CASE STUDY 2

A Hotel-cum-Shopping Complex
2.1 Background
M/s Subbaiya Shetty and Brothers are the owners of a site measuring 150 ft x 250ft,
near the City Railway Station in the heart of Bangalore.M/s Harihar Associates have
proposed to promote a hotel-cum-shopping complex on this site. For this endeavour,
they plan to join hands with M/s Kamath Construction Co., who have had past
experience as developers of residential construction projects, involving multi-storyed
apartments.

The promoter and the developer reach an understanding, whereby the returns from the
investment in the proposed complex are to be shared in the ratio of 65 percent to the
developer and 35 percent to the promoter. M/s Subbaiya Shetty and Brothers, whereby
the site is taken on a 40-year lease from the owner by the promoter. The salient
features of the lease agreement are as follows:

i. Duration of the lease : 40 years

ii. Initial down payment : Rs 40 lakhs
iii. Rental during the period of construction (15 months) : Rs 5,000 p.m.
iv. Rental for the remainder of the lease period : Rs 15,000 p.m. with
20% increase every
year
v. Rights at the end of the lease period : All rights of the
promoter and
developer cease, and all
assets belong to the
owner.

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2.2 Feasibility Study
The developer and the promoter, quite naturally, wished to get the maximum financial
returns from the investments to be made in this scheme. As a first step, hence, before
firming up the project details, they thought it prudent to undertake a feasibility study of
the proposed undertaking.

Based on a market survey, M/s Harihar Associates and M/s Kamath Construction
identified the following potential opportunities:

I. A facility to meet the needs of tourists and business travelers to Bangalore; and
II. A facility that caters to the burgeoning demand for various consumer goods in
the city.

Thus, conceptually, three possible undertakings were thought of: one, a hotel complex;
two, a shopping complex; and three, a hotel-cum-shopping complex.

Exhibit 2.1 gives some preliminary estimates of the approximate costs and financial
benefits of the three alternatives, which are:

A. A shopping complex;
B. A hotel complex
C. A hotel-cum-shopping complex.

Exhibit 2.1 Preliminary feasibility study of a hotel-cum-shopping complex

Sl No. Item description A* B* C*

1 Site area (sq. ft) 37,500 37,500 37,500

2 Built-up area (per floor) 30,000 30,000 30,000

3 Number of floors 3 3 3

4 Total built-up area (sq. ft) 90,000 90,000 90,000

5 Shops built-up area (sq. ft) 90,000 ------- 30,000

6 Hotel built-up area (sq. ft) ------- 90,000 60,000

7 Capital cost of project (Rs crore) 3.15 4.05 3.75

8 Annual rental revenue (Rs crore) 5.40 9.00 7.80

9 Annual revenue at 80%

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 occupancy rate for shops and

40% for hotel (Rs crore) 4.32 3.60 3.84

10 less interest and deprecation

charges at 25% of capital

cost (Rs crore) 0.79 1.01 0.94

11 Net (pre-tax) annual expected

revenue (Rs crore) 3.53 2.59 2.90

*Alternative A: a shopping complex

Alternative B: a hotel complex

Alternative C: a hotel-cum-shopping complex

Note 1. The capital cost of a shopping complex is assumed as Rs 350 per sq.ft, and the
annual rental return as Rs 600 per sq.ft.

2. The capital cost of the hotel complex is assumed as Rs 450 per sq. ft, and
annual rental return as Rs 1000 per sq. ft.

2.3 Project Organisation

M/s Harihar Associates and M/s Kamath Construction perceived that the proposed
undertaking will be unique, unfamiliar, temporary, as well as involving considerable risk
(of course, more in terms of the actual return on investments rather than in putting up
the complex). As with other similar construction projects, there are numerous
interdependent and interdisciplinary activities, such as civil work, electrical work,
plumbing and sanitary work, escalators, air conditioning etc. All these, and several other
activities, will have to be planned and coordinated for effective implementation of the
project. The promoter and developer hence decided to adopt the project management
approach to the setting up of the hotel-cum-shopping complex.

Mr. M.D. Ramanadh, managing director of M/s Kamath Construction Co. took charge as
the project manager on July 1, 1990. The formal organisation structure is illustrated in
Exhibit 2.2. The project manager

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Exhibit 2.2 Organisation structure of the hotel-cum-shopping complex project

is advised by the architect and the structural engineer, who may be designated as staff
functions.

An administrative officer, Mr. Raman, handles all admintrative, financial and legal
matters. Mr. Murthy and Mr. Raman both reported to Mr. Ramanadh, who also directs
the operations of Mr. K. Gowda, the building contractor. All the other consultants and
sub-contractors coordinate their activities in consultation with project manager, the
resident engineer, and the architect. Exhibit 2.3 identifies the various agencies and
persons involved in the hotel-cum-shopping complex project.

