,700
Ladle Big Size 29 100 2,900
Coffee Shaker 29 50 1,450
Sub Total 60,030
Contingency (10%) 6,003
TOTAL 66,033

PRE OPERATING EXPENSE


DESCRIPTION BIRR
Feasibility study 120,750
Licensing & registration 50,000
Designing 350,000
Land lease expense 7,020
other Pre -operating cost 200,000
Project management cost 500,000
TOTAL PRE OPERATING 1,227,770

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

66
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY

EXPENSE

SUMMARY OF INVESTMENT
Fixed And Other Pre- Existing Planned Total
Operational Expenditures Investment Investment Investment
Building & Civil Work 33,801,480 33,801,480
Land Lease Fee
Machinery & Equipment 4,603,445 4,603,445
Furniture & Fixtures 7,117,808 7,117,808
Office Furniture 154,770 154,770
Soft Furnishings 305,415 305,415
Silverware & Porcelains 195,994 195,994
Glassware & Cutlery 132,704
132,704
Kitchen Utensils 66,033 66,033
Vehicle 1,950,000 1,950,000
Pre - Operating Expense & Interest
Pre - Operating Expense 1,227,770
Pre - Operating Interest 2,514,718
3,742,488
Total Fixed Investment
52,070,137 52,070,137
Required
Working Capital 871,300 871,300
Total Required Investment 52,941,437 52,941,437

INVESTMENT STRUCTURE

Capital Contribution 26,470,719


Loan 26,470,719
TOTAL INITIAL INVESTMENT 52,941,437

QUALITY SERVICE FOR CUSTOMER SATISFACTION!!!!!

67