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Exhibit 2.3 Persons and agencies involved in the hotel-cum-shopping complex
project

1 Owner of land : M/s Subbaiya Shetty & Brothers

2 Promoter : M/s Harihar Associates

3 Developer : M/s Kamath Construction Co.

4 Project Manager : Mr. D. Ramanadh, M.D.,

Kamath Construction Co.

5 Architect : Mr. R. Deshpande

6 Structural Engineer : M/s Mahapatra Consultants

7 Building Contractor : M/s Premier Construction Co.

8 Plumbing & Sanitary Consultant : M/s Vasudevamurthy & Co.

9 Plumbing Contractor : Mr. D.H. Prasad

10 Electrical Consultant : M/s Khanna & Co.

11 Electrical Contractor : Mr.D. Narayanamurthy

12 Air-conditioning Consultant : M/s Iyer & Co

13 Air-conditioning Contractor : M/s Aircool

14 Painting : M/s Bernard & Sons

15 Interior Designing : M/s Décor & Co.

16 Escalators and Lifts : M/s City Lifts

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II.4 Work Definition
The project manager, Mr.D. Ramanadh, in consultation with his colleagues in M/s
Kamath Construction and M/s Harihar Associates, identified the following major
items of work in the hotel-cum-shopping complex:

a) Planning and design;

b) Civil work;
c) Wood work;
d) Water supply and sanitary work;
e) Electrical work;
f) Heating, ventilation, and air-conditioning;
g) Interior decoration;
h) Painting
i) Lifts and escalators;
j) Miscellaneous work; and
k) Administration

Exhibit 2.4 shows the detailed Work Breakdown Structure (WBS), as constructured
by Mr. Ramanadh and Mr. Murthy. At the planning stage, the project manager and
the resident engineer anticipated and accounted for a total of 43 work packages,
and the project organisation is shown in Exhibit 2.5. Thus, for instance, the structural
consultant has the responsibilities for the structural design and drawings, as well as
the details of the RCC footings, columns, beams, and slabs. The site supervisor’s
group has the maximum number of work packages assigned to it, including civil
work, wood work, water supply and sanitary work, painting, miscellaneous work,
etc.

The responsibilities assigned to various project personnel in the hotel-cum-

shopping complex project are shown in Exhibit 2.6. The resident engineer, Mr. S.
Murthy, has perhaps the largest number of on-site responsibilities. The architect has
the primary responsibility for the architectural design and drawings, and also the
responsibility to approve several of the other designs. However, the project
manager has the overall responsibility for the entire project, including primary
responsibility for coordination, and responsibility for approval of interior decoration,
water supply, electrical heating and air-conditioning work, etc. At the time of
preparing this responsibility matrix, Mr. Ramanadh realized its skewness, i.e. a
relatively large proportion of the project responsibility being placed on the resident
engineer, on the architect, and on himself.

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 II.5 Project Scheduling
Since M/s Kamath Construction Co. had never used a computer in any of their earlier
construction management activities, they were rather reluctant to adopt any
computerized project management system. However, Mr. A. Bhanu, one of their
junior managers, convinced the organisation of the benefits of heaving
computerized project management system. So, with some hesitation, a PC-AT
hardware platform was procured, and the PRISM* software package was in stalled.
Of the three modules of Time, Cost, and Resources available in this package, only
the first one was used in this project.

Before preparing the AOA (activity-on-arc) network diagram, the

Exhibit 2.4 Work Breakdown Structure (WBS) of the hotel-cum-shopping complex

project

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Exhibit 2.4 (contd) Identification of work packages in the hotel-cum-shopping
complex project

Sl No. Code Description of work package

A Planning and Designing

1 A1 Architectural Design and Drawings

2 A2 Structural Design and Drawings
B Civil Work
3 B1 Earthwork
4 B2 RCC Footings
5 B3 RCC Columns
6 B4 RCC Beams and Slabs
7 B5 Masonry
8 B6 Plastering
9 B7 Water Proofing
10 B8 Flooring
C Wood Work
11 C1 Doors
12 C2 Windows
13 C3 Wardrobes
14 C4 Fittings
D Water Supply and Sanitary
15 D1 Design and Drawings
16 D2 Pipe Work
17 D3 Testing
18 D4 Fittings
E Electrical Work
19 E1 Design and Drawings
20 E2 Conduits and Switch-Boxes
21 E3 Wiring and Fittings
22 E4 Panel Boards and Transformers
23 E5 Testing and Commissioning
F Ventilation and Air-conditioning
24 F1 Design and Drawings
25 F2 Ducting
26 F3 Plant and Machinery
27 F4 Testing and Commissioning
G Interior Decoration
28 G1 Design and Drawings
29 G2 Furniture
30 G3 Furnishings
31 G4 Decorations

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 H Painting
32 H1 Interior Finishes
33 H2 Exterior Finishes
34 H3 Doors and Windows
35 H4 Miscellaneous
I Lifts and Escalators
36 I1 Plant and Machinery
37 I2 Testing and Commissioning
J Miscellaneous
38 J1 Compound and Fencing
39 J2 Roads, Drains, and Pavements
40 J3 Landscaping
K Administration
41 K1 Accounts
42 K2 Stores
43 K3 Purchase

Exhibit 2.5 Integration of WBS and project organisation for hotel-cum-shopping

complex project

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Exhibit 2.6 Responsibility matrix for hotel-cum-shopping complex project

project manager, Mr. Ramanadh, realized that he had to establish the precedence
relationships amongst all the activities and work packages. This is shown in Exhibit 2.7.
Thus, for instance, the architectural design and drawings (A1) must be completed before
the structural design and drawings (A2) can be taken up; and only after A2 is completed
can the work packages of earthwork (B1), water supply/sanitary design and drawings
(D1), electrical design and drawings (E1), ventilation/air-conditioning design and
drawings (F1), and interior decoration design and drawings (G1) be undertaken; and so
on

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Exhibit 2.7 Precedence relationships amongst activities of the hotel-cum-shopping
complex project

Work package(s) Immediate predecessor(s)

A1 -------

A2 A1

B1, D1, E1, F1, G1 A2

B2 B1

B3 B2

B4 B3

B5 B4

C1, C2, D2, E2 B5

D3 D2

B6 C1, C2, D3, E2

B7, C3, F2, I1, H1 B6

B8 B7

F3 F2

E3 B8

E4 E3

E5 E4

F4 E5, F3

I2 I1, E5

H2 H1

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 H3 H2

J1 B8

C4 C3, H3, J1

D4 C4

G2 G1, H3

G3 G2

G4 G3

H4 G4

J2 J1

J3 H4

The activity-on-arc (AOA) network diagram for the hotel-cum-shopping complex,

as prepared by the project manager, is shown in Exhibit 2.8. The project has been
identified to consist of 37 events, with the following events ‘tagged’ as milestone event:

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Exhibit 2.8 AOA network diagram of the hotel-cum-shopping complex project

I. Event 3 --- completion of structural design and drawings (A2);

II. Event 11---simultaneous completion of masonry work (B5) and drawings for
water supply/sanitary (D1), electrical (E1), and ventilation/air-
conditioning (F1) work;
III. Event 16 ---simultaneous completion of door work (C1), window work (C2),
water supply/sanitary testing (D3), and electrical conduits/switch
boxes (E20;
IV. Event 30 --- simultaneous completion of painting work (H4), water

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 supply/sanitary fittings (D4), surrounding roads, drains,
pavements (J2), and electrical work testing and commissioning
(E5); and
V. Event 37 --- the project termination or the completion of all work packages in the
project.

The AOA network diagram in Exhibit 2.8 shows a total of 43 work packages or
activities, as identified by the WBS of Exhibit 2.4.

By conducting the preliminary PERT analysis, the project manager has identified
the earliest time for the completion of the project (TE) as 84 weeks; simultaneously, the
critical path has been identified as shown by the double line Exhibit 2.8.

2.6 Project Implementation

As mentioned in the preceding section, the project management team (consisting of Mr.
Ramanadh and Mr. Murthy) looked at only the schedule task formally during the project
planning process. Cost estimates and budgets were simply ignored, with the implicit
belief that necessary financial resources can always be made available’, whenever
necessary. Thus, even in the adoption of computerized project management software,
only the Time Module was installed (foregoing the Cost and Resource Modules).
Consequently, there are no budget figures to present; no Project Cost Accounting
System (PCAS) to discuss; and no formal project control techniques to assess.

The project implementation, in terms of the scheduled activities, progressed

fairly well for about a year. Event 16, a milestone event scheduled to be attained at the
end of 38 weeks, was reached at the end of 46 weeks. At this point in time, Mr.
Ramanadh (the project manager) was offered a very lucrative proposition in a Middle
East construction project. Within a week of receiving this offer, he packed his bags and
flew to take up his new assignment.

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 2.7 Case Discussion and Questions
This case study of hotel-cum-shopping complex may not be wholly ‘typical’ of such
construction projects; yet it does have the following characteristics:

 Due to non-availability and high cost of land, the site has to be leased out for a
fixed period;
 A partnership is formed between a promoter and a developer are executing the
project;
 Formal budgeting and cost estimates are conspicuous by their absence;
 The primary emphasis is on getting the project completed as quickly as possible,
so that the returns on the capital investment start accruing; and
 During periods of industry booms, the personnel attrition rate, including that of
the project manager, may be high.

The following questions are worthy of serious consideration, and should help the reader
in evaluating his understanding of the basic concept in this case:

1. How should the project management get over its reluctance to perform cost
estimated and budgets? What type of a Project Cost Accounting System (PCAS)
will you recommend to the management for consideration and implementation?
2. Is the degree of centralization of power and authority in the project manager
desirable? How will you recommend ways to delegate more responsibilities to
other project personnel?
3. What should the project management do to tide over the crisis caused by the
departure of the project manager? Should the resident engineer be co-opted as
the project manager? What say should the promoter, M/s Harihar Associates,
have in this matter?

